Q2 2020 Imax Corp Earnings Call
[music].
Good day and welcome to the IMAX Corp. second quarter 2020 earnings call.
Today's conference is being recorded.
At this time I was much during the conference over to Mr. Brett Harris. Please go ahead Sir.
Thank you Casey good afternoon, everybody and thank you for joining us on today's second quarter earnings Conference call.
On the call today to review the financial results are rich Gelfond, Chief Executive Officer, and Patrick the climate Chief Financial Officer.
Second collagen president of I'm actually entertainment and Rob Lister Chief Legal officer are also joining us today.
Today's conference call is being webcast in its entirety on our website a replay of the webcast will be made available shortly after the call. In addition to full text of our second quarter earnings press release in the slide presentation had been posted on the Investor Relations section of our website.
At the conclusion of this call our historical Excel model will be posted to the website as well.
I'd like to remind you of the following information regarding forward looking statements.
Our comments and answers to your questions on this call as well as the accompanying slide deck may include statements that are forward looking in that they pertain to future results or outcomes.
Actual future results recurrences may differ materially from these forward looking statements.
Please refer to our FCC filings for more detailed discussion simba factors that could affect or future results and outcomes any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
On today's call references may be made to certain non-GAAP financial measures.
<unk> of management uses these measures in the definition of these measures as well as reconciliations to non-GAAP financial measures, including adjusted net income adjusted EPS and adjusted EBITDA as defined by your credit facility are contained in this mornings press release with that let me turn the call over to Mr. Rich Gelfond rich.
Thanks, Brad and good afternoon, everyone.
You can hear I have a little laryngitis, so I apologize.
It's worth saying it is so bear with me I hope all the joining today are staying healthy insane.
Since the outside of the pandemic.
Hi, Matt has been to take the long view as we manage through this unprecedented event.
We maintain our strong financial position, we've been on wavering in our stance that their health and safety of audiences must be the priority and the theater should only be open when ready.
As a result, we're pleased to see that theaters in markets, where the virus has come under control, including China.
Asia markets across Europe, and beyond are starting to open.
Global network, and our relationships with studios exhibitors and filmmakers around the world.
It's in a position the benefit from rolling theater openings as lower risk markets presume operations.
We are the only geographically diversified global platform, but to the optical blockbuster entertainment.
The older privileged position at the center.
Journeymen ecosystem.
That's theaters with IMAX systems reopened our network will begin to generate incremental free cash flow was limited startup cost segues to our flexible asset light business model.
We are already benefiting.
Local programming classic titles being shown in international markets. As a reminder, typically two thirds of our box office dessert outside North America.
Well, we can take a leadership role in helping to bring worldwide theatrical industry back online.
Listing studios crafting their film slate and sharing operating best practices among international exhibitors.
Today I'd like to discuss an update on the opening of our global Theatre network.
Update on our financial position, our latest view on the global films slate.
Strong signs of demand.
I'm acts experience, including continued growth in a theatre network and vitally why we believe IMAX is well positioned.
Post covert 19 world.
First let's discuss reopening.
As of this weekend 624, IMAX screens have contributed box office during the month of July were 40% of our global Theatre network.
Where do you have the 81 countries and territories in which we operate that includes 409 screens in China 172, and the rest of the World and 43 in North America.
By the end of August our current expectation is that or possibly where do you know just screens and 70 markets, where 90% of our global network will open in anticipation of tenants recently announced leasing.
Last weekend, we participated in the releases bloodshot and do little in China to new titles that have yet to open in the market close to the pandemic.
We are pleased to report that we generated approximately $750000 over the weekend with IMAX is indeed indexing, 11% of the box office for do it all and 6.5% or the box office for Bloodshot in China.
She's these results despite 30% capacity restriction discounted ticket prices and only 60% of our China network reopening.
More broadly we're excited to see over 3.2 billion people return to the theaters in China with her show attendance approximating 80%.
Oh good level.
Our North American network, which accounts for approximately 400 over 15 onto your commercial theaters worldwide is 10% open with approximately 43 screens operating primarily in Canada.
Opening over now work is of course positive incremental step forward for IMAX, but we still have a long way to go.
Early releases wont be about huge opening weekends.
These markets, we'll have some capacity constraints show times and attendance will be space across the wheat and in some cases.
Always says well enjoy long arrives.
There's not all consumers are ready to come back to theaters. However, there are reasons to believe consumers will calm the view movie going has favorably compared to other forms of out of home activities.
First mass are absolutely crucial we strongly at advocated for our exhibition partners or acquire mass and of grateful to those that have done so including or three biggest partners in North America.
Additionally, large auditoriums with high ceilings like you see an IMAX theaters compare favorably to smaller indoors spaces, such as bars and restaurants.
In theaters, social distancing capacity constraints and traffic flow.
He managed effectively it just personal contact that'd be limited showtime's can be staggered and food preparation, if any can be visible or pre packaged.
Consumers can also choose what 10 films during off peak periods.
Importantly, sitting in a theater is relatively static passive respiratory experience you sit quietly socially distance as per protocol with people facing the back of each other's has not like a sporting event, where people are screaming and drink.
King and standing up and it's not like lives theater.
Hi, This is in contrast bars restaurants.
Music and all kinds of things, which feature large groups of people talking eating and drinking in close proximity based on our reopening experienced a day consumer polling and the activity of our partners. We are confident that demand out of home movie going in general.
And the IMAX experience in particular.
For instance, IMAX participated in the first local major language will lead to the or peninsula. The sequel to the South Korean blockbuster train two besides across markets in Asia, and Europe, a few weeks ago.
IMAX it was the widest premier of a south Korean film ever and lifted as to our first billion dollar weekend, that's a global box office since before the global pad Dan I began in March overall, the film as or 26.5 million at the global box office.
Earlier this summer in South Korea, IMAX delivered upwards of 50% nationwide box office on special rugs of the ventures film and the Dark Knight trilogy, Despite accounting for only 5% of the screens in the Netherlands, we sold out 30 consecutive.
It is special limited rod of Crystal and interstellar.
Just crossed the 1 billion dollar threshold.
I'm acts exclusive we release in Japan.
Cult classic Akira.
In France exhibitors saw nearly 3 million admissions nationwide in the first week of tea in the first three weeks of theater Reopenings around the world. We're seeing solid early evidence that audiences will return.
Here's where and when it's safe to do so.
Turning to our financial position our results in the second quarter.
Clearly impacted by covert 19.
As I said, we continue to believe that our strong financial position.
So as to whether this crisis.
At the answer the second quarter.
We had $319 million in consolidated cash we amended our credit agreement, which will provide an increased financial flexibility through 2021.
Given continued efforts to cut costs. We currently expect our cash burn going forward the under $10 million per month on an average basis.
Zero revenue environment.
Eric will provide additional details on our balance sheet credit agreement Amendment.
Cash burn a few moments.
In summary, we believe that IMAX is solid balance sheet puts us in a strong position reopened quickly and efficiently.
Moving to the film slate release schedule continues to evolve.
Recent decisions to delight.
Lisa Tenet.
On top gun Maverick and acquired play so not surprising rising infection rate in the U.S. and other markets stands in Stark contrast to the opening of large international markets, where we derived over 70% of our revenue and presents a unique.
The challenge for industry and as a custom global releases.
First we like to reiterate that studios or rescheduling not eliminating the actual releases for their major titles.
Second as we saw with tenants police strategy announced yesterday, we expect studios.
At least films regionally as markets reopened.
Given our globally diverse footprint IMAX is uniquely position.
You don't lead benefit, but this type of rolling regional fully strategy.
Despite recent studio moves we still have an IMAX friendly 2020 film slate schedules for the remainder of the year without lease for films with IMAX DNA.
Films with IMAX DNA generate a higher share a box office showcase the IMAX experience SARC engaged and passionate fan base and serve as a key differentiator for our brand.
First and foremost after delaying its release last week Warner Brothers announced its global really strategy for 10 yesterday.
Currently and is scheduled to open in Canada, Europe and Asia.
It is 26 and its select U.S. markets.
In September Threerd and in Latin America on September 10.
We're excited that tend to be the first major blockbuster to be released in this role out fashion following the global locked down.
More than any other filmmaker Christopher Nolan makes films best seen any IMAX experience.
This is a fair that's reflected in performance it's films over index on our global network. Its most recent film Suncors represented 22% of its domestic and 17% of its global box office, an IMAX screens and unlike sun.
Correct, which is a European centric movie Ted It is a more traditional action thriller.
Blockbuster with the potential for wider global appeal.
Interstellar the index, 32% domestically and for the Dark Knight be index, 15% domestically.
I Wonder woman, which is still currently scheduled for October features scenes shot with IMAX film cameras, Marvel's widow scheduled for November it changed 30 minutes of content with expanded IMAX aspect ratio.
Thanksgiving schedule release of the latest James Bond installment no time to die has significant amount shocked with IMAX film cameras and finally, Walt Disney has not provided an update basis, we were hopeful that Mel watt will be released sometime this year.
But films moving at a 2020 2021 now features an exceptionally strong slate, which includes up to five Marvel titles.
Got it acquired place, which were recently reschedule the highly anticipated due D.C. films, Batman and suicide squad, new entries from global blockbuster franchises, including fast and furious mission impossible and Jurassic World.
In terms of production he franchise titles, including the Batman Jurassic World mission impossible and Marvel Shang She have already.
Or will resume production this summer and many key 2021 titles, including fast and furious sign that and Marvel's terminals have already completed filming.
As our network does come back online, we continue to move out business forward create new opportunities and capitalize on the enduring strength strong demand for the IMAX brands and experience.
During the second quarter, Besides important new deals with key international partners in some of our most strategic markets. We sold them signed a multi national deal without partners at CGD for 17 do theaters globally.
This includes nine new theaters in South Korea, whenever our highest P.S.A.
Markets at one of our fastest growing markets, where it will be seen considerable strength at the box office recently as I, just mentioned with peninsula and library titles.
It also includes systems in high growth markets, including Indonesia, Vietnam, and Turkey in July we announced a 20 system deal in China with Wanda film, China's largest exhibitor and a longstanding partner of IMAX.
This deal includes IMAX with place or upgrades for 10 of its top grossing locations as well as Ted.
New IMAX theaters to be installed throughout the country.
Signing these agreements in this environment is not only a testament, whereas sales team, it's an affirmation of the value.
I'm acts experience.
Actions speak louder than words or cards at two of our largest partners chose to expand their IMAX relationships, even as there's theatres were shut down.
As major distributors around the world look past the 10 damage.
Toward the future of the theatrical business. We believe they see Himax is a must have premium offerings with which to welcome audience is back to Multiplexes. Additionally, we continue to create do value from our global brands in June we announced.
The deal to bring a catalog so 16 of our most successful IMAX documentaries.
Uhhuh, including a beautiful planet last year superpower dogs, and the Academy award winning buyers of Kuwait and those are available on.
Right now.
As we've said, we anticipate that in opposed covert world consumers will turn the brands and experiences They trust and we believe that IMAX remains very well position, but when we emerged from the pandemic given the strength of our brands and they you know.
Take advantages over a model.
As much talk of how the pandemic books salary secular trends and the theatrical industry.
We believe IMAX is generally insulated or even potentially advantage by some of those trends, we expect that the theatrical market well move toward premium experiences and blas blockbuster films, both key elements around model, we believe that we're jet.
Really insulated from lower mid tier movies that we'll move to streaming instead of theatrical releases.
He potential change the theatrical windows little I will have little bearing an IMAX as most of our films slate for only one week or two weeks generally at the most.
Any potential contraction in key markets like North American China is unlikely impact IMAX given that we generally outbreak almost exclusively among the top performing theaters in North America for instance, IMAX accounts for approximately 400.
Right out of a total 42000 screens and 80% to 90% of our box office is generated and the top 20% over North American theaters.
In China were present in 17 of the top 25 highest grossing complexes within the top 500 complexes with an IMAX screen, we contributed 22% of their box office in 2019 with a single screen.
In each we anticipate that our model as a global distribution platform for blockbuster entertainment and experiences will continue to reap benefits well into the future.
Conclude covisint 19 continues to pose extraordinary challenge to the global entertainment industry for the future is yet on certain we believe IMAX remains well positioned to manage through the crisis and continue to thrive when it is behind US we're the only.
Global distribution platform for theatrical blockbuster Entertainment, we believe we have the financial strength wouldn't do or support our partners in these times and be ready for our audiences when they're ready to return to theaters you have an extremely strong pipeline a blockbuster content.
The next year and beyond our brands and the IMAX experience I've been in strong growing demand around the world.
He privileged position, we built in the ecosystem to sign ups a firm footing in difficult times, and we look forward to continuing success driving new opportunities for growth and creating value for our shareholders in a post covert 19 world. Thanks again for joining us today.
Hey, I'm pleased to everything you can sustain itself and healthy with that I'll turn it over to Patrick.
Thanks, Rich and good afternoon, everyone.
First we want to thing our colleagues here at IMAX further exemplary performance during this challenging period.
Your organization, we see countless examples of thoughtfulness creativity and flexibility as Archie in response to the challenges the cobot 19.
Thanks to all of you for stepping up.
During our last last earnings call, we highlighted that I'm Accenture. This crisis with a strong balance sheet, an asset like business model and the market positioning to thrive post kogut. None of this has changed.
The trajectory of theater reopening a slower than any of US would have hoped for we continue to say you unprecedent challenges of the Corona virus pandemic.
Position of financial strength.
We ended the quarter were 319 million of cash on our balance sheet, including 245 million of cash IMAX corp. and the balance at IMAX China.
Our consolidated cash balance declined by 33 million in the second quarter validating the cash burn guidance of approximately 10 million per month, we gave on the previous call.
Remember our cash burn will fluctuate on a monthly basis due the timing of specific receipts and disbursements.
Going forward. We currently expect we could keep our average cash burn under 10 million per month in a zero revenue environment.
Now that our network has commenced reopening are actually monthly cash flow going forward will depend on box office results and will reflect some increases in marketing expenditures to support titles as they are released.
Importantly, we do not plan on meaningfully ramping back up our costs until the business performance warrants that [laughter].
Yes.
During the second quarter, we amended our existing credit agreement with our bank group in response to the current environment.
To provide a number of temporary changes first our senior secured net leverage ratio covenant is suspended for four quarters through the first quarter of 2021.
Next the second and third quarters 2021.
While we will be subject to our 3.75 times senior secured net leverage ratio covenant.
We can substitute quarterly EBITDA from Q3, and Q4 of 2019 in lieu of EBITDA after the corresponding quarters of 2020.
Combined these steps provides flexibility and clarity through Q3 or 2021.
As part of the amendment, we are subject to a 75 million monthly liquidity covenant, which is well below our current liquidity and IMAX corp. two.
258 million tons.
Additionally, we're restricted our ability to make certain payments such a share repurchases.
Any points uranium ended period at our sole discretion, we could choose to calculate our compliance with the original senior secured leverage ratio covenant pursuant to the credit agreement definition, and thereby revert back to the original terms to the credit agreement.
We anticipate that this amendment will allow the company to manage through the current period of uncertainty, while giving us the operating flexibility to strengthen our business and support the ongoing reopening of our network.
We believe that the combination of 319 million in cash modest monthly cash burn and our credit agreement amendment contribute to a strong liquidity position and runway that will support the company well into 2021.
Before I discuss the details of this quarter's earnings I'd like to state the obvious.
The closure of the majority of our screens in the second quarter to find our results and make Q2 financial results essentially useless and thinking about the normalized long term earnings power of the business.
Total revenue second quarter was 8.9 billion down 92% versus last year.
<unk> Technology network reported a 6.5 million dollar margin loss on essentially no revenue.
The IMAX technology sales in maintenance segment reported revenue of 4.6 million and a gross margin of 200000.
15.4 million of gross margin previous year.
The declining revenue gross margin was primarily driven by two factors first we installed to sales and sales type leases in the second quarter 2020.
Seven fears of a nine we installed in Q2 2019.
Second maintenance revenue of $0 decline from 13 million in the previous quarter as theaters closed we suspended regular maintenance services did not recognize the associated revenue.
As to unite excluding stock based comp at 23.3 million.
Fine sequentially from the 24.9 billion expense recorded in the first quarter of 2020, which was also down 1.1 billion year over year.
Going back to increase the number unusual items that impacted SGN a in the quarter first SGN expense declined due to cost actions taken by the company in response to the pandemic.
As we mentioned on the last call in response to the late January closure first theaters in China, and then again in response to closure of the balance of our network March we made substantial cost cuts.
Second the company became entitled to receive 3.2 million and benefits as part of the Canadian U.S. government Cobot, 19 wage subsidies and payroll tax credits.
Trucks me 2.9 million of this benefit was recorded as an offset to SGN a expense with the remainder recorded as a reduction to cost of sales.
Finally F G and H increased due to a lower allocation of labor and other costs from SGN a cost of sales.
Centuri film assets and P. acne.
Normally staff costs related to post production maintenance in theater construction are allocated to cost of sales in certain assets.
Given theater closures prevented the company from generating revenue and creating assets. These cost remains in SGN.
Ultimately decide them is just P.L. geography.
Adjusted EBITDA for the quarter was a loss of 18.5 million down from a profit was 41.4 million in the previous year period.
Net loss for the quarter was 26 million or a loss of 44 cents per share.
Adjusted net loss was also 26 million or 44 cents per share.
Versus 32 cents positive last year.
The second quarter, we spent 2.7 million on capital expenditures as a reminder, most of our Capex is driven by the installation of theater systems under our joint revenue sharing model.
Given the lower level installation activity, we continue to expect modest capital requirements until more theaters reopen.
Excluding joint revenue sharing investments, we continue to anticipate spending less than 10 million maintenance capex in 2020.
In the second quarter, we suspended IMAX share repurchase due to the uncertainty associated with theater closures IMAX, China repurchased 426000 shares for a total amounts of $640000 in the first half.
In conclusion, we remain confident in our strong balance sheet.
Not a cash burn and absent like business model.
We believe that we're well prepared as we now resume operations and get back to the movies in many markets around the world.
With that I'll turn the call over to the operator for today.
Operator.
Thank you Sir.
If he would like to ask a question you May press star one on your telephone keypad, if you're using speakerphone. Please ensure your mute function is turned off to allow your second two liter equipment.
Limit your questions Tim one if you have any follow up questions. You May press star one can leaky if at any point like turning for yourself I'm questioning Keith you May Press Star team again, Please press star one now to ask a question.
We will take our first question from capping young of Mic wire.
For taking my question.
Wanted to start with.
How we should think about installs a you know going forward.
Very understanding that it was a low number this quarter, but now that you have some some theaters that have opened and a lot of those zones are in a much different place now how should we think about the.
I guess, the the pattern or the the timing of installs given the size your backlog and now that things are opening up thanks.
Patrick why don't you take that one.
Sure happy too.
Throughout this whole period, we've maintained a very active dialogue with our partners you've seen that the fact that we actually signed up some new transactions that rich mentioned during his comments.
We do expect there will be the typical seasonality to activity. So we do expect to see more installs in the third and into the fourth period of the year, having said that there's still a lot of uncertainty our partners are opening back up again around the world, they're very focused on making sure that they execute real things have been theaters appropriately there.
Got a lot of protocols to put in place and so there are perfectly focused on those issues. So we don't yet have off a lot of clarity on how they're thinking about installations, but we do expect it will ramp up through the end of this year and into next year. So.
Right now, we just can't say with clarity what that looks like but we do think run a better Pat.
Okay, Great and then my unrelated follow up just with respect to the Wanda and and so.
Could you be contracts can you just talked about the average length of the contracts of your current installed base and if there's any major contracts that are due to be renewed in the next six to 12 months. Thank you.
The answer is I don't know the average life, but most contracts or 10 to 12 years and they're a very few that are coming up in the next couple of years.
No not a big number.
Okay. Thank you very much guys.
Thank you Sir.
We'll take our next question, Eric Wold B. Riley.
Thank you good afternoon, well actually sorry, my follow up question since he can follow through on the prior questions I guess I'm, assuming that you get a economy major push of delayed installs from this year into next year can you remind us at your capacity for installed on it.
Hey basis.
Yeah, there's pretty much no limit.
Our capacity I mean, we've installed close to 100 systems in a quarter as long as we know that their schedules in advance we.
We can just skier up because a lot of the labor as local labor it territories. So no.
I don't want to use the on the word on limited, but you know we could do real much bigger numbers, we've ever installed previously if we have some notice.
Perfect and then and then my my primary question.
Maybe given that we've had a number of months since the original shutdowns you can see what's happening other regions. It gets recently any any discussions are going to bounce around just got you got to the exhibitor partners in terms of.
You know accommodating capacity restrictions on IMAX screen, I mean are we going to thinking about.
Yes, you did she knows midnight and a lot more show times on major blockbuster weekend that you should think about during the week you just need to keep films on on screens longer than typical week given.
Keeping you need more time to getting a few years at their capacity limited any any sense on.
What you may do to accommodate that.
That's a really good question I'm glad you raise it because we didn't talk about it in our prepared comments so the movie industry. It's interesting.
Cause in a restaurant, let's say the capacities, 50% you lose money in a in the movie industry in a regular multi platts 20 to 25.
Capacity is her role as a last year, which was our highest box office ever.
Our global capacity was about 10%.
So the network is really built for a big blockbusters on big weekends. So.
With capacity constraints. This certainly the potential on to do good business. The question really becomes two people move away.
Slide in Saturday night.
And to weekdays and we're trying to make that happen through marketing and discounting.
And programs like that.
And at the same time, we think some of it may not actually happened because you know as you saw I'm sure yesterday, Google and out people could work from home until next July and in New York City, only 10% of the office workers are back so we're thinking that a lot.
People well just naturally you know go at different times, whether its during the day a week days. So the diminished capacity probably won't have an impact but not as big an impact as you would think just by looking at the raw numbers.
That's helpful. Thanks much.
Thank you.
Well take our next question from Eric Handler of MKM partners.
Thank you very much for the question.
Patrick wondered if you could sort of talk about you know since so many your your expenses are variable now is there are certain.
Oh revenue level that you need to reach in order to become.
Profitable on an adjusted EBITDA basis.
Depends obviously, where that revenues coming from because the different margin structure on the two sides of the business.
Some of the modeling that we did yeah, we actually think that.
In 2019, we did just sort of 400 million revenue.
And obviously produced 150 million EBITDA based on that you know in terms of cash flow. We know that if we want to get back that half of that run rate revenue, we can get back to to cash flow breakeven relatively quickly.
I don't have a EBITDA number in front of me in terms of what the breakeven would be Eric but that's what gives you a sense that.
It's it's a pretty quick for modeling when the revenues come back we're going to swing back pretty quickly.
Okay and.
How do you think.
How you know in terms of ramping up your expenses again and bringing back.
Employees and.
Making investments in some of the projects even working on what is it that needs to be seen a you know before you start adding back costs.
I think we're going to you know learn.
With you over the next couple of months, So we'll see.
The patterns of movies opening on a rolling global basis, I'm, we'll see how audiences come back I mean, we don't really think we need to add costs and then that's in the short on.
As you may recall.
We really didnt play any went off at IMAX or for all people, we cut back their hours. So we're in pretty good shape.
To reopen without incurring significant additional expense and I think we'll just timing to how quickly we see revenues come back and how quickly we see films opening territories opening and things like that it's not going to be formulaic.
Okay, and then lastly wasn't one last question I.
I don't if you saw that AMC in Universal just signed a deal with each other that essentially gives universal the right to launch a p. Vod on on films that a chooses after a three week exclusive fraud in the theaters now.
You generate moshi revenue from films in the first and second weeks, but do you worry at all about cannibalization with a shortened p. Vod window.
You know we've been asked this question many times over the years in advance and we had always says that we were very flexible I'm windows can we really didn't think.
Windowing would have them. It is shorter windows would have a material effect on himax because.
For a cultural experience, where a fan boy experience help people, we show blockbusters people want to go to IMAX to be with their friends on the opening weekend. The opening few weekend. So I don't really think it'll have material impact, where we were more cautious I've windows.
We said, we want to support our exhibition partners and don't clearly under lease you referred to in the last hour indicates AMC is taking a different approach and you know from what I read in the papers in the recently online you know they'll.
Share in some of those revenue streams I think we have to wait to hear.
The other exhibitors say you know what that means I think you also have to remember that universal doesn't really have.
Big movie in North America coming out until 2021, So I think we all have to take a breath, how we have tenant coming up now see how that opened I'll get to get get the theaters open and see how it all shakes out but you know from my point of view.
This isn't a shocking development and I don't think it means a negative things for IMAX.
Thank you very much.
Thank you we'll be taking our next question from Michael in of Goldman Sachs.
Hi, Thank you very much for the question I just had two quick ones. The first is on the pre covenant level attendance that you saw in China and you said it was about.
Eight percents for.
One of the films that came out.
Is that your expectation of what the attendance could be in the United States.
When.
You know theatrical movies come back and enforce and then the second question is really just about how IMAX changes, it's a film selection strategy.
Against the backdrop of these staggered releases does that create additional challenges at all thank you.
Thanks, Michael first of all.
You know I do think.
It's hot you know that the industry will return to pre covenant levels, but the question is how long it takes.
I can't happen and you know we've looked at other places where there have been you know either I'm, sorry, sorry, no other kinds of force shutdowns and you know they don't snap back overnight, but over a period of time no two three months it seems.
Like you know they they come back to levels, they've seen before and again in North America, It's particularly hard because we don't know what cities are going to open up when but I do think you know people are tired of having sat on their tout for four months.
And watch you know what I said that a lot of my favorite streams shows, but I think people are itching to come out I think for the right kind of content.
Where they feel safe they will come out and actually we did a little study that sounds intuitive, but places came back faster where the covert rates were lower so it gets hard to generalize and that might look like if we just have to see how it.
Rolls through but as I said during my prepared remarks, we were quite pleasantly encouraged by what happened in Korea, and Taiwan, and China, but you know I just don't think people should get ahead of themselves in predicting what the box office might be in terms of films a lot.
And it's you know your question has an ironic aspect to it because what Ted it's the always film coming out. So it's not really more complicated right now it's easier you know what to play in IMAX, It's pretty fortunate that Chris Nolan an IMAX have such a.
Brand affinity and Chris film this movie with IMAX cameras, and you know he urgent people see it an IMAX, but I think.
As we we see what comes out and what moves I take it will require sort of the same skills required before I think we're gonna have to just figure out what plays best to are largely millennial audience, what has visual of splendor how does it fit.
It into the calendar and as I said, you know so far the rest of the year looks pretty promising Ross with films like Wonder woman and bonds and.
No other real on black widow coming out. So we're quite you know, we think providing things don't move around this is a pretty IMAX friendly here.
Great. Thank you rich.
Thank you.
And we'll take our next question.
And Jim Goss of Barrington Research.
Okay. Thank you a couple of them.
One other capacity.
Question, given the IMAX geometry tends to push the seats or towards the size of the screen and space Im a little more closely you say, 50% is the Mac smoker pestana typical see it or saving a non recliner one what do you think your realizable capacity the tend to be.
Okay.
No Michael I I'm, sorry, Jim that's a really good question and one which we haven't.
Sat down so fully think through I mean, I think nine maximum capacity is 50% if that's what.
The regulation said sort of there if that's what it says you're quite right there'll be some practical issues.
I think you know I really don't know the answer.
Okay.
Because you would tend to be closer to capacity than others, given your black plus your focus and.
So then it gets the ability to push things out as air cooled, which talks about later.
For earlier.
One other thing the Kulu deal is that an exclusive or are you going to make that content available and other potentially bigger platforms.
Its exclusive in North America, but globally, we can.
Sell it to other people Jim.
Okay, and maybe one last one impact of a political changes in Hong Kong and your China investment.
Anything we should be thinking about are concerned about.
Yes in the short Rod there's been you don't really nothing noticeable underground and as you know because you've covered us a while.
China, it's been a very open place to Hollywood films, because it gets people that theaters into malls and you know.
So you know at the current environment I don't really see.
Any impact, but you know who knows how it out of control. This all gets especially during election season, but I wouldn't predict that Jim.
Is there any difference and mainland persist with them Hong Kong in terms of how the deals restructure.
Yes in Hong Kong, there's no quota.
So in China, Oh wait 35 foreign films are allowed in in China, there's not that limitation and that hasn't changed.
Alright, Thanks, let rich take carrier force. Thank you Jim.
Thank you.
And we'll take our next question from Steven Frankel of called matters.
Good afternoon, now rich, let me stress your voice with one more just along similar lines that we've been talking [laughter] you were really successful in China over the last couple of years by juggling the film slate being very nimble playing multiple films in the big.
Release a weekends.
How much if any to in fact, yet.
Negatively impacted by these changes in release schedules and delays or do you still anticipate when we get to the big festivals in China, you will have multiple films to choose from.
I mean, I do anticipate that and in fact, we Didnt mentioned in his script, but there were four major films in China that was supposed to play over Chinese new year and there are rumors that several events out we were going to be moved to the October call.
Good day period in China, and I think if they're moved to that period.
It's still expect to have multiple films, that's a program them the same way.
Okay, great. Thank you.
Thank you.
Well take our next question from Alexia Quadrani JP Morgan.
Hi, This is David Karnovsky on for like a rich in your opening remarks and laid out for reasons, why maybe going to be lets say its activity given lower capacity assigned seating.
Sitting forward not seeking and alike.
You sensed that theaters are gaining traction in making this argument the politicians and health regulators works there there's still some resistance and that's good movies or an indoor activity.
Okay very good question, I think they're gaining traction, but I think that.
We as an industry.
Both studios and exhibitors probably could have done.
On some of that sooner and made that case sooner and you know talked about jobs or close to 200000 jobs in North America associated with the industry side. The other industries did a better job.
Advocating that sooner and I think that the movie industry has been up playing a little bit a catch up but I think they've been doing a decent job recently, playing catch up and it's been more media it seems to me more.
<unk> municipal governments Morris sapped up so I think you know there make getting some traction on it.
Okay, and then maybe just for Patrick is there any update to the 10 billion dollar cash burn figure that out.
It's a good portion or the footprint is up and running at some capacity.
Well as I mentioned in the called <unk>.
It continue under zero revenue than we've communicated that it would be under 10 million and that's a reasonable number for right now because it is the network is just ramping up.
As it continues to ramp up then you'll see positives in the form of revenue and therefore, you would expect to start to see some receivables.
On the other side, we will spend to support the titles and so it'll be more of it.
To be pluses and minuses on a go forward basis, our expectation is that the as the network ramps up relatively quickly futile headed in a positive direction, we'll get back towards breakeven.
Hopefully that helps where we're in a good spot now and we think rather than a better direction.
Right I guess.
Thank you.
We'll be taking your next question, Mike Hickey the benchmark company.
Hey, Rich Patrick Brad Thanks for.
Taking my questions guys.
And got way to execute obviously a difficult.
Firemen can you guys have had a chance to go back.
The theater.
See a movie on one year screens and it's not as you've been.
Been able to sort of.
You your paycheck.
After seeing a movie could get a sense of how strong the movie going magazines.
12, additional safety measures that are in place now and.
Of course than rest block on spreads.
So I haven't and Patrick hasn't partly because of where well located but several people at IMAX.
We're involved in tenants and the post production phase and.
Every action was Oh, my God I forgot how great it was to being a movie and.
Tenant is just a very beautifully film beautifully nay wonderful movie and they said when they came back Oh, My God I forgot how great. It was and it wasn't just one person and not have one age, but a number of IMAX employees no kinda spontaneously.
He said that to me.
Yes, thanks, guys.
Yeah, I, just can add a little bit Mike, which is the network did open up in China.
And our colleagues number my colleagues.
Did try it out over this past weekend and they commented that there's increased safety protocols that you certainly noticed the thing.
And once you sit down and the movie begins it feels like.
Hi, good always huh.
It was a fun immersive experience. So they said it was really a.
Prior to getting into the seat there were differences, but once you're there they sort of talked quite normal.
Yes, and is there HM two out of women.
Its own play in China, they choose satellite how's that going to impact and that was never forms.
So that was a guideline.
In the theaters first open up but China has already approved a number of films for the next couple of weeks from now, including Harry Potter and the source tourism Prentice interstellar had a number of other things that are like two and a half hours long. So we think.
It was just an opening we guideline, but not a rule that they intend to enforce.
Good.
Last one from me.
Seems like when you have all instances.
Violinists, Cisco SAP digested the perception of <unk>.
Hey, Steven seem to have a reemergence cluster.
It seems like.
There is.
Shutdown.
Pretty quick and then maybe board he answered this niche.
Just curious.
For a particular Cheyenne, we've seen pretty deep bounce back the sustainability I guess I didn't Nielsen.
Process.
Back to sort of see it's pretty close.
Hi, guys. Thank you.
No I don't know a you know understanding.
Chinese government policies.
Full time job and I'm not one that I haven't not one that many people in the world are really good at so I would guess that if there are a high levels of affects infection rates and some cities that there could be shutdowns in those areas.
With lower infection rates I think it depends on.
Whether they're contained and how the government thinks about it but again this just plays and to what I hope. It's the takeaway from this call, which is everybody realizes that it was never going to be perfect that not every place what's going to be able to be open at the same time. So this is the next batch.
Thing and Oh, it gets the movies out there. It gets people back you used to going to it and I think we should expect you know some temporary setbacks in some markets, but it's a better results and waiting for everything to be perfect.
Thanks, guys.
Thank you Stan.
Well take our last question faced Snake care, South it's Ken Cannonball research.
Thank you good afternoon, rich you laid out very nicely your confidence in the slate I'm in the remainder of the yet and I'm looking into the first part of 21.
But I was wondering if you could talk about this so a lot of IMAX level more because our coal financed by third parties right not Disney but a lot of them are so in last economic crisis with sort break it down and so on financing and that resulted in some difficult as a sort of important so I was wondering looking.
That those that in the phase of being financed being in pre production or something like that in the United States and in China do you see any.
Warning signs that you should be awarded though we should be awarded the but some disruption and in the output bad because of their financial crisis, and bad debt markets and so on.
I don't view.
You films I'm aware of in the U.S., which have been on coal finance like mission impossible in top gun.
Those are in good shape and they're going ahead.
You know I, just we don't have that much visibility into the financial structure of fell because we deal with our studio partners.
No.
You know Megan do you have out a perspective on that.
[noise] no I think you're right I mean, I think every structure is that.
Say again.
At this.
Hi knows.
You know those conversations are best left to them.
But do you haven't seen at this point something that would have an impact across the board like when the Chinese financing went away in color. What do you know that's sort of impacted people you haven't seen anything like that sell when it comes up the crime.
Okay, No I take the opposite actually I mean, you know just to speak to what Richard saying earlier the production piece of things has actually.
Gone, rather well and production since then mounted and Hollywood productions in Europe are back.
Fine and people are planning and there's some big movies going back into production in September said that the pipeline is actually rather healthy and there was a lot of the air gene were put into that I think now a lot of energy markets going in to make sure that we see preopening movie theaters.
All right won't cover Goodnites and given that much.
Thank you.
Thank you.
Good morning traveling questions in the Keaveny.
Operator, there's no further questions yeah no further questions. This concludes this kinda.
You may now disconnect.
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