Cinemark Holdings (CNK) has reported its earnings and it was a dandy of a quarter. The company’s performance trounced our expectations on the top and bottom line. In this column, we discuss the company’s performance as well as our expectations for the future.

Revenue and ticket prices

The company had a strong fourth quarter. Total revenues for the three months ended December 31, 2017 were $750.0 million compared to $700.9 million for the three months ended December 31, 2016. This beat our expectations by $20 million. For the three months ended December 31, 2017, admissions revenues increased 4.5% to $443.5 million and concession revenues increased 10.1% to $261.2 million. Average ticket price was $6.72 and concession revenues per patron was $3.96 for the three months ended December 31, 2017. These increases were impressive, especially considering the recent trends in moviegoing:

Source: The Numbers

Income metrics

Considering expenses were well managed, the increase in revenues helped drive strong earnings performance. Net income attributable to Cinemark Holdings, Inc. for the three months ended December 31, 2017 was $95.1 million compared to $77.0 million for the three months ended December 31, 2016. Net income attributable to Cinemark Holdings, Inc. for the three months ended December 31, 2017 reflects the impact of new tax reform legislation that went into effect during December 2017. Diluted earnings per share for the three months ended December 31, 2017 was $0.82 compared to $0.66 for the three months ended December 31, 2016.

Adjusted EBITDA for the three months ended December 31, 2017 increased 11.5% to $187.5 million compared to $168.2 million for the three months ended December 31, 2016.

2017 performance

Cinemark Holdings, Inc.’s total revenues for the year ended December 31, 2017 increased 2.5% to $2,991.6 million from $2,918.8 million for the year ended December 31, 2016. For the year ended December 31, 2017, admissions revenues were $1,795.0 million and concession revenues increased 4.9% to $1,038.8 million. Average ticket price was $6.48 and concession revenues per patron was $3.75 for the year ended December 31, 2017.

Net income attributable to Cinemark Holdings, Inc. for the year ended December 31, 2017, was $264.2 million compared to $255.1 million for the year ended December 31, 2016. Net income attributable to Cinemark Holdings, Inc. for the year ended December 31, 2017, reflects the impact of new tax reform legislation that went into effect during December 2017. Diluted earnings per share for the year ended December 31, 2017, was $2.26 compared to $2.19 for the year ended December 31, 2016.

Adjusted EBITDA for the year ended December 31, 2017, increased 2.5% to $723.8 million from $706.1 million for the year ended December 31, 2016.

As of December 31, 2017, the company’s aggregate screen count was 5,959 and the company had commitments to open 17 new theatres and 127 screens during 2018 and seven new theatres and 70 screens subsequent to 2018.

Forward risks to keep in mind

There are a number of risks to bear in mind, but the main concerns we see are:

• The business remains highly dependent on the production and performance of films release.
• Decrease in time between a film's theatrical release and the date available to consumers at home from six months to ninety days.
• Perceived increasing competition from digital downloads, video-on-demand, subscription video-on-demand (e.g. Netflix (NFLX), Hulu, Amazon (AMZN) Prime).
• Declines in attendance at movie theaters.

As we all know, it is often debated whether the rise of streaming services such as Netflix has been the cause of lower attendance at movie theaters. Whether this is correlation or causation, investors are concerned. For perspective, Netflix recently reported 117 million subscribers worldwide, as detailed in an article on Reuters. In addition, content providers such as Disney (DIS) are also planning to provide direct-to-consumer services as well.

We like Movie Club

Cinemark implemented some promising initiatives to drive growth. The company announced its "Movie Club" subscription as reported on CNBC, which is $8.99 monthly subscription. Members enjoy benefits such as a 20% discount on concessions, one free ticket per month, the ability to roll over unused tickets, and the ability to purchase a companion ticket for $8.99. While MoviePass remains the better option for avid moviegoers, Cinemark's "Movie Club" could appeal to a different demographic such as families. It provides an alternative subscription service, which we view as a positive move.

Outlook for 2018

This was the third consecutive year of record results in worldwide revenues, net income, Adjusted EBITDA and earnings per share. We expect 2018 numbers will continue this trend. What is impressive is that the company was able to deliver these all-time highs in a box office environment that declined slightly year-over-year. We believe 2018 will see high single-digit revenue growth, and earnings per share, including tax benefits, should increase double-digits. All things considered, we are bullish on the name.