Q3 2020 Imax Corp Earnings Call
Good day and welcome to the IMAX Corp. third quarter 2020, <unk> earnings Conference call. Today's conference is being recorded at this time I would now like to turn the conference over to Mr. Brett Harris. Please go ahead Sir.
Thank you good morning, everyone. Thank you for joining us on todays third quarter earnings conference call on the call today to review the financial results Rich Gelfond Chief Executive Officer.
That's a unique window on the world and these unprecedented times.
Despite the continued challenges the pandemic.
For a Hollywood in the movie industry, we're seeing a strong rebound in many markets around the globe with Asia in particular exceeding our best expectations.
Thanks to the resurgent Asian box office, particularly in China, and Japan, as well as continued growth and our theater network and strong cost management IMAX continues to make significant cash flow improvement and stabilize it's strong financial position.
We believe we remain among the best position companies in the industry to manage through this situation with the only geographically diversified global platform for theatrical blockbuster Entertainment are financial physician gives us years of runway to manage through the current downturn.
And are flexible premium model makes IMAX uniquely suited to thrive as the pandemic accelerates the evolution of the theatrical business and.
In the U S may industry observers continue to ask will audiences returned to theaters after the pandemic bye.
By virtue of our global network Weird IMAX already know the answer is a resounding yes.
We are seeing fans eagerly returning to the movies. We have theaters are open the virus is under control and they and audiences still say.
Today, I would like to discuss our success in Asia since it's theatres have reopened and the positive signs was seeing in the market an update on our strong financial position and finally, the long term impact of Covid on the exhibition industry, particularly in North America and why we believe.
I am axes.
Largely insulated and Burnett, perhaps even likely to benefit from many of the disruptive trends.
First let's take a look at China.
Since reopening in late July China has generated more than $1.7 billion.
Total box office.
Average weekly grosses at the overall Chinese box office art, approximately 70% of second half 2019 levels. Despite continued capacity limitations that are only recently right to 75% and a lack of Hollywood film releases, which typically occur.
Counts for more than a third of the overall Chinese box office.
More importantly, imax's average weekly box office since reopening has rebounded to approximately 95% of our average weekly box office and the second half of 2019.
Ims's recovered more quickly than the industry not a surprise given we cater to the most passionate and engage moviegoers.
In the context of challenging global environment, the strong reopening highlights China's thriving film industry, China 70000 theater as many a new impressive complexes have open with big budget local language productions that increasingly rival Hollywood's I'm.
That says leaned into these long term trends in both a strong brand in China.
And by the numbers will leading the box office recovery in China.
Overall, imax's delivered $66 million at the Chinese box office since reopening.
Representing in approximately 4% market share up from 2.8% in the second half of 2019 and in line with full year 2019 market share levels.
Right the delay of multiple Hollywood, Tentpoles, which typically account for 70% of IMAX China's box office.
Our fans have been among the first back to the multiplex with gain market share and continued to expand our brand into local language releases.
We had a huge success with the 800 the first local language title shot entirely with IMAX cameras, which are approximately $18 million, an IMAX and became a top 10 Chinese.
Chinese film of all time at the General box office, the 800 miles.
Now.
Was was in that record territory, despite being released to theaters constrained at the time by 50% capacity limitations.
Earlier this month IMAX also delivered a record breaking box office performance for the October National holiday in China.
Overall IMAX box office for the holiday week was $18 million of 23% over last year.
The holiday was headlined by an animated feature which are imax's best opening weekend for an animated film in China and second best opening we can pro local language. So while China is far and away the leading market has theatres have reopened imax's seeing encouraging signs and other places in the world.
Japan, South Korea, and Taiwan have all open strongly with IMAX gaining market share. Despite the lack of major Hollywood release.
Since the July 15th premiere of the South Korean Peninsula, imax's earn more than $55 million and local language box office and fast and just the past three and a half months imax's delivered almost half the local language grosses. It did in the entire year and two.
19, which at the time was a record breaking year for us.
We achieve this despite significant capacity limitation across all the key local language Martins recent highlights include Japan Demon Slayer, which in its first two weekends set record new record. So the top two highest grossing we can ever Brian neck and jaw.
Pan, earning more than $6 million and box office to date.
Outgrows movies.
Such as Star Wars movies frozen not just local language titles any titles were released in Japan. The film was the first released in our new five picture slate agreement with Japan, Touhou Pictures, along standing extra exhibition and distribution partner Prime axe that has seen significant success.
At the box office, including last year's breakout hit weathering with you.
I met filled with touhou debuts in November overall, IMAX love no fewer than 10 local language releases in the current quarter across China, Japan and rush, how we have been promised we have promising releases lined up in Japan and China early next year include.
Putting the lucrative Chinese new year holiday.
Again, we continue to diversify or a global network geographically and in terms of content, we are leading into the diversity as we anticipate the North American box office and Hollywood releases will take awhile to come back on line.
Where where we are fully open for business around the world. We're seeing that audiences are eager to return to theaters.
Now turn it to financial strength, and we have the staying power to be ready for audiences as they return.
Turning to our financials, we continue to be very well positioned to manage through this challenging period.
Patrick will discuss our financials in more detail in a moment fully currently at $305 million in cash and we've continued to reduce our monthly cash burn thanks to our flexible asset light mop.
In fact, we expect to generate positive free cash flow and the current month of October and to be breakeven on average for the fourth quarter has through Q1 of 2021.
On the last call, we mention that we expected our cash burn and then zero revenue environment to be less than $10 million per month now with the reopening of portions of our network, most notably in China and the resumption of installations are average monthly free cash flow declined for the third quarter.
Was less than $4 million or a total of $12 million from the entire quarter.
Furthermore, given the delayed release of Hollywood titles, we decided to temporarily frolo, 30% of our global workforce outside of China to further reduce our ongoing operating costs.
Well it was a very difficult decision to furlough are loyal workforce. We expect these cost reductions to generate approximately a million dollars and monthly cash states.
And China are head count remains unchanged as the team works to service are fully open and our operational deals.
Now I would like to turn to discuss in the industry.
While we an IMAX feel very confident in Arab financial position. This clearly some uncertainty around the future of the north American theatrical industry.
While the challenges facing the north American theatrical business are unique we believe that the impact of Covid is not unlike what or any number of industries are currently experiencing with a pandemic apps as an accelerated to secular where disruptive trends that are already at hand.
We believe I'd us is very well equipped to manage through this evolution and may very well benefit in the long run.
First let's look at exhibition.
There is no doubt that the continued delay and the Hollywood slate and theater reopening will have a significant impact Connor.
Connor exhibition partners, particularly North America in certain parts of Europe.
Where many exhibitors are highly leveraged with large fixed costs.
There's some speculation that this could result in a contraction of the industry again, particularly in North America in light of this it's important to remember that IMAX screens are almost exclusively house and the most productive and profitable multi punches.
In North America for instance, IMAX accounts for approximately 450 out of a total of roughly 42000 plus screens and in 2019 about 85% of Ims's box office was generated in the top 20 per.
Percent of North American complex.
In North America in 2019, only 5% of Imax's box office was generated from the bottom 65% of Multiplexes right by revenue.
In other words, approximately 3500, North American mid to low performing multiplexers at 5400 could disappear overnight.
Believe that it would have no material impact on our business the approximately 375 million and domestic box office that we produced in a typical year is what we should produce even if the industry shrinks around.
And sure showed the industry contracts are theaters and not the marginal theaters and our consumers are not the marginal consumers and fat based on our preferred locations in premium product if feasible, we could gain market share and any such scenario.
Furthermore, should any of our partners the force to restructure and bankruptcy. We are covered by master lease agreements, which give us significant protection in the context of any restructure during the early two thousands much of the exhibition industry went through bankruptcy after the Mecca.
Parts building boom of the late nineties those smaller at the time IMAX has not impacted our partners chose to continue to operate their IMAX screens.
Finally, we grabbed our partners and exclusive IMAX Geographics zone should a partner decide to reject their mass deletes agreement with IMAX would have the option to move our equipment to an alternative operator after demonstrating.
Whatever the box office potential was in that particular area.
Like to talk a little bit about windway streaming and the shift to blockbusters.
There's also much speculation about how the studios will adapt whether we'll see an industrywide shrinking of the theatrical window moral leases moved to streaming platforms and multiplexers, becoming limited to showing just blockbusters.
First despite the further delay in theory openings were encouraged to see that with with a few exceptions. Most major blockbusters continues to be delayed rather move to Pee Bob or stream that includes every film currently on the slate that was filmed in Iowa.
Or includes IMAX DNA from no time to die, which is moved to 2021 to Wonder woman 1984, which for now is scheduled for Christmas 2020, the theatrical window remains an important financial and marketing component for major Tentpole films and as I've said.
To date Peevey O D. It has been a failed experiment as an option for big budget blockbuster films.
Even if we do see a shrinking that the theatrical window. This would have little impact on I'm Phil.
Films typically play in our network for one to two weeks at most before we move onto the next blockbuster debut life.
Likewise, the shifts the blockbusters and theatrical distribution benefits IMS.
We're very much in the blockbuster business as blockbuster's moved to straightening platforms with potentially shorter windows the need for studios filmmakers and streamers to adventive size their content will be even grade.
IMAX has proven itself has the primary platform to cure a blockbuster content. The top grossing 30 films account, probably 55% of the overall industry box office, but 85% of the global IMAX box office.
Finally, our experienced in China, as well as markets like Japan, South Korea and throughout Europe has proven that audiences do return to the movies, where theatres are open and people feel safe and as their return they return they're coming back to IMS and.
Greater numbers than before on on a percentage basis. This underscores our position and strength of our brand we our premium experience with a premium segment of the market.
To conclude we believe imac's remains well positioned to manage through this crisis and continue to thrive well into the future where the only global distribution platform for theatrical blockbuster entertain we have a unique diversified geographic footprint and content portfolio, which.
Build us to generate cash flow, even as the release of Hollywood films is on pause, where the financial strength to endure withstand and even capitalized on industry disruption and be ready for our audiences when they're ready to come back to theaters, we were remarkably strong pipeline of blockbuster can't.
Ahead, how brand in the IMAX experience have been and strong growing demand around the world. This unique privileged position we built in the ecosystem gives IMAX a firm footing in difficult times, and we look forward to continuing as success driving new opportunities for growth and.
Creating value for our shareholders.
Thanks again for joining us today and please continue to do everything you can to stay safe and healthy with that I'll turn it over to pack. Thanks.
Thanks, Rich good morning, everyone, but let's take this opportunity to once again, thank all of our television to help the company manage through this difficult period their commitments sharp focus and flexibility are essential and I appreciate it.
With the deliberate 2020 Hollywood toe into next year and the results enclosure, some theater chains equal reopening here's unlikely this year as a result, the company recently implemented additional cost reductions.
<unk> made the difficult decision to prove portion of our workforce, which we expect to further reduce costs by approximately $1 million per month.
We expect this to better position our business in the short term drinks ongoing period of uncertainty while also maintaining flexibility.
Quickly as theaters reopen around the world.
While the glade industry reopening in certain markets is clearly the difficult development omics as well positioned to manage through a longer but still temporary period of reduced costs office activity as well as resulting in history challenges.
We continue to benefit from the solid balance sheet and acted like business model and the globally diversified network and highly productive screams.
First let me address our balance sheet, we ended the quarter with 305 million consolidated kashner balance sheet, including 229 million cash IMAX Corp, and the balance that IMAX China.
Since our network booked in late March our free cash flow rent, an average use of $7 million cash per month.
April September 30th.
Complishments without the company to reducing head count, referring us ordered layoffs.
The trend for free cash flow improved more recently as we average the 4 million use of cash per month in the third quarter substantially better from a zero cash revenue burn estimate of under 10, which promote we discussed on our last call.
During the quarter incremental cast generate.
Peters, particularly in our largest market, China as well as decrease installation activity group lower cash Burns.
But these print Hindus and traditional cost reduction.
Sure we expect our monthly cash flow both the fourth quarter of 2020, and the first quarter of 2021 to be approximately breakeven.
Moving on to this quarter's results total revenue in the third quarter was 37 3 million down.
Down 57% versus last year.
The imac technology network gross margin essentially breakeven on revenue $11 4 million.
Our network revenues characterized by the first reopening of our peers through quarter, we started with period with most propraetor network clothes and benefited from the real major markets in late August and September.
As of today about 1000 screens were 65% of our network is open.
Network results were joining primary behind our superintendent as well as the Chinese local language fails, most notably the 800.
Technology sales maintenance segment reported revenue 23, 7 million down that would be 7% and gross margin.
<unk> versus $18 for each of gross margin in the previous year period.
The declining revenue gross margins driven by lowering solution activity Mcwhorter, we installed nine ftl's versus 14, and one hybrid system versus four three.
Three of 2019.
While installations were lower we are seebohm installation and so on activity improve do too.
18, new systems to the newcomer despite moving related closures and industry uncertainty.
Remained clears our partners understand and value of our systems you continue to invest in the IMAX experience.
Maintenance revenue five 8 million declined from $37 million and the prior year period would increase sequentially from essentially no revenue EQ too.
At theaters opened through two three we began to recognize contraction recurring maintenance revenue.
SG&A, excluding stockpile based compensation of 19.5 million declined sequentially from the 23.3 million of expense report in the third quarter of 2020 and was who was also down nearly 5 million year over year.
I'm, sorry that was sequentially versus the second quarter of 2020.
<unk> benefited from cost options, we took at the beginning of the pandemic as well as a $2.1 million benefit from government subsidies associated with COVID-19 relief.
One 7 million of which was allocated to SG&A.
This benefit was offset by 4.5 million cost normally allocated to the cost of goods sold and assets, which remains SG&A this quarter due to low activity levels.
Just the EBITDA for the quarter was right around breakeven 32.4 million in the previous year period.
Net loss attributable to common shareholders for the quarter was a.
The loss of 47 2 million or loss of 80 cents per share well adjusted net losses, 44, 6 million or 75 cents per share versus.
Being a 21% per share last year.
Nope. This quarter includes unique guidance I would like to address.
Given the ongoing uncertainty exhibition industry recorded of 23, 7 million or 40 per share valuation allowance against or deferred tax asset.
We also took a five 7 million right off to various film assets given timing uncertainties surrounding rearview theaters.
These films.
Finally, we took the three 9 million dollar reserve provision for expected credit losses reflect we reduction the credit quality computer receivables balance.
Moving the Capex in the third quarter, we spent $1.4 million capital expenditures remember typically most of our Capex is driven by the installation theater systems under a joint revenue sharing model that activities at reduced levels in the current environment.
Kind of a location we spent we suspend imac share repurchases due to the uncertainty associated with Peter closures and the amendment to our credit facility, which prevents any further IMAX corporation level repurchases and so we return to compliance under original feeder secured net leverage ratio covenants.
IMAX Chinese is now repurchasing shares this quarter.
To wrap up although the case of recovery slower than you would like we are encouraged by the results, we see today and markets, where the viruses under control people return to the movies.
We have a strong balance sheet, we're in a good spot in terms of cash flow.
Excellent position in the marketplace.
IMAX represents the pinnacle of immerse of out of home Entertainment.
<unk> reopens and more markets around the world IMAX as well positioned to itself.
With that I'll turn the go back over to rich.
Thanks, Patrick turns out operator will open it up for questions.
Yeah.
If you would like to ask a question. Please press star one now on your telephone keypad, if you're using a speaker phone place into your immune function as it turned off to allow your signal to reach our equipment is at any point you would like to remove yourself from the queue. You may process in our team again, Please press star one now.
Ask a question little paused for a moment allow everyone the opportunity to key for questions.
And we will take our first question from.
Eric Handler S M K M partners.
Yes. Thank you very much and good morning wondered if you could talk about your installations a little bit.
Are all the installations right now are those just taking place in Asia or are there other markets where you're.
Doing installations and.
I assume the installations is why you're pretty much gonna be at a breakeven level.
You've got some good visibility in three Q, I'm, sorry, and <unk> and <unk> next year, maybe you could talk about.
Maybe some expectations for the number of installations.
And each of those upcoming periods.
Sure good morning error.
Good morning, where it is predominantly in Asia, We've got a fair level of activity in China, we better activity in Japan, as well and so for the most part the explosion activity right now have some books nature. It broadens a bit because we go into the fourth quarter and then in terms of.
Level of activity.
Not in a in a spot right now we're providing any guidance just do the uncertainty in the marketplace.
What we will save that.
These following the typical pattern that we have and so activity is wrapped up over the course of the year and our.
Every year are heightened activities in the fourth quarter that will be the same this year and then it'll slowdown to give in the first quarter and yes, you're right. We have thought about what Ernst installation activity looks like and how many of those come revenue and what that means and that is part of how we get to the cash flow breakeven in queue for and also in Q1.
I would just like and add that.
I just want to add to that that several of the installations are scheduled for Saudi Arabia. This year and that's been a market that's performed exceptionally well before the pandemic as well as since it's open.
Great and then just as a follow up.
As we think about just in modeling your maintenance revenue.
I wish see Youre doing well in Asia.
But other parts of the world are having some issues are you going to continue charging maintenance revenue.
In in Europe, and North America.
Even though there's really not much box-office to be generated.
Yes, I think the symbols were to think about that one is if the theaters are open and our partners or operational and we can provide the service then we'll continue to charge maintenance and so.
Right now that Duncan theaters that I talked about.
It'll be a bit of a moving target more opens will be able to charge more some some reasons closed down who will turn down a little bit, but you should just think about what our historical average maintenance across the network is in right now that sort of thousand units that are open.
Great. Thank you very much.
Thank you.
Take our next question from Mike as Goldman Sachs.
Hey, Hey, Rick Shea Patrick Thanks for the question.
It was encouraging to see the box office share gains in China I was wondering if you could.
Elaborate on on that a little bit more and talk about some of the reasons why you think you're gaining that market share and then I have a quick follow up.
We've done some studies, Mike that indicate that.
Not sure if we did them in China, but we've done around the world that indicate that because imax's a known branded experience that people are more likely to return to IMAX theaters and regular theaters.
I think like other branded entertainment of people Trust the brand. So I think that's one reason or another reason I would say is the types of content that will release more blockbuster's sort of content and as you know consumers associate IMAX with blockbusters.
So I think those are part of the reason I have to tell you we were somewhat.
Pleasantly surprised by what happened in Japan, I didn't go through the numbers and the scripted part, but as we mentioned and we had to the the record weekend in the opening weekend of Demon Slayer, which was $2.3 million and that was something like 18% over the wrecker, we'd ever had before and then the <unk>.
Second weekend was 2 million, which is a very small draw and also.
You looked at our market share actually went up in the second weekend. So I think it may also have something to do on again. This is not empirical in any way that are after people then cooped up unable to watching television streaming and whatever it is when they get out they wanted to do something really special not just.
Go to a small screen, which is a marginal improvement over what they do at home, but they want something that really transcends the ordinary and.
They can't travel out of the country that can't travel to a lot of places make some feel somewhat transported an IMAX does that that's conjecture, but I'm pretty sure I'm right about it.
Sure. Thank you and it's really help.
Mike VA vendors movie in China that particular during the quarter that was going with our cameras and as we typically see what we've got.
We do hire indexing.
Particularly well for us.
Great. Thank you and that's really helpful.
It was also helpfully here about uhm.
If a theater operated rejects to master lease agreement.
You can move to alternative operators I was just wondering if you could.
Talk a little bit about whether or not uhm. This has happened in the past and.
How quickly you could move to move equipment, if if you need to thank you.
I mean, we've never had the experience of someone.
Rejecting a master lease agreement.
And as a matter of fact, we said one kind of.
Bad situation in the exhibition space in 2000, almost every theater was reaffirm so we really don't have experience about it.
But what I was alluding to in the prepared remarks, Mike where.
You have data on what the location data across the street. So we are saying if you had a profitable location it would be pretty easy to convince someone else to go into that to go in across the street or whatever it is because you already have a built in market, it's not speculative, but we don't have data about it now.
Thank you very much.
Okay.
Thank you we will take our next question from are called F. B Riley Securities.
Thank you good morning Uhm.
It's a couple of questions I'm trying to do the the slate.
As you look into next year I guess given.
Somewhat rapid changes a slate almost on a daily basis as well as your earlier comments rich that consumers are associating IMAX with blockbusters, Yeah, I'll flexible do you Wanna be on the slate into next year I mean would you move.
Quickly to put smaller gonna mid double titles on your screens does fill gaps even if you you can only do it kind of maybe on a breakeven basis or is it better to keep the slate somewhat open.
Eric I think when you look at next year.
It's a little bit of an embarrassment of riches. So if we if films were to move in two starting at the beginning of Q2 next year I think we only have one or two places where we could actually put films right now and one of the issues I think the studio is it.
Faces, there's not a lot of room in this scheduled were put them. So I think it's not about filling in with.
Mid level movies of which historically, we've done if we have to keep the theaters program I think there's not a lot of room. So.
And also my expectation Eric is that when theaters open they're going to pretty much open. So it's not going to be like last time, where there was only one movie and things moved around so I really think it's the opposite problem, how we're gonna manage to curate and fit in all the content.
There and I should add even asked us, but I'm sure your water as a follow up which is because of the pandemic production was halted on a number of projects.
But most of what scheduled now for 2021.
As in the can or as in the editing room, so the big movies like top gun and fast and furious.
The Marvel movies, those are all pretty much shot already.
There are some in production today like mission impossible one.
Avatar some other things.
But.
I just think this when it opens is going to be a lot of blockbuster content.
Okay, we're gonna follow up uhm.
On that.
Given currently.
B U.
You are going to crowded kinsley in a positive way next year.
Would be good.
Moving in mineral Lamb, a few slots open slots open has there been instances where.
You previously contracted a film to do multiple weeks on your screen, but now for the movement. They won't have that you'll have a lot more curtailed.
Kind of Windows fulfilling an IMAX and is that actually a plus and in your mind getting a.
<unk> opening weekend for much.
Hydrophone sleep.
When people use IMAX cameras to make a film and we recently put out a release announcing an expanded camera program in more films shot with our cameras.
We give them more weeks to play more of a slot both as an incentive to use the cameras and because those films typically index higher so it gives them more play time. However, all of the films that we schedule our around a certain date. So when you move.
Move to another day, they don't have a contractual right to two weeks or three weeks around that date, but we're trying to do the best we can to protect really important movies, especially those that used our cameras and especially those with filmmakers and talent that we're close to so.
We're doing our best but there's not really the contractual rights are an implicit because the data moves.
Okay.
Understood. Thanks, Richard.
Thank you we will take our next question from guidance Cat paint on.
Mccleary.
Hey, guys.
Aaron on for Chad Thanks for taking my question.
Thanks for your comments on China I was wondering could you talk about what you saw during especially during Golden week do you see any kind of different trends in between the tier one and two cities versus three to five.
So I can't comment specifically on that week, but we did a fairly detailed analysis on how each tear tears one through five rebounded during the.
After the pandemic in China, and what our results found and we were somewhat surprised because we thought it might be that the tier one and tier two cities rebounded more quickly than the lower tier cities put the extent of rebounds was pretty much uniform across all.
Tears so it was.
I will say it was somewhat surprising to us.
So by way of example in tier one if the city did X.
In 2019, you only came back.
<unk> nine five acts this year and then if we looked at.
50 or city. It was very similar results within a margin of error. So it was pretty uniform.
Okay, Great that's helpful.
And do you have a sense of what percent of the 70000 Chinese screens are open.
And can you talk a little bit about what are you seeing with other.
Premium large format openings in China.
Yes so.
It's about 99% of IMAX screens are open and about 90% of the country is out.
I don't exactly know what premium large format is I know people call themselves that I know, what imax's, but in China whatever that category is is a very small category and we will.
Looked at some of those re openings and they have not captured their past market share to the extent dime ex has when we started that.
Okay, great. Thanks very much.
Thank you we will take our next question from my Kagy as benchmark company.
Hey, Rich Patrick Brett good.
Morning guidance.
Congrats on your success in Asia nice to see.
The rebound there.
I guess the first question is when you think about.
The U S market to the broader question is what needs to happen disorder.
Kickstart this market again and within that.
You have a New York, New York, and I know any of that.
People still shuttered of course, you have offices.
And both those key market. So curious as much as you can rich just your view on how close we are maybe I missed it this morning that'd be great.
Close we are those markets.
Starting to open and then.
When you look at.
Wonder woman 84 here.
How confident are you are not that mosquito a Christmas release.
Thank you.
Sure so to kick start the U S market.
I think the first thing you need is people feeling safe to go to cinema sent there are kind of three parts of that one the government as open the area to it has to really be safe and three people out the field say so.
Arms of the reopening pretty much the whole country is open except as you said, New York, and California, and New York Governor Cuomo opened up the theaters outside of New York City subject to certain infections levels.
This past weekend as subject to 25% capacity limitation, So New York is starting to reopen at.
Think put aside where the future goes let's pretend the virus stays where it is today as long as areas are below a certain level I think those will reopen and over time.
Capacity.
Limitations will increase in terms of California as most of the state is open.
But Los Angeles is not open on that subject to of the Mayor guard setting on the governor of California's delegated that responsibility I was out in L. A last week.
Have to say people really somewhat skeptical as to what the pace of reopening would be there I am sure you just read the articles about the opening of Disney and other theme parks out there. So that's a hard one to predict and again I would lay are over that obviously the increased level of the.
Pandemics and the U S and abroad, so very very difficult to predict so the first thing I said was government on the second thing I said was the theater as being safe.
Theater industry.
Think what's a little bit cautious at the beginning but has really got a good job of putting in safety protocols. So whether that's wearing masks in the theaters or whether that's lining up in certain lights to go in and otherwise to go out and how their employees at and the handling of concern.
Sessions, I think it's become safe and.
And I think it's in very good shape and then the third element, which is people feeling say, that's how harder one.
I just found out yesterday I was talking to the the CEO of our China subsidiary, it's public but hopefully one.
Steak and I didn't notice, but he said people in China don't wear mass and theater.
Walking on the streets, they all wear masks.
Despite the conspiracy theorists conspiracy theorists the restaurants or Paul there. Please.
But see at hotel is going off so it's a place where they feel safe and when that happens I really I really don't know.
So that always to your next question how close are we to normalcy in the North American market.
Towards.
Online as I don't know, but my instincts are given to the increase in the rates of infection and given what's happened in other countries as part of it will be a while off before people in North America feels safe.
Stinker was handled differently here with leadership and a lot of different levels and it was in different countries. So I'm not optimistic that it's imminent and then your last question which is related.
The Wonder woman question.
I just don't know when I was in California, I met with some of the people involved.
These are very serious people with very serious approaches to these things like what what how some movie going to work holiday can help cinemas all kinds of issues marketing, how public regulation and I think they had made their minds up yet I think they were integrating all those factors side people.
Going to have to wait and see.
Thanks reached the.
Question.
You sort of.
The opportunity to be maybe for some of these blockbusters going streaming I know you've had some great comments on your view.
Of how that initial experiment weight gain sound great.
I guess the reason you would still be no time to die on.
Potentially be shops.
Keep streaming services for sort of a room of $600 million.
<unk> it looks like that that deal getting worse and I'm just sort of curious since you think about that exercise of all.
What it could mean to some of these bigger Jones.
Have been delayed.
Well first of all I wouldn't believe every room or I read in the papers I read and I heard it.
But I was very skeptical broccoli.
Family owns the rights no time to die and it's a franchise that I was skeptical that whether that was real or not but not not in a position to comment on that but virtually every blockbuster with a few exceptions has rescheduled itself for theatrical release next year and.
I could spend a lot of time on this but I'll just spend another minute on it.
Week, when I was in L. A I met with filmmakers I met with probably half of the studio heads I bet.
Talk to different people in the industry and nobody thinks that a streaming model only works for blockbuster releases. So in the short run might get a shot of subscribers switch will make a good headline for awhile, but when you look at last year. This is my favorite example.
Disney did $11 billion in revenue.
From box office around the world.
Maybe you have a different pencil then either but I just don't see how you get till $11 billion.
And that was just a theatrical part that didn't include merchandise a secondary Ryan to add on usually the general number is that you put a multiplier on that may be of up to two times. So it's just difficult for me to see for blockbusters of how that model works for non Blockbust.
I could see mid level movies called streaming pay the marketing costs or you can use take advantage of the marketing costs in a different way you can target audiences, but first reason is that I will take the model really works second reason is I think you need a theatrics.
Oh, well at least to promoters trained we're always so I don't think that big time filmmakers want to see something.
By the way I'll get a little bit tactical, but you shoot a movie differently for theatrical release in his shirt. It for our streaming early center home at our Allstate filmmakers that are shot a theatrical release I was going to say, yes sure fine put on the TV that's good with me.
And then you add to that I think a lot of what a theatrical at least does it's even today as a trailer for other windows and as I said before I think it's likely that that window shrinks in some way, but I think he adult promote big event movies with movie Star.
And sound and special effects and the way that works for the end of the story I mean Disney spent made a lot of their success by being geniuses is using the theatrical platform across channels and ending up with theme park rides I mean, they've monetize in some brilliant.
Ways over the years and I don't think people are going to abandon a proven method.
I don't want to be redundant on this year, maybe tweets don't windows and other things, but I think that theatrical releases in a crucial part of the revenue statement I think during covid two things happen. One is the real issues of theatres not being open and people not golly, so made sense for those companies.
To go to streaming with some of their non blockbuster titles, but I think the other thing that happened.
The narrative right now and as you heard during my remarks, I don't think I know the narrative isn't correct about the future of streaming versus the future theatrical I think people just wanted to take advantage of the current nerd, but I have no doubt that the theatrical release is going to be good to go.
Maybe even more so maybe even more so the IMAX component of it until the chain that results in strange.
Thanks, Rach, good stuff without guidance.
Thank you we will take our next question from Kim costs of Barrington Research.
Thanks, Good morning.
Uhm I'm wondering if you could talk a little more rich about the Japan sounds slate deal.
And the expected impact on your footprint transactions in Japan, and sort of in a related area are there other countries in which film slate.
Indigenous film so it makes sense beyond us, China, Japan, South Korea.
You might be able to do something similar.
So the film slate deal as I mentioned in my remarks was five pictures, Jim I think three or four identify on one is an <unk>.
To be determined.
Maybe Patrick our marriage the name of the next one but the next bill is.
A very highly anticipated film in Japan, and I would say no I have no idea what the box office will be but it was even a title that was more important to us than demon Slayer, which was the bill what we just did it set records and that next one is supposed to come out and about a month and.
We're very encouraged because touhou is one of our leading theatrical partner's there.
Also partnering with them on the film side.
There's solidifies the relationship so it's it's.
It's a very positive thing for us.
In terms of other countries gym, again, I try and separate out on the Covid period from the normal period, which we can't predict when it will calm but during this period of time it made sense to do a slight deal, but we haven't lost sight of the fact that one of imax's primary revenue generator.
Here's Hollywood films are we will at least on a global basis. So we don't want to run ahead and make local film deals slate deals that will interfere with our potential strict global strategy, if we could.
It's going to depend country by country and I think certainly during this period of time it makes sense to do things like that but I really couldn't predict what we do in the future.
Okay and in terms of.
The construction program has the Covid experience had any impact on your.
Desire to either go with sales to lease agreements versus try revenue sharing.
So by the way first I forgot to answer the second part last question, which is on the theater network in Japan, and I would think the film slate and maybe more importantly, the success.
Indexing I don't remember the numbers, but the per screen number it's over those two weekends were extremely high if I recall there were around $50000 a theater gym. So I think that's going to catch people's attention and I do think that will help us grow the network in Japan in terms of has an influence of the.
Kinds of deals we do I'd say in the short term. It has because we are in a position where.
We want to maintain what we talked about on this call, which is R neutral cash flow position over the next six months going through the pandemic. So it is.
During this period of time and it's made us.
Less real often to install jv's now and more different kinds of deals, but again, let's see what happens coming out the other side before we say how long term that policies.
Okay, one last thing.
I'm sorry to jump in this isn't that can call again.
The next bill amount the stand by me on November 20th to see you have that.
Thanks.
The last thing I was going to ask was.
I wonder if the the increased viewing and home has impacted.
How you approach your Imac's Dts relationship.
I'll start and then I'll turn it over to Patrick I'd say, Jim we've always thought that out brand was kind of under utilized than that we have a wonderful global bran and the theatrical space in out of home Entertainment, how we were very.
Hard.
To try and transition and says something in the home and during.
During the pandemic I think we've said before I'm wallowing in shut down I think we've been doubling down and figuring out ways.
We might leverage our our brand assets and the whole better and it's accelerated that but in terms of specifically on the enhanced dts relationship Patrick's and managing that so why doesn't he responded sure.
Think what's happening.
Most of our content partners are now.
<unk> business they have some epsilon platform.
So.
So the pandemic, obviously has resulted in working function content, that's aligned with people watching their new subscription based programs and.
IMAX enhanced can add a lot of value to that so what I would save our dialogue with our partners who are now in the streaming business about how we can integrate IMAX enhanced into those platforms has picked up immediately during during the crisis.
We think the veterinary where we could actually help them differentiator content deliver better experience with their customers.
So operator, let's take one last call.
Okay, We will take our last question from.
Alexandra Quandary.
<unk> P Morgan.
Hi, Thank you until I can't quite shiny.
And frankly comments I got on the fact that you know.
China in some other markets the reaction to the virus separate minute wait in terms of the.
And here and some other places around the world and they were able to kind of get back to the theatrics opened in theaters I think at a different pace and what we're seeing here and I'm curious with that in mind. You know is there just the rash.
Service when it gets you to the state you're consuming content different format, because it just takes too long to kind of get back to normalize theatrical experience.
And therefore, it's kind of harder to get back to the to the way. We were and then just a quick follow ups I never running out of time on on the slate for 2022, I mean, if things keep getting punished I guess, how crowded does that already.
So in terms of the risk of consumers.
Coming back I think you could theorize about a lot of things, but I don't really see it you have to remember that China shut down.
Several months before the U S.
And I think Japan that too. So if you look at the next time, it's not going to be all that different than it was here first thing second thing is.
As said it and it's a little bit of a sound bite, but I don't think eight months on does a 100 year. So consumer experiences and I think it's not just a bigger screen or more transporter. That's something you share with friends, It's something you talk about around.
Whatever the new version of the water cooler is I think you tweet about a detached about it it's a social cultural experience and I think.
People are not cut out the experienced cultural things on their couch with their whoever they happen to live with I think that's part of human nature.
I've mentioned this before but I went to Pompeii and they had theaters from I forget how long ago I, just don't think human nature changes on because.
There's a thing called the streaming service remember there are lots of changes there was television those radio or has all kinds of things. So I should use the opportunity to remind people that 2019 was the biggest year in North American box office history.
I think that's really remote, but let's even say to the extent, it's true I think with shorter windows.
The people who really want.
To see it in a movie theater, we'll there'll be sort of compact it into that shorter period of time whatever it is so it'll be enough to certainly support IMAX suggest one or two week runs in support who are replace it during that period, and then people choose to stream it.
They'll have plenty of runway to do that also so I don't really think that's a factor for us in terms of 2022.
As I said production has started to reopen and a number of places you have to remember that because things were close there's a lot of films in the can that had been a push it to 2021. So I don't really see a significant change in 2022 from where I sit now like I mentioned.
That mission impossible was in production, they're filming two movies at once one will Leafs in 21 122, that's pretty far off while that's in the middle of shooting you've got Avatar, which I think is now scheduled for 2022 and Jim has resumed production pretty rapid pace.
And.
In New Zealand, so I don't really think that's going to be an issue Alexia.
Alright, Thank you very much.
Thanks.
Thank you we have no further questions I would now like to turn the conference back over T. C N right.
So as I mentioned, a few times during the call I was an outlay last weekend and I met a lot of interest Saint Pete with different perspectives, and I really needed. It from a headspace point of view because all of the sitting or a home office is on our zoom or on our.
Telephone all day, it's hard to get perspective.
Whatever people thought about the industry whenever they thought about streaming whatever they thought about exhibition. It was kind of unanimous that people felt that IMAX would come out of this in a better position because of the experience we provide at what that's going to mean to the entire ecosystem and when you combine that with the <unk>.
Dulce, we've seen in places where we're open it was a much needed wait wake up reminder, for me, but I really do feel that obviously this situation has been terrible for the world from a health point of view economic point of view, obviously, it's really unfortunate.
That we have furloughs, some employees and I feel really bad about that but I do think the combination of our financial strength and wherewith position, we're going to come out of this in a very good place. So thank you all for participating.
Thank you, ladies and gentlemen figure participation in today's call you may now disconnect.
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