Q4 2020 Imax Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the IMAX Corp. Full year of 2020 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Brett Harris. Please go ahead.
Thank you and good afternoon, everyone and thank you for joining us on the day fourth quarter earnings conference call on.
On the call today to review the financial results and Richard <unk>, Chief Executive Officer.
Chief Financial Officer, Megan Colligan, President and acting on.
This is Rob Lister Chief legal officer.
Yes.
Today's coffee coffee Webcasts and party on our website a replay of the webcast will be made available shortly after the call and addiction textbook fourth quarter earnings press release, and the slide presentation have been posted on the Investor Relations section of our website.
Conclusion of this call are historically cell and module will be posted on our website as well.
I'd like to remind you on 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 and that they pertain.
On the future results or outcomes.
Actual future results or our current debt may differ materially from these forward looking statements. We've heard a lot and SEC filings for more detailed discussion and the factors that could affect our future results and outcomes.
Any forward looking statements made 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. During today's call references maybe made and certain non-GAAP financial measures discussion.
And these measures and the definition as.
And while the reconciliation to non-GAAP measures.
Including adjusted net income adjusted EPS and adjusted EBITDA.
On our credit facility are contained in this morning's press release with that let me turn the call over to Mr. Richard Richard Bryce and Brian and good afternoon, everyone.
Thanks for joining us today.
As we saw with last month's record Chinese new year and practice.
Perhaps a rebound of our business and Asia, all of us and encouraging sign on pent up demand for the IMAX experience around the world.
SaaS and sort of quite a bit and then as well as we share today, where.
Rich demonstrate IMAX has continued strides towards on post COVID-19.
Post COVID-19 recovery, all without excellent strategic position.
And what are you IMAX is well positioned to help lead to recover and get the global and entertainment industry.
We continue to see that where the virus is under control and people seem to think audience and is already turning to theaters as a new IMAX and often outperforms the industry. Our fans are the most engaged and passionate moving dollars and have come back with the theater first audience is once a day.
And spirit.
Yeah, and blocked out needs and IMAX represents the pinnacle of American water.
And finally, well continue to delay and the Hollywood slate pushout on recovery kind of a bit.
And yelled at what we believe COVID-19 unprecedented pipeline well IMAX friendly blockbusters that will fuel our recovery and the second half of the New York.
There's no question and pandemic created challenges and drive business and it's also reveal the unique advantages of our business.
And just wanted to financial management, and our superior balance sheet.
Flexible asset light business model.
Fixed cost base on a global diversified network and content portfolio while.
Well, it's fairly partners' debt continue to choose to grow and IMAX and see our technology is vital to their recovery efforts and and nimble organization and created workforce I am proud on how critical our teammates and been able to adapt to an industry that seems to change on a weekly basis.
With that and mine I'll provide an update that's out there going on with outperformance at the ball.
Total box office and how it signals strong pent up demand for the IMAX experience, our successful efforts to grow and reopening our theater network and finally of critical and our financial results, which demonstrate our superior business model and continued momentum.
First won't be at the global box office and Asia.
To lead the way with a stronger than expected readout, a clear sign that audiences are eager to get out of their homes and enjoy it for me at all American and experiences and IMAX provides most recently last month.
New York opening weekend and blew away our expectations, while we hope for business to meet our record breaking performance and 2019, the strong detective Chinatown three results drove our opening weekend box office.
45% from 2019.
Record levels for the and.
Entire holiday period, the industry and a total of $1 $2 billion and box office on 32% over 2019.
Overall, China on marriage, and number one box office market and the world in 2020 and eight films across 1 million RMB $450 million at the Chinese box office, including the highest grossing film of 2020, the 801st Asia and film shot.
And it entirely with IMAX cameras.
I'd like to technology, and it's helped lead the way business as a result of our multiyear strategy to build out and Brad.
And deeply and Brad and bad and technology, and the Chinese economic entertainments fiscal 2020 and marked our second best year ever and China local items box office, we are always a record breaking and 2019, which is remarkable if you like theaters were closed for more than half of it.
A year, our average salary box office and China recovered to approximately 80% of second half 2019 levels. Despite a continued 75% capacity limitation and Chinese theater, and an almost complete lack of new Hollywood blockbuster releases.
And the National holiday in October and 'twenty, and 'twenty, so and personal growth and are less.
And box office, and increasing 23% year over year.
Yeah.
Okay.
And there are several alone and Chinese box office was up 28% year over year easily topping 2019 results that included Hollywood franchises like Star Wars and your margin.
We set a record all their new years without a box office tripling over the prior year volume performance of Shockwave to.
Furthermore.
We are seeing clear evidence of our continued shift to premium and Chinese box office results as audience has emerged from lockdown. They want a premium experience on their tonnage and all of that.
And that's the experience and the IMAX Brad provide.
And second half of 2020, our market share for all films and the country grew by two eight points on the three 6% despite IMAX accounting, Paul and want to kind of the screens.
With the Chinese blockbuster Shockwave to rent expense IMAX delivered approximately 12% and the overall box office EBIT topic, and 20% of the overall box office.
On some weekends.
And as I, just noted accounted for only about 1% on the screens.
Because of these excellent results IMAX, China was able to maintain your dividend in 2020 and we'll raise the dividend payout ratio going forward, but 33% two and 50% of net income.
This underscores our confidence sort of business.
Pent up demand for moving to on the continued recovery of the entertainment industry and a few future cash flow generation ability on their network in China. We've also seen record breaking results and Japan.
Free strong market and South Korea and.
And Japan, and the local animated blockbuster Dean and player now stands as the highest grossing IMAX film of all time in that country with more than $27 million and IMAX box office globally and with <unk>.
And so always great for $40 Heather.
In terms of IMAX box office for the year on net.
He also have exacerbated and we announced the slaves deal with the film's distributor total pictures are firstly to deal with this distributor outside and Hollywood.
Our next film with Tahoe, the highly anticipated share and ebay and Joliet as expected and theater set sleek demon.
<unk> also performed remarkably well and South Korea, and I'm, sorry, 20% of the overall overall opening weekend box office and I, just 78 screens and the biggest IMAX opening and animated film ever and South Korea, and South Korea and box office overall has smoothed out.
Obviously getting worked on July the lease of the blockbuster Peninsula, which we played it costs 26, primarily Asian markets.
The strength on the readout and Asia bodes well for similar to combat across the world, particularly in light and the strong Hollywood slate that lies ahead for free.
First month's rent a year, so it's on significant but not unexpected shifts and always.
And as states, including today's announcement that fast and furious not removed on Memorial day and day June 25th their support and that really that's why we'd be at summer blockbuster season. This year.
And the same time at key players and Hollywood continue to acquire their strong commitment to the theatrical window and speed.
On clear, but we won't see a one size fits all approach and windows.
Do you think is there and this approach on titles and pilot, but it emphasizes that and supply will realize on the value of theatrical and building the franchise intellectual property.
Your line is implementing and excludes the 30 to 45 day window prestigious blockbusters, including top gun Maverick mission impossible, seven and a quiet place two all IMAX on leases.
On the Warner will announce and more exhibitor and fragile and you always strategy for its 2022 slide.
One concept.
Is that IMAX will become even more important to studios and filmmakers and talent is a critical driver of box office and at work.
And all the short and Windows without premium ticket sizes and prestige about Brad tenants what is itself the blockbuster releases and our ability that decided moving the stainless and from others and a crowded marketplace and as such we've heard from many of the biggest names and Hollywood and recent weeks.
How about how they can work more closely with IMAX and we see positive signs outside of Hollywood as well and we're pleased that Governor Cuomo announced that New York theaters reopen and early March is the largest market and the U S. This represents an important step and reopening the domestic and <unk>.
And if necessary and removes one of the major obstacle for Hollywood releases and we will.
And for those reopening and starting tomorrow and.
Vaccine distribution is clearly picking up in the United States with the buy and administration. So try 200 million new doses are predicting that virtually everyone who wants one will have access and vaccine like net.
Good day, one and 70 million people and the U S have received their first shot the day always vaccination rates and so apology to them early and are day, all without the benefit although recently approved one dose vaccine from Johnson and jobs.
We believe the world will feel very expert and a few.
A few months and light of this progress we continue to see much promise and the second half of the year.
At least for many and Hollywood, most bankable and IMAX framework Brad.
This included multiple Marvel films.
And the James bond abilities fast and furious top gun Maverick and then.
Sure and possible and do it once the virus is under control we remain confident based on our script and our experience in Asia that audiences are eager to get out of the hall. So it turned to the movies and seek out premium experiences and IMAX remains in an excellent position to benefit.
And this pent up demand and gain market share and return quickly to profitability.
Well, we had our network, we also see signs of demand and the IMAX experience on the only our exhibition partners as we go and with significant new.
Systems signings and installations in 2020.
And for the full year, we signed agreements for 65, IMAX systems and have sold 71, new IMAX systems globally, including 33, and the fourth quarter and our backlog remains remarkably stable and any new year at 527 compared to 531 at the end.
2019.
You haven't had debt as well weighted theater closures and rent related financial pressure on operators and this is clear proof of our partners commitment.
Excuse me IMAX experience and a positive indication that our exhibitor and see IMAX technology is on must have all three and a value driver for audiences and was also remarkable logistical feat given the challenges the technical operation and travel on and then all of the pandemic that we were able to install.
All this makes systems.
Now 1077, or approximately 70% of on a global network consulting.
With encouraging signs at the box office and throughout our network IMAX continues to drive consistent financial improvement IMAX is a unique entertainment and technology business and our financial results reflect our superior differentiated business model.
We've driven strong sequential improvement across virtually every key metric since we first felt the global impact of the pandemic and Q2 and that includes revenue box office, EBITDA and free cash flow with IMAX, achieving positive EBITDA and cash flow and Q4.
For the first time since Q1 of 2020.
Notably we achieved these results with only a portion of our network generating significant revenue without the major Hollywood releases that have historically, driven a box office and many of our present partners and their substantial financial pressure.
Despite these headwinds both our technology and network and technology sales and maintenance revenue improved sequentially and contributed to positive EBITDA and free cash flow.
And sure both.
What are your plans and our exhibition partners continue to demand IMAX, we closed the year on the cash position of $317 million.
And from $305 million at the end and the third quarter and Q1 on this quarter, we sold our stake through IMAX, China and Maui on for $17 million, which was a 16% return which will further strengthen our already solid liquidity position.
We're also encouraged by the steps some of our biggest exhibition partners have taken to shore up their financial positions.
Most notably AMC.
Completed a capital raise at the end of January so significantly mitigates risk and.
To conclude we're very encouraged by his side that we're seeing and a volatile marketplace, particularly at Asia and box office on a record breaking Chinese new year. So the modest share blockbuster performance of Japan deal and player.
<unk> proved positive and global audiences are craving blockbuster entertainment and a retired lives where.
Where the virus is under control and people feel safe and audience is always trying to theaters and a passionate IMAX fans.
First on.
As the new IMAX and is uniquely positioned to benefit as he always geographically diversified global platform for blockbuster Entertainment.
The IMAX experience has been strong relative to that around the world.
Formidable pipeline of content.
The table and said, Brian ex the grow and on that day and affirm our standing as one of the world's Premier Entertainment experiences. We look forward to building on and unique privileged position, we've established and the entertainment ecosystem driving new opportunities for growth and creating value for our shareholders. Thanks.
Again for joining us today I'm pleased to continue to do everything and try to stay safe and healthy with that I'll turn it over to Patrick.
Thanks, Rich and good afternoon, everyone.
Like to start by thanking all of our IMAX teammates for their efforts through difficult times.
And I'm pleased to report solid financial results that reflect substantial pent up demand for moviegoing, and the company's differentiated asset light business model.
And as rich mentioned, we posted another quarter of sequential improvement across the company's key financial metrics.
Our gross box office revenue adjusted EBITDA and free cash flow all improved over the previous quarter.
We reported our first positive adjusted EBITDA quarter since and.
And then if the GAAP and.
Generated modest free cash flow.
And we ended the quarter with $370 million of cash and 306 million of debt 80.
$88 million of cash, we build and IMAX, China and $229 million at IMAX Corp.
We generated 6 million and free cash flow this quarter exceeding our guidance of approximately breakeven.
This marks the third straight quarter of sequential cash flow improvement.
And Q1 and sold our stakes Maryann for net proceeds of approximately $17 million, which will benefit Q1 cash flow and further strengthened our balance sheet.
Before I jump and details I would like to frame our earnings our technology network results were driven primarily by local language titles in China, and Japan, as well and Hollywood continues to delay the release of major Tentpole titles and typically drive our box office.
Cause of this on our network and Asia, most notably China, and Japan generated majority of our box office.
Technology sales and maintenance revenue was driven by sustained albeit lower installation activity as our theatrical partners continue to invest and IMAX.
IMAX sales reached approximately free cash flow breakeven given these constraints because we are a substantially different type of entertainment business.
And asset light and licensing business and you saw it and beginning of the pandemic on our rewriting the cash burn was quite modest and approximately $10 million per month.
We were able to quickly reach breakeven as revenue returns given our high incremental margins and limited reopening costs.
We're also geographically diversified.
And the location of our network and source of our concepts.
And while theaters and the U S and Europe remains effectively close our network and China, Japan Korea, and other markets reopened quickly.
With Hollywood delay and the recent titles IMAX and be able to leverage relationships with non Hollywood studios to deliver and local language titles with IMAX DNA and grow our non Hollywood market share.
Additionally, and are open markets, we saw ongoing new theater signings and installation activity, which ramped up during the fourth quarter and contributed to the recovery of revenue and earnings.
And is very encouraging that our clients are choosing to continue the day IMAX and the cornerstone and under long term growth plans.
And then discuss our fourth quarter results. Please remember year over year results reflect the partial closure of our network during 2020.
Total revenue and the fourth quarter was $56 million.
<unk> technology sales and maintenance segment reported revenues and $36 4 million down, 53% and gross margin of $13 6 million versus 39, and a half million of gross margin and the previous year period.
The decline in revenue and gross margin was driven by lower installation activity in the quarter new.
Golf 14, Stl's versus 26, and Q4, 2019, and two hybrid systems versus seven and the prior period.
While installations were below 2019 levels. We are pleased to report meaningful inclusion and activity with our partners and speaks well to the IMAX brand that our partners continue to choose to grow with IMAX mainly.
Maintenance revenue of $8 8 million declined $13 3 million and the prior year period with.
And with increased sequentially a theater has opened through Q4.
The IMAX technology network generating $7 3 million of gross margin with revenue down 59% to $17 7 million net.
Again, our network results were driven by the partial reopening theaters in China and other markets in Asia.
Our top performing titles and a quarter, where local language films.
And player <unk>.
And the legend.
And the application and my people might on land.
Hollywood films tenant and Wonder woman and also contributed to results.
The performance of local language titles and benefiting from our efforts department filmmakers and studios outside of the U S.
Moving to cost S.
SG&A, excluding stock based compensation of $19 9 million decline from the $28 million of expense recorded in the fourth quarter of 2019.
SG&A benefited from the cost actions and took the beginning of the pandemic as well as a $1 9 million benefit and government subsidies associated with COVID-19 relief one for much of which was allocated for SG&A.
$5 7 million of costs normally allocated to cost of goods sold remained and SG&A this quarter due to reduced business activity.
Adjusted EBITDA for the quarter was $10 million down from $47 million and previous year.
We're very pleased to report positive EBITDA and the operating constraints and limited content available on our network.
Net loss attributable to common shareholders for the quarter was $21 2 million or a loss of 36 per share.
Our fourth quarter results reflect some accounting and so I would like to mention.
On a non cash charges, including a $4 $9 million write down of our deferred tax assets.
$3 million provision for expected credit losses associated with our theater and international CVR partners.
And a $2 9 million inventory write down.
We also recorded a $4 million charge associated with a final judgment and the legal matter.
As rich mentioned IMAX, China increased and targeted dividend payout ratio to 60% of net income.
This reflects our underlying confidence the strong recovery and box office and in China, and it can be sustained well into the future.
Minder IMAX Corp on 70% of IMAX, China and will be a direct beneficiary of increased dividend.
To wrap up and the pace and vaccination is increasing around the world and.
And we rapidly approached the full reopening of our economy and our lives. We firmly believe IMAX is well positioned to bounce back quickly.
And China and other markets gives us confidence that consumers will return to IMAX theater post and <unk>.
Key financial metrics are all improving.
Our balance sheet and asset like business model gives us the flexibility to ramp up quickly and effectively.
And there is a highly promising slate IMAX family titles wait and see.
<unk>.
And sure IMAX remains well positioned to abuse and benefit reopening theaters and 2021 and <unk>.
And post pandemic entertainment ecosystem.
With that I'll turn the call back over to the operator for <unk>.
<unk>.
Thank you, ladies and gentlemen, if you'd like to ask a question you may do so by pressing star one on your telephone keypad. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment.
And one for questions and we'll pause a moment to assemble the queue.
We will take our first question from Eric Handler with M km partners. Please go ahead.
Thank you very much and good afternoon.
Which one.
You could just sort of.
Give us a few parameters to think about.
For 2020, one and as things stand now and.
Yeah.
And the cadence of installs and May look like or the power has been shaping up for.
The first quarter and maybe the first half.
Whatever you can give us with that and then secondly, new.
And now all of that.
The fourth quarter.
Net positive cash flow situation.
Yeah.
And as we look like they're getting a lot better for the industry the cycles on the how a bunch of blockbusters. This summer.
On the back half of this year.
As the industry opens and how long are you thinking about using your.
Free cash flow, where could it be invested to maybe accelerate some new business initiatives.
How are you thinking about the new opening and so on opportunities on maps to expand its presence.
Okay, I'm going to start with the second one and then I'm going to pass it to Patrick to talk about installed cadence.
So and where are we going to use our free cash flow I mean, I think the first part is we still have an outstanding revolver and I think you know.
We've been we've been incredibly nimble and adapt and getting through this situation, but I think we're not going to run out and take whatever cash we generate and spend a lot of money on a lot of new things on that.
We liked suggest.
Be opportunistic and I think where we'll focus that is going to be on some new initiatives that we've been working on during the pandemic kind of.
We've been very busy during that period of time.
Little net day, because we will announce sales over the next couple of months, but.
And what we've had some pretty good development and said IMAX and has already been working on and number of things and I think on Adobe opportunity there that we'll see concept fruition.
Working on a direct to consumer strategy, which includes.
It happened and some other things so as you know our block model has historically via the model and by going direct to consumer we feel we've cut and.
Debt do better marketing and increase the IMAX penetration on a global basis.
I think we'll look at on other initiatives, we haven't talked about yet retired debt and consume a lot of cash, but some cash that we get very excited about that we've been working on.
During this period of time.
And.
And we still on.
Patrick said during his presentation and we still have over 500 and theaters in backlog and then you do a.
And the joint ventures, and I think we'll continue to invest and our network and our growth and I think.
We've had very positive returns on that so I'll pass it to Patrick debt.
And that if he chooses but also to talk about and installed.
Nothing to add on that front on installed the cadence will be we think what it typically is and even in 2020, then ended up being and similar cadence works relatively modest activity and the first two quarters ramps up and third and peaks and the fourth quarter and that's the nature of our partners typically think about and stuff.
On theaters, so that drives our seasonality and work.
So far this year, we've had and kind of a.
A handful of theaters and the first quarter and install but typically what happens where you need to get opened and the effects of the new year holiday in China, and so we've had that this year just like any other year and.
And we'd expect on unsold and a similar pattern. The big question is where do we end up and Thats still hard to predict.
We're not going to get back to everyone 2018, 2019 kind of year that does not appear to be on the cards.
And we think we should be above where we were in 2020, but it's really hard to give any specifics on that because we're still working with our partners.
Great. Thank you very much.
We'll take our next question from Alexia quite Ronnie with J P. Morgan. Please go ahead.
Thank you very much rich we heard some turbo studios Jackie this week talk about their commitment to the theater, but he also mentioned the recurring flow look different coming out of this crisis and minimize previously and I'm wondering you've got such a great perspective of the industry, having more cash.
And so long I'm wondering.
And what you think about the potential for a change and consumer behavior you know.
Which sort of window and something like keynote panel checking on a universal CL I'm, you know well, but well continue and wait and my second question.
And it's more on on.
And next ability to potentially really can really continue to gain and notable market share gains.
Given the natural skew toward more premium experience and Bath and just didn't catch it home and and now that you know well that will that demand for premium experiences you know continue to hold and I'd like to just what are they which is kind of gone out of our house and we're excited to go back outside.
And he gets more sustainable demand.
Yeah, so I'm going to collapse and all of those questions in a way and I don't fully answered please follow up Alexia.
I think.
There is no question in my mind that consumer behavior is not going to change and that material way and we don't want and need to take.
Take out a ouija board to figure that out and we as we've talked about mostly and Eric's script, and we've seen consumer behavior and countries that are open and sales and if anything and more rabbit and adobe and send them.
And there was a quote a little while ago from J J Abrams and we've said it was going to be there are and 'twenty were partly because of the Spanish flow and I really do believe that I think people and then home on their couch for too long already and I think when they can go out there really been up one and go out and the people I know who has gotten vaccinated already.
And they're out and traveling and I, just think there's going to be a lot of pent up demand and turns so.
So theres about consumer behavior, yeah, they're sitting at home and streaming of law, but theyre not allowed to leave their houses. So it's a fairly biased sample at this point I mean people on kitchens and their houses, but in a normal time. They go to restaurants right now we can't go to movie theaters. So they consume a lot on line and that would be.
A lot of sense to me, but when they can go out and they will go out in terms of the changes and Windows I think IMAX is actually going.
Good on benefit from that and I think the reason is because more of the value proposition and it's going to go to the back and are there a wait and so when windows were static at 90 days and electronic sell through and TV and this and that I think Oh IMAX.
<unk> was important but where if you are a company that all of the streaming services as well as the studio you want it and figure out a way to create the biggest possible profit overall for that property and there has been studies done over years that show people, who see a movie and IMAX like it better.
The rate and higher it is you know the brand association as well as the experience makes it more valuable.
And as Windows get shorter on studios and talent I was gonna be more focused on how to create and events around that and moving and how to make them moving stand out from the clutter and we'd really special and we started to see some of that already and so over the last couple of months as well windows and moving around.
A lot of talented directors have been in touch with IMAX and certain says well how do we get more IMAX and time moving how do we do more trailers, how do we do more free meals, how do we get and really so I think and.
And then the final point I would make I think the certainty, even though it's not completely certain but sort of the general viewed and now that window is for blockbuster. So you're going to be around 30 to 45 days for the ones. We do I tend to think closer to 45 days and we played on probably two weeks.
I don't think those windowing patterns are going to change when people go into IMAX, but I think certainty around that it's a good thing I think the uncertainty of Windows has been a cloud over the exhibition business for a long time and I think the services coming out it's going to be beneficial.
Okay.
Thank you very much.
We'll take our next question from Mike Hickey with benchmark. Please go ahead.
Oh rich sponsored product quickly.
Great quarter, and nice to see the cash flow.
And maybe development kit.
Just curious sort of your perspective, which I guess on.
And you asked most of it obviously, we see challenge on Australia, and I guess Commvault strong deal.
And we see similar stones I'd welcome and you off in terms of sort of green shoots and speak with the market coming back.
And yes, specifically Tom.
Tom and Jerry.
<unk>.
The strength and.
Family friendly movies.
And the kids out of the house and and go on and Bob to the theater and typically that's not always on.
The best content for you guys and this situation and Oh.
I think you have an opportunity to sell more family friendly content.
Moving to have a quick follow up.
Yeah, I mean, it's.
And since you're saying I think on this.
This concept of pent up demand is real and I think that if you look at other territories that over and even like China and Japan. It wasn't a switch it was a faucet and I think you need and things to kind of prime deposits, along the way and Tom and Jerry is one of those moving and I think.
And a number of movies that come out one thing people haven't really talked about but I do think is going to happen.
And some moving smoothed back because they are global theatrical releases I wouldn't be surprised to see some movies come forward and those discussions are happening right now and Hollywood, because I think the U S and it's going to be and kind of decent shape from a public perception point of view.
And you know and in May and maybe even mid April with all the vaccines and the age of moviegoers as more and consistent with younger people, but I think the issue for a lot of the studios and their delays has been because of conditions and other countries like in Europe, which are a little behind.
Don't get slower so I think not all the moves are going to be bad news and not all of it or put it at all.
Pedro opening off I think some of them are they don't fit this prime the pump thing and there have been rumors about that so I think yes.
And what you referred to as the Tom and Jerry phenomenon, I think we're going to see some of that along the way and I think we're going to be a little bit pleasantly surprised as we move into the blockbuster season.
Cool.
Last question slowly obviously looks great.
<unk> follows.
Channel, what's the implication for margins and free cash flow.
Patrick.
Hey, Mike It's Patrick on sorry, you saw that could you just repeat that question.
You have sort of followed some of your politic walking application for.
And then for margins and free cash flow.
And for him.
And the applications are obviously, good for better margins and free cash flow.
As far as China, so because what happened in China was.
And I IMAX in debt better medicine.
We had before and we kind of we're a key part and leading the recovery. So if that happens obviously there'll be positive trucks and.
China numbers will be out shortly and they're reporting area on numbers and you'll see that one thing goes and up again.
Because of the nature of our business overall, the SaaS licensing the asset weighted nature of it and the fact that we did all records on the cost side.
And snapped back quite nicely.
They are structured with theirs and ours.
And the structure they have higher margins because they don't have the same R&D and some of the infrastructure that we have but at the same day now this business has great operating leverage and we'd expect it to snap back quickly on the box office here with purpose as well.
Thanks, Brad.
Thanks, Mike.
We'll take our next question from Jim Goss with Barrington Research. Please go ahead.
Okay. Thank you.
One follow up rich in terms of OSA is a question about windows and you.
And you argue persuasively that they shouldn't affect you, but I am sort of wondering if there is some concern that the studios are brought on to focus so much on blockbusters and.
Less so on some of the smaller films that it may change the mix and <unk>.
Bailable.
Two box office and general and it may persuade some of the.
Hum exhibitors to maybe debt to keep our screens to some of the comp downtown that you would have on your screen and maybe maybe be a marvel and competitive threat and that way.
Yeah I mean.
Jeremy.
We have seen that we certainly would have seen it in China, because you know while there has been and the local language films opening up without U S films and Theres been a last Chinese films than it would ordinarily be in China. So I actually should have made that as an affirmative point. We are doing is terrific and debt, even though there's less.
And there's more and concentration and the multiplex and so we certainly haven't seen that the other thing I would say and this really isn't talked about very much yet, but as the window has shortened I think some of the streaming companies and will come into the market, particularly related to your question with some of the niche.
Moving on you said, maybe shorter windows and more consistent with the Universal deal and I know Apple has already made some noise about honor and theatrical movies. So even though the the shorter windows will cut the length of some of the ones I wouldn't be surprised to see content coming in from some of the.
Australia and companies to make up for that.
Okay and interesting point.
You also mentioned earlier there was day.
First patient.
And so that's totally with IMAX cameras and I'm on.
Wondering to the extent that debt process continues and we get more films.
Majority or all in IMAX cameras.
Your participation and that a process change the nature.
But of your involvement and such that you are services are one of the producers and.
And are you may be able to participate and downstream and have access to other.
Revenue and she may not have before.
And we looked at that over the years and are one way, we read and putting together and you May remember Chinese film Fund we're for films shot with our cameras, we could get more economics.
And it's something we might look at it again, but generally the reason we do it on.
And we index better and we get higher box office or that's the primary way that we participate in and it's worked out pretty well. So recently, we had and 800, which I referred to we had a detective Chinatown three which is one of the biggest blockbusters over Chinese new year, and we had another one called <unk>.
And what I see which is also done without Cabot. So we continue that effort I think the filmmakers and China I understand that and are excited by it and we're also looking at other countries as well and I mentioned defense layer and in Japan, but you know I.
And I didn't spend enough time talking about Japan, 15 of the top 20, IMAX theaters, and a world where and in Japan.
PSA and there are really high and we're just really doing well and our fire theater decided hit your deal with Tahoe and breadth.
Cited about those moving sideways.
And you'll probably see more and more reliable films.
Use our cameras and territories, where we're successful.
Okay, frankly and.
Is there any update and marijuana and provided for.
Slide nine less advanced and the.
And the DHS relationship in terms of timing and potential.
Oh, I think things continue to go pretty well with IMAX and as we.
We've made a bunch of.
Positive stack so on the way how we seeded the market for maybe some more significant steps.
And we're ready to talk about them, well and now and some and in terms of rhinitis lie. It's obviously been a little difficult to do either entertainment and United States, where the theater has been closed. So you know thats still there we've been working on different projects and making progress, but I think we'll have to see on Wednesday.
Things open up we're still finding a strategy promising, but we've got and mostly kind of back room work. During this period of time.
Alright, thanks much.
Thanks Jordan.
We will take our next question from Steven Frankel with Colliers. Please go ahead.
Good afternoon, and thank you rich given the strength of the slate. This year would you expect the typical summer season and to extend into August or maybe even late August as opposed to kind of peaking earlier in the summer it has typically.
Yeah, that's a really good question, Steve I think it depends on.
Whereas patients move so right now August.
On a very crowded market for all leases.
If things move out of the April may or it may push them and the August period debt that's attached to it is quite high and I know.
And the reason I say, it's high and it's quite it's typically one recent sales are scheduled and all of that because people are and they're out travel.
And whether they are getting ready for school and said and both of those and then kind of disrupted during the pandemic I would think there'll be more people staying home and unusual and all of those so I think.
And there are films released and then block positive and so we don't know.
You know where that it's entirely.
Entirely possible.
Okay and then.
What kind of marketing messages and do you use and what do you do differently to make sure.
People come out to IMAX give them.
You've got you're going to have a two week window and that's it how do you make sure you maximize that opportunity and get beyond just the paperboy.
Well again, I think you said at some point or that's not really the case for that replay is going to be I believe by and large and much longer windows and Matt and I'll go into.
Detailed.
To begin on IMAX sorry.
Yeah.
Two weeks and IMAX, Yes, I think we'll probably we've been doing that for a while emphasizing that a little bit more debt, it's unlimited and Brian I think that's going to happen organically.
And people go out to the movies once the pandemic cliffs. They are going to watch something that's really differentiated from there what are your 60 inch television and I think.
I think theyre also going to migrate not only and the movie space, but in other areas to brand and entertainment, which is something they've trials what are the non branded and I think we'll just reinforce those messages and then.
And I alluded to before I think the studios and filmmakers and the other talent organize double down on their marketing efforts around IMAX and the way, it's built kind of a simple way and create a solo and <unk>.
And what kind of pulse and urges people, let's see it at IMAX.
I don't know if you saw that Snyder.
Talk about a three and release of justice weighted and with all over the place talking about how specialists and IMAX and I expect because of the window and changes that could be even a bigger part of it Tonight and I think we'll push some of that out of our marketing channel and some of that will happen organically.
Great. Thank you.
Thank you.
As a reminder, star one for questions. We will go next to my Kim with Goldman Sachs. Please go ahead.
Thank you very much for the question I just have two.
First I was just wondering if you could talk a little bit more about how you are leading into the local language and strategy and whether or not.
And you know this.
Higher contribution from local language can continue post pandemic after.
Things get back to normal and Hollywood continues to have resumed and exploring films again and then second I was just wondering if you could provide a little bit more color.
On the.
And the installations and the fourth quarter.
And what markets are those and and do you see any changes and.
The pace of network expansion and post pandemic, especially from domestic theaters. Thank you.
Okay sure so local language, Michael as part of a trend and that had been going on for years and so we made a strategic decision to increase local language content.
Several years ago, and a few words and resolve specifically and places like China and Japan.
True route and you'd see that every year year over year, we're doing more localized and coke language and content, we accelerated that effort during the pandemic because obviously the Hollywood film somebody double down on it on.
So it's worked very well and it just.
To take out and one example, total example.
With data and player in Japan, and became the business moving in the history of Japan, and IMAX, Audi and smoothly at $27 billion. So I think it has left us feeling very good about doing it and I think it was.
Hello, and feeling very good and that's why we have applied a picture deal now so.
Kind of.
And our track record and see how it work is going to make it more viable obviously, there are going to be less slots available because of the Hollywood films and the blockbusters, which we'll spend some time doing but I think I think the other day thing Michael is that the share.
The address of diversifying.
And in local and its still sell in China. They used to be much more limited categories, but now there is some science fiction comedy drama all kinds of things that they're just salary and a certain genre like SIFI with wandering Earth day, so well and IMAX. So I think that's been on really encourage.
People to seek out and I guess and I think that Hum. The audiences are commenting and bigger numbers you saw our index and below the languages, there and that it was so I do think that's a trend that's going to continue and we're just gonna have to balance it and a more crowded slate with Hollywood releases.
I'll ask Patrick to.
Give me his views on installations.
Sure Hey.
Hey, Michael.
And it's primarily China and and other places in Asia, and the fourth quarter and that makes sense right, China opened up first and they got their arms around operating issues and we're back to the business first.
More broadly real estate construction development and construction projects resumed activity. One is just on makes sense that China would be the focus and the fourth quarter.
And that as I mentioned, even into the first quarter getting things open and operational for the new year with further activity and it's also predominantly in China and some other issues as well same dynamics was open and within our partners were more likely to be back and installation again.
Great Thanks, Rich and thanks Patrick.
Thanks, Michael.
At this time, we have no further questions and the queue I would like to turn the conference back to rich Gulf on for any additional or closing remarks.
Okay. Thank you operator, you know I don't want them based on its overly simple, but from our point of view of a courseware and 82 countries, but question is net.
Will people come back. The question is when will they come back because we are now up about vision and its way out markets and we didn't.
And talk about on the call that not just in Asia and places like Saudi Arabia, which is starting to open and other markets. When they were opened right. So we know people are coming back and we know that their habits haven't been altered by the velocity.
Rooms for the last year or 100 years.
And my Valley and doesn't change and a year because of something called <unk>.
Australia.
The industry has withstood challenges, which were much more difficult and the sites, including the invention of the TV and the DVD and.
And all kinds of things so.
Again, I have no doubt that people are going to come back and large numbers and it's just one and I think.
And a lot of the world where people feel safe they are coming back and on <unk>.
The U S and it's getting safer.
On pretty quickly and I think that's going to even accelerate and I think.
And just all have to be patient and be ready and plan out strategies to marketed to that change and make sure we sequence the right balance.
We are available on two.
Two for our audiences and helping them make them feel welcome back and I think the blockbuster receipts and especially.
We're on July 4th with top gun Maverick I, certainly can't wait to get back to the movies and I think a lot of people feel that way. So thank you for joining us on on holding well.
And while we have our next call we have even more visibility into all of this.
Thanks, Operator, I think that's a good call. Thank you very much ladies and gentlemen. This does conclude today's conference. We appreciate your participation you may now disconnect.
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