Q1 2021 Imax Corp Earnings Call
[music].
Good day and welcome to the IMAX Corp, first quarter 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Brett Harriss. Sir. Please go ahead.
Yeah.
Thank you good morning, everybody and thank you for joining us on today's first quarter earnings conference call on the call today to review financial results are rich Gulf on Chief Executive Officer, and Patrick <unk>, Chief Financial Officer, Megan Colligan, President IMAX Entertainment and Rob Lister Chief Legal officer are also joining us today.
Today's conference call is being webcast in its entirety on our website on our website a replay of the webcast will be made available shortly after the call. In addition, the full text of our first quarter earnings press release, and the slide presentation have been posted on the Investor Relations section of our website at the conclusion of this call our historical Excel model will be posted on the website as well.
I'd like to remind you on the following information regarding forward looking statements today's call as well as the accompanying slide deck may include statements that are forward looking and that they pertain to future results or outcomes. These forward looking statements are subject to risks and uncertainties that could cause our actual future results in our core occurrences to differ.
These refer to our SEC filings for a more detailed discussion on some of the factors that could affect our future results and outcomes any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information future events or otherwise during today's call references may be based on non-GAAP financial measures discussed.
Of management's use of these measures and the definition of these measures as well as a reconciliation to non-GAAP financial measures, including adjusted net loss adjusted EPS adjusted EBITDA as defined by our credit facility are contained in this morning's press release and in our earnings materials, which are available on the Investor Relations page of our website at IMAX Dot com with that I'll turn the call over.
On to Mr. Rich gas on rich, Thanks, Brad and good morning, everyone. Thanks for joining us today.
It's early to say as the pandemic hesitant has invited a guessing game of how the world will change when COVID-19 is finally mercifully behind us, but we believe that post COVID-19 future of entertainment is coming into view for the first time and that beginning of a cultural and behavioral.
Is that half.
For the past year, two things have been invariably true of global customers, one they've been stuck at home and to they've had a brush with mortality and thought about it.
Streaming media sustain many of us through the lockdown and it did a great job on it it turns out people stream a lot of TV, particularly when they're locked in on our living rooms, and it's the only thing they can do but the data shows people are ready for more having lived through Lockdowns. We don't believe consumers will be content to stay on.
Their homes, we believe they will lean hard into experiences opportunities to express the personal freedoms, they loss be around other people and expand their worldview beyond the couch, we see signs that the experienced economy is poised to come Roaring back travel live music Sports theater.
And yes, the movies and the cinema continues to be among the first forms of out of home entertainment to come back online in many markets around the world. It is a widely accessible and affordable experience, but one that's nonetheless immersive transporting and most importantly to me and the premium.
IMAX experience is the biggest best and most globally renowned cinematic experience you could get on the planet.
That's why we've helped lead the global film industry out of the pandemic in Asia and why what we're beginning to do it around other parts of the world.
For all its challenges the pandemic has revealed many strengths of the IMAX business. We are the only global out of home platform for blockbuster Entertainment.
84 countries and territories worldwide, we've taken advantage of markets on the road to recovery and whether in markets that remain close we've leaned into our strong network in Asia as audiences their return to cinemas and numbers the on even pre pandemic levels in China and Japan.
Local blockbusters or shattering box office records, and driving increased IMAX market share despite capacity limitations.
After the successful reopening there is now.
In other parts of the World. It is now spreading to other places most notably the very encouraging performances of Godzilla vs. Com Mortal Kombat and demons layer, we have a flexible asset light business model, we've withstood the temporary closure of theaters and aggressive.
We managed our cost structure maintained our liquidity and preserve our balance sheet.
Our ratio of fixed to variable cost allows us to be very nimble, we don't own significant real estate, we're not burdened by leases, we don't have staffing at our theaters.
And as global markets reopen we're able to bounce back quickly to generating box office, essentially flipping a switch without significant startup costs or lead time.
We're in demand global brand in the post pandemic era. It is clear people will turn and Archer to brands. They Trust studios are price prioritizing IMAX release windows. So they can lock in their slate, while filmmakers want more IMAX DNA and technical support.
On a films.
We've added more than 80, new systems to our network during the pandemic as exhibitors look to IMAX to reinvigorate their business upon reopening consumers want the most immersive experience as they return to the cinema and they are choosing IMAX, we continue to see that where the virus is understood.
Joel and people feel safe audiences are eager to get out of their homes with terms of the movies and most importantly, with turning to IMAX and as the momentum of the global reopening as evidenced in our financial results we reported today.
As the industry turns the corner two key strategic things have become clear one global pent up demand from Moviegoing is real and is strong and to IMAX has unique position at the center of the global ecosystem is as important as ever.
This creates a world of opportunity Brian.
I'd like to quickly touch on a few things today before handing it over to Patrick Prague.
Progress on the reopening of our global network, which demonstrates the durability of moviegoing and near term opportunities for IMAX accelerating momentum in our industry operating performance and recent results is the success, we've seen in Asia starts to spread to other global markets and finally our.
Compelling strategy and market position as we look ahead to a post COVID-19 world.
First the global network on the slate.
The encouraging signs we see at the Asian box office grew even stronger in the first quarter in China. The box office rebound and the robust pick up in installations drove revenue recovery to pre pandemic level of $26 million in line with our first quarter of 2019 and that's.
Without Hollywood films, we continued to deliver strong box office and growth in that same across both local language and Hollywood titles. It's a trend that extends to Japan as well IMAX has now delivered its number one and number two all time highest grossing Japanese films during the pandemic.
With demons player and Shin Evangeliary.
That's the highest grossing films of all time and IMAX since last April we've achieved in Japan. Since last April we've achieved a massive $1.2 million per screen average in Japan again, largely without Hollywood films. The first quarter also gave us.
<unk> is a proof that pent up demand from moviegoing exists beyond Asia.
Zillow vs com blew away expectations and as gross more than $400 million at the global box office and six of the films top 10 highest grossing markets in its first weekend of global release, where outside of Asia with very strong performances in North America, Mexico.
Russia, Spain, Australia, and Saudi Arabia.
More recently the domestic box office, so its best week out of the pandemic ear out last weekend with the North American debut of Mortal Kombat and demons flare.
We continue to see opportunity in net for the remainder of the year with blockbuster releases, including quiet place too fast nine multiple Marvel films, and putting black widow, I'm, James Bond Dune and top gun and many of those have IMAX DNA in them and.
In 2022 looks to be remarkably strong with multiple Marvel and D. C films as well as new installments of Jurassic World mission impossible and of course Avatar two <unk> just this quarter, we released avatar on off.
Along with the market in China, and only 1% of the screens, we did about 30% of the re release turning to our results IMAX continues to drive financial improvement in the first quarter, we delivered year over year quarterly growth in revenue gross margins and EBITDA, our first quarter.
<unk> of year over year box office growth in the pandemic here.
With the role of US state of the capital markets, we chose to add additional liquidity through a convertible debt offering I'll, let Patrick walk through the details, but the headline is this we're able to add more than $200 million of additional liquidity, while significantly reducing our total annual.
Net interest costs, while we have always benefited from our solid balance sheet. This transaction gives us additional security and the flexibility to invest in our business for years to come.
I like to look at IMAX beyond COVID-19.
Given the early trends we are seeing around the globe. We are very confident of our position in the out of home entertainment market to build on our mountain Menton, we're exploring ways to leverage our brands and technology for in home entertainment and the streaming market.
True IMAX enhanced we optimize blockbuster content for in home consumption and provide the best movie experience outside the theater.
Using our proprietary technology, we digitally remaster exclusive content can be delivered through high end consumer devices and streaming platforms around the world.
IMAX enhanced is available to stream in markets, including North America, Europe, China, and Japan, and IMAX enhanced certifies.
Devices that can be purchased through more than 20, leading consumer electronics manufacturers, including Sony and T. C L.
In the first quarter, we unveiled our single biggest drop of new enhanced content, yet, adding more than 50, new Sony titles and international hits, including last year's top box office performer, the 800 out of China.
More than 100 films are now available through enhanced from recent hits like Spider man far from home the classics like top gun to incredible documentaries like a beautiful plant.
And we will continue to grow that ecosystem with new partners and more content.
In tandem we've worked hard over the last year on an artificial intelligence strategy to understand whether there is a significant business and using machine learning for image enhancement. We believe we can develop potentially transformative products meeting the need for fast effective and low cost enhanced.
Men across professional and personal content and what we do.
Bring real unique advances advantages to the table on this effort.
IMAX film.
Cameras capture images and studying 12 K resolution, we have greater access than anyone to the best highest resolution content in the world over the last number of decades that content is unique and it's invaluable and teaching and artificial intelligence tool.
Had on op risk content.
Furthermore, our relationships with creators and content owners put us in a prime position to market such a solution as such we've created IMAX AI a joint venture with an AI company called Maximus founded by entrepreneur, Dr. Daniel Nadler, Daniel is best known as the founder.
A 10 share technologies, and AI and data science firm he sold to S&P global in 2018 for $550 million at the time, the highest sales of any eye AI property ever created man.
So this brings not only pedigree and proven success, but an entrepreneurial agile approach, we've been working with Daniel and his team for a year as our postproduction on tech teams helped develop a proprietary algorithm that can upraise content for K 8-K, and beyond and most.
Fortunately at very high speeds and low cost, we see virtually limitless applications for such a solution from high speed enhancement, although I have great content for streaming to real time of conversion of live sports and entertainment to potential technologies for consumer devices.
These are the decades of content stuck in standard definition and untapped for streaming classic sports footage iconic films and series important news and documentary content.
Or what you could do with live up of conversion in a world of increasingly globalizing sports leagues overtime. We believe this JV, we will develop new products and services that will help us continue to grow our IMAX enhanced business as well and as such we've moved IMAX enhanced.
Under the IMAX AI joint venture to ensure these efforts are tightly aligned.
Some we see a potentially large market opportunity leveraging our strong brand technology and relationships without material opex or capex investment, we look forward to share more of this as a partnership progresses.
To conclude we are encouraged by the signs we're seeing on the global marketplace. The IMAX experience has been in strong growing demand around the world and we are strengthening our position as one of the world's Premier Entertainment experiences. We look forward to building on our unique privileged position in the entertainment ecosystem.
Driving new opportunities for growth and creating value for our shareholders.
And on a final note as I'm sure you read in our press release, a patch on from a climate will be leaving next month.
We will be leaving IMAX next month to embark on a new chapter and taken her role as CFO of a private company on.
On behalf of all of Us at IMAX I want to sincerely. Thank him for his last day contribution to the company. He has been a trust trusted value partner to me and our entire senior management team throughout the tenure as we continue to grow our network and strengthen our global brand and particularly as we've navigated.
Through the issues over the past pandemic year per.
Patrick I wish you and your family all the best of luck and success as you move on.
As we search for new CFO I'm very pleased to share that Joe Sparacio, who served as CFO for IMAX for nearly a decade immediately prior to Patrick.
Is rejoining the company on a temporary basis as interim CFO. Most recently, Joe served as Chief Financial Officer of Entertainment One day.
Where he served under Darren true C. E O V. One at a time in a long time member of the IMAX Board of directors and Joe is instrumental in <unk> $3 $8 billion sale to Hasbro in 2019, Joes knowledge and expertise with the IMAX business will help ensure a smooth.
Transition as we complete our search for a permanent replacement for Patrick.
Again for all of you for joining US today. Please continue to do everything we can to stay safe and healthy with that I'll turn it over to Patrick.
Thanks, Rich and good morning, everyone.
I'll start by thanking rich and everyone at IMAX for hugely productive and enjoyable four plus years.
I'm proud of everything that we've accomplished it has been both professionally rewarding and extremely fun to work with such a highly capable and motivated team.
While leaving a great situation is always a tough decision I'm ready to try something new and very different.
Joining a private company at an early stage I'm looking forward to a different experience a new challenge having spent the bulk of my career at well established global firms.
I, specifically want to thank the IMAX finance team, who have thoroughly enjoyed working with and who have added so much value for IMAX com.
Confident that the finance organization is in great shape and the company is in excellent financial position as.
As we proved through the pandemic IMAX is a powerful global brand a robust and flexible business model and a strategy that will deliver long term growth as our fans around the world return.
As rich mentioned, we posted another quarter of sequential box office improvement as our business in Asia continues to capitalize on a strong slate of local language films and substantial pent up demand for out of home entertainment.
Our results once again demonstrate our differentiated financial model, where on an asset light licensing business with low fixed cost minimal ongoing capex requirements and high incremental margins.
We ended the first quarter with $268 million in cash and $283 million of that $112 million of cash was held at IMAX, China and $156 million in IMAX Corp.
Our strong financial and operating results allowed us to access the capital markets raising additional liquidity at very attractive rates in March we closed our convertible debt offering raising $230 million of five year convertible notes with a coupon of 50 basis points and a conversion premium.
Conversion price of $28 75, or.
35% premium at the time of the offering.
We purchased a capped call, which effectively raise the conversion price of the shores shares to north of $37 per share or 75% premium.
After taking into account the price of the capped call our effective cost of debt was approximately two 2%.
We repaid $255 million of our revolving credit facility, leaving 45 million outstanding and we completed a second amendment to our credit facility under.
Under the amendment, our senior secured net leverage ratio covenant is suspended through the first quarter of 2022.
Additionally for the second and third quarters of 2022, while we will be subject to a free on a quarter senior secured net leverage ratio covenant.
In calculating trailing 12 month EBITDA, we can substitute quarterly EBITDA from Q3, and Q4 of 2019 pre pandemic. This.
This will be in lieu of EBITDA for those quarters, but the corresponding quarters in 2021.
Combined these steps provide flexibility and clarity through Q3 of 2022.
I would like to point out that the full $300 million of borrowing capacity under our credit facility remains fully available to the company.
After taking into account the repayment of our credit facility, our annualized cash interest will decline by approximately $4 3 million.
We're very pleased by the results of the financing we were able to add more than 200 million of liquidity, while decreasing our cash interest.
Even when taking into account the cost of the capped call. Our total annualized interest cost will decrease.
As I discuss our first quarter results. Please remember year over year results reflect the partial closure closure of our network in both Q1 2020 and Q1 2021.
In Q1, 2020, China shutdown theaters at the end of January right before the start of the all important Chinese new year holiday.
In Q1 2021, our business in China was open and benefited from a record Chinese new year holiday, while the rest of the World was only partially open with limited new Hollywood content available.
Compared to Q1, 2020 total revenue increased 11% to $38 8 million with an adjusted EBITDA of $2 8 million versus prior year EBITDA loss of $4 4 million.
IMAX technology network revenue increased 22% to $23 million on the first quarter as the reopening of the company's network, particularly in Asia drove our first year over year increase in quarterly box office since the onset of the pandemic.
Gross margin for this business was $10 million, which increased by more than 7 million due to the higher box office revenue and lower costs.
IMAX technology sales and maintenance revenue increased 12, 5% to $17 million on higher IMAX maintenance sales associated with the continuing reopening of our network.
Gross margins for this business increased 49% to $7 million on higher revenue and the benefit of cost reductions taken during the pandemic.
We installed nine new IMAX systems in the quarter versus five in the year ago period.
SG&A, excluding stock based compensation declined 19% to $20 3 million in the quarter.
SG&A benefited from the cost actions, we took throughout the pandemic as well as the $1 2 million of COVID-19 related government relief.
This benefit was offset by $4 million of cost typically allocated to cost of goods sold which remained in SG&A.
EPS loss of 25 cents per share improved year on year over year on higher revenue lower cost connected to ongoing cost actions, we took throughout the pandemic and a lower level of anticipated credit losses.
The company took a noncash valuation allowance to reduce the value of its deferred tax assets of $7 million or <unk> 12 per share.
As a result of the pandemic unrelated uncertainty accounting rules prevent us from carrying deferred tax assets in certain tax jurisdictions.
During the quarter IMAX sold its stake in Maui on entertainment for gross proceeds of $17 8 million and recorded a $5 $2 million gain.
In the first quarter, we spent 2 million on capital expenditures.
To wrap up we continue to believe IMAX is extremely well positioned to benefit from the rebound of moviegoing is vaccine distribution accelerates around the world and Hollywood blockbusters returning to cinemas.
As we expected we're beginning to see signs that our experience in Asia as being repeated in the United States.
Audiences are returning to movies and choosing IMAX in large numbers, we have the balance sheet and business model to benefit from the broad reopening of the global economy and there is a highly promising slate of IMAX friendly titles waiting to be released from the second half of the year.
I remain confident the best for IMAX is yet to come.
With that I'll turn the call over to the operator for Q&A.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure you're on mute function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question, we'll pause for just a moment to allow everyone the opportunity to signal for quest.
<unk>.
Our first question comes from Eric Handler with.
M partners.
Good morning, and thanks for the the <unk>.
Question two questions for you first.
Now that things are gradually reopened do you have any.
Any improved visibility on what you're.
Install.
Outlook could be for free.
This year for your systems and then secondly.
Given that its clear that people are opting for.
Premium experiences like IMAX as they return to movie theaters.
Is that driving studios to have more discussions with you about more filmed with IMAX DNA.
So on the first question Eric.
No about visibility and to install so I mean, we have.
On internal budget, we have inventory, we have a general idea on what we're doing but given the changes in how quickly things move around and look what happened in India. In the last couple of weeks. We don't think it's prudent to give guidance on installs at this time.
In terms of.
The move to premium on by the way. This coincidentally just this morning, the Hollywood reporter put out on excellent article about the move to premium on a global basis.
Certainly has increased.
Number of discussions with studios, but not only studios some directors talent all kinds of people because I think on a.
Lot of people realize that some of the changes the pandemic is going to leave behind things like shorter windows, which we're seeing.
On the need to distinguish yourself on stand out.
All of those roads lead time, so we have.
And not just in the U S on on a global basis. So we've had much more discussions than we've had before about how IMAX could be utilized to differentiate our product offering and make it stand out and really drive people to it.
Thank you and Patrick Festival.
Thank you Eric I appreciate it.
Thank you. Our next question comes from Alexia <unk> with J P. Morgan.
Hi, Thank you very much I'm, just wanted to sort of circle back about where.
Where you think things will end up on the on the window on the windowing low.
I know cinemark is not a huge part.
For you, but it is still a partner and I am curious if you think everybody will come in.
Income come together and agreement on when you have these big blockbusters coming out over the next couple of months, whether it's black widow Barnes co out corella, you know well they could be at a place where they can play all these theater movies and you'll have you know the large majority of your partners kind of up and running and ability to show. These please pick up.
So I think about it in two.
Two pieces one is pandemic on one is post pandemic and I think a really good insight into where it's going to end up with what HBO, Max did and Warner and Thats during the pandemic. They tested the day in day concept.
They are running their slate out that way for the remainder of the year, but as you know in 2022 are they announced a 45 day window and.
Paramount also announced a 45 day window Universal has for a blockbuster is more or less a 45 day window, Sony has a longer window and your question circle back to Disney So they've decided to launch Cruella and black.
Widow on PV O D.
Day and day not for $30 roughly not on streaming and.
It's hard to predict but I think with the rest of the industry.
Kind of centering on a 45 day window on my best guess would be when things get back to normal that's where I think Disney will end up but.
I don't know that for certain but that's very much what it feels like and again for free.
IMAX.
A 45 day window is.
It is very good as you know, we only play movies for one or two weeks at a time and an exceptional case it would be three weeks and even when you look at the Godzilla results. The most.
Impressive thing to me was that we sold out roughly 1000 shows over a weekend at limited capacity, even though it was available day on data for that moving on HBO. Max So I don't think IMAX really competes with that streaming window.
People have always been willing to pay a price premium people want to go to something special they want to get out of their houses so.
We've never been that caught up on it but could be direct answer to your question I think it will likely settle on 45 days.
But do you think on the deck that didn't phrase my question very well.
On the theaters and the studios you know how how cinemark sat out in terms of real well when they come to an agreement and therefore, you'll have all your dividend relative to share.
So you know somebody's movies that we put in an IMAX. Thank you think cinemark will ultimately come to an agreement with Disney on the spreads on and therefore.
Ill share with these films, which obviously will be a benefit.
So I don't have a direct line and to Cinemark I'm very close with Mark Zoradi. The CEO Adam discussed this issue with them at all so I can't comment on that but I think.
I think both Cruella and Black widow will play in the majority of theaters.
The majority of IMAX theaters.
Yes.
Whether it's black widow Corolla all day.
Eventually we will set out in the new normal.
You'll have the.
Theater is sort of just blame on maybe isn't it will be net net you're not.
Concerned about the longer term disruption I guess about the window changing it sounds like.
Not for IMAX I'm not concerned about a day as I said.
With.
Even in day in day, and even a look on mortal Kombat I mean, the results in IMAX appear on the indexing very little affected by day and day, and it's not going to be day in day, and it's going to be significantly better than that as I said.
I'd add I think actually it's an opportunity for IMAX it relates a little bit to the question Eric asked right before that and the reason is if you want to events or size of moving and you want to publicize it for your streaming service or whatever your ancillary is there have been studies over the more than <unk>.
The last decade that show that people like the movie better it gets a higher cinema score when they see it in IMAX then when they see it on a regular screen or certainly on a television screen, so you're creating more value to the content chain. So people want to double down on IMAX, because thats the way theyre going to mom.
Ties the whole property and so one could argue the shorter window is.
Good for us.
I guess to that point is there any interest or need to change our lean into your marketing strategy a bit more to highlight that this is more of an event.
Now that there is pent up demand on paper, so anxious to come out of their homes or do you think that's where you are ready as it does its job.
Well I think the studios will put more money into that because they'll want to create more on a event and publicize the IMAX release more.
Kind of curate for the public that this is really a special movie and I think we'll make some tweaks. So for example, I think we would do things like saying you only have one more week to see it in IMAX or to create more of a sense of urgency, but I don't think it'll be a drastic overhaul.
Okay. Thank you and best of luck Patrick.
Thank you.
Thank you. Our next question comes from Chad Beynon with Macquarie.
Hi, good afternoon or good morning, Thanks for taking my question.
I wanted to start with China, which was a bright spot in the quarter can.
Can you help us think about how the slate looks for the upcoming May Golden week, and then you know how this golden week period. Historically compares to October Golden week, I know back.
Back in October of 2020, you had a very successful outcome and I think that was led by 800, but just trying to get a sense of of.
How important this week is and what the local lineup.
Thank you.
Thanks for the question. So typically there are one or two big blockbusters during Golden week for whatever reason this year.
Is much more spread out so there's not an obvious.
Take out hit like there has been in the past and I think there's something like 12 or 13 movies being released.
On the IMAX as point of view, that's not as advantageous because it wasn't like we can go on fine. The 800 like you point out and say this is the movie.
So I don't think its going to be a breakout period for us. This year I think we pick movies as good as any of the movies out there.
In general, but I don't I don't think there'll be a breakout.
Golden week period on this.
<unk> for the rest of the year, though I don't have it off the top of my head.
I remember one that used our cameras called Mozart in space, because obviously, that's a very unique name, but there are a few movies like that that we have.
A fair amount of confidence in coming out later in the year, but not golden week.
Great. Thank you and then what have you guys learned you on your partners learned just in terms of price elasticity. During this period I guess outside of the U S. But then also in the U S with with Godzilla and Mortal Kombat do you expect for <unk>.
Seem to be pretty strong, particularly in.
And you're well located.
Units in Big cities do you think they decided to push it or do you think.
On your partners kind of ease into into pricing with your customers.
So I can tell you in China on net during Chinese new year holiday on pricing was very strong in.
There's no deterioration from where it was in 2019 in Japan for the strength of heads up pricing has been very strong we haven't seen any deterioration I haven't looked at it and this is anecdotal, but I believe that pricing.
We're at Godzilla and Mortal Kombat has been consistent with pricing before the pandemic, we will have to see how strong demand is we'll have to see what the capacity restrictions are I don't anticipate any any weakness, but part of your question is given all of those.
Liquidity out there and given the demand and the limitation of our screens you will be able to raise price as you know we will see I don't know certainly the macro trends would be.
In favor of not a lot of resistance to raising prices, but we'll have to wait and see.
Thanks, Rich and best of luck Patrick.
Thank you Chad.
Thank you. Our next question comes from Mike Hickey with the benchmark company.
Hey, Rich Patrick Brad Good morning, guys Congrats.
On your results Patrick.
Often working with Ya man last four years and best of luck to you.
Again, thanks for the question.
Yeah, you definitely seem a fired up on AI here and it does look like.
Really interesting opportunity for an ancillary revenue.
For you so.
Maybe can you double click on.
Just thinking about capex needed.
On to grow this business, how you'd think about.
Monetization and sort of where you are in the process of monetizing.
And if you think I guess when do you think this could be a material contributor on if at all.
I think it's too early to try and quantify what the impact of AI.
We will be financially.
We think we're onto something I mean, we could have.
Partnered with a lot of big AI companies maximize not only had Daniel Nadler, which I described but the same team that was a team behind Ken sure. The one which I mentioned was the largest AI sale.
His channel sale of private companies on AI.
And it's up it's a relatively small team it's mostly.
People from Harvard and M I T and <unk>.
It's a very high caliber team and I alluded to this in the remarks, but to go a little bit deeper the way AI works it's like.
Teaching a child, except it's a lot faster than a child and you put data and and then in a very high speeds. It can learn and spit. It out IMAX has the best teaching data in the world because the resolution is higher and we also know a lot about images and we also have the brand.
We don't we really don't know yet what the market is going to be we think there's a potentially big market out there and we spent a year as I said refining some of the elements of the technology.
We've started some very early discussions to take around and see where it goes.
But we just don't know.
As I mentioned on the call, we folded IMAX enhanced into that.
We're partners with on Streamers electronics manufacturers studios around the world and enhanced including I mentioned, Sony and Tcl, but it also includes on Tencent.
It also includes <unk>.
<unk> Tam in Europe, Fandango, a number of other people and there are still ongoing discussions and remember what enhanced does it uprise as content in a different technology not in AI technology, and we've gotten some pretty good traction with that early on and we hope to use.
The business that we've developed there and the relationships along with technology that Maximus brings to the table on to create a business around it but it's way too early to put numbers around it.
And Michael on your first point.
Hey, Michael Your first point of your question around Capex. So one of the things we find very attractive about this by its very nature is highly scalable and so depending on which path. We go down there will be startup costs on opex and potentially some capex, but the nature of AI solutions and tools.
True.
How they add value as being highly scalable and that aligns with how we think about our own business, which is we are on asset life business.
That's what's makes a ton of sense for IMAX, yeah, Thanks, Patrick and Mike just before you go on just to give you an example.
Brad is the moving to <unk>, our 8-K using existing technology.
Fairly expensive proposition.
High end, if your scorsese on where you're doing Apocalypse now, it's super expensive, but I think that the.
Cost to do it is in the tens of thousands of dollars to our president image and AI. It's the cost of electricity. So that just tells you why we're excited about the possibility, but we have to figure out the market size.
Okay. Thanks, guys I appreciate that.
The next question would be on the pent up.
Demand youre seeing from Moody's on obviously, it's you are seeing more than anecdotal I think instinctive that people are.
Greg do you see the moving again, but when you look at.
Behavior.
China, which I guess has been far more normalized we have here on the U S on international ex China.
Seeing any indications of.
Sort of a slowdown there on a more normalized behavior sort of post Chinese new year rich when you look at that market.
And.
And I'm curious I guess the question is how long.
Do you think we can stay elevated here.
That pent up demand I mean, certainly summer 'twenty, one as exciting are we going to be.
Im still excited in 'twenty, two we'll be back to sort of.
Normal movie going in a year or so.
I'm also curious.
What youre seeing in China in terms of when you look at the growth to.
Ticket pricing versus attendance in terms of driving growth from first quarter. Thanks Scott.
I mean, obviously in the longer term, it's a function of the contents as well as consumer demand and there is fantastic content per boat 'twenty, one and on.
'twenty two.
Went through some of it for 'twenty two for 22, but I didn't go through all of it but it including like Spider Man I didn't mentioned mission impossible items mentioned I mean through the end of 'twenty two it's like the all star team of content coming out so on the content point of view an avatar.
To remind people that IMAX does over $200 million and avatar. When I think we had 150 screens and now we have 16 on just screens I wouldn't suggest it's linear but there's obviously a lot of demand for seeing that property in IMAX. So I think we have tailwind.
From this year on next year going forward and the pent up demand.
On a category I mean, I do think J J Abrams was quoted as saying the reason the roaring twenties, where roaring was because of the Spanish flu pandemic and people came out of it and I do think especially when we come out of this with government programs.
The liquidity sloshing around the system and people sitting at home again, just anecdotally on so many people I know are planning trips now full later on the here and theyre much less price sensitive than they otherwise would've been it relates a little bit to the comment Mike that I made earlier about.
Confronting year mortality I think whatever your range as you kind of think you have forever to do everything, but I think after this brush and being locked in and saying what we went through I think people are going to say experience. It now Brad that way and see what happens.
On a much smaller scale, obviously, but I think social experiences getting out being with brands being able to scale. I think this is going to be a lot of tailwind there.
I guess, one more quick one.
With the shorter windows, rich and what looks to be sort of the migration to the premium experience from movie goers that you noted.
Do you think you'll see more domestic competition.
For Pls screens on it.
Side do you think does now.
Turning to kidney installation bump domestically.
Well, if you remember, which I'm sure you do IMAX has exclusive zones. So on 42nd Street in New York, where in the AMC, we can't be on the Regal across the street, although they'd like US there on we'd like to go there. So I don't think I think there's some room for growth in north.
Erika, but not a lot and screens I think this a lot of room for growth globally, and a lot of those markets like Japan.
30, something theaters open now and we are on target in the next few years or possibly 100 zones in Japan.
Middle East is another one Saudi Arabia. So I think there are markets, where you'll see an enormous amount of growth I think you'll see some growth in north America, but not that kind of rapid growth in terms of competition in North America, you have to remember that the 80 20 rule is in North America, which is <unk>.
Most of the business comes from 15% to 20% of the screens and IMAX is 85% of our network is in those top performers and then beyond that a lot of those have kind of IMAX copycat screens and.
Pls and.
They are fairly penetrated in that market.
I don't think there's a lot of places to go they could go to smaller markets, but the economics of those markets arent going to support a large IMAX expansion or I think the development of a lot of other big screens.
Alright, Thanks, guys best of luck.
Yeah.
Thanks, Mike.
Thank you. Our next question comes from Mike <unk> with Goldman Sachs.
Hi, Good morning, and thank you for the question I was just wondering if you could talk about whether you see that.
Potential force single film or group of films that could.
Deliver what would be considered a normal or post pandemic level of box office performance and can serve as a proof point of our U S box office recovery and help us think about where.
The new baseline of box office will be just trying to get your sense of whether there's a.
Lipids test in the in the near term that could help us all assess the health of the box office in the U S. Thank you.
Well I mean, I think there'll be a bunch of small witness has clearly by itself for example, quiet place, which is coming out around memorial day, and we know what the last one day, we'll see what this one did I think that will be somewhat of a benchmark depending on where capacity limitations are you have to factor.
And I think on Zillow is a pretty good.
0.1 of the paths I didn't mention on the call was something like.
I'm trying to remember the 1000 of our shows sold out because of capacity limitations, but if you look at those thousand it was.
Mostly all of the primetime shows.
If we weren't at 25% 30% capacity.
We can all extrapolate I don't know whether 1000 on what is sold out but certainly we would have gotten a lot better on the box office would have been better in terms of big movies.
It's not clear to me.
Whether on black widow will be.
A good test or not because obviously, it's got a tea volume release, so you need to like up fully theatrical release with theatrical windows. The one I would bet on was Maverick top gun and I was hoping obviously along with a lot of other people that that would've come out in July.
But for a lot of reasons, including the movement of Black widow, it moved to Thanksgiving. So.
I know, it's a little later than we'd all like but I think that will be a full test assuming the pandemic remains.
What remains under control at that point.
Okay. Thank you very much for the thoughts rich and good luck to you Patrick.
Thank you Mike.
Thank you. Our next question comes from Jim Goss with Barrington Research.
Alright, thanks rich.
Rich continuing along this theme of how the benefits might accrue to 21 2021 versus 2022.
And maybe beyond.
The theaters studios wood plant.
Exclusive real estate, but theres, a cost to doing releases and I know you maintain a strong relationship with all of your studio partners I'm wondering how your sense.
As to how the studios would allocate films to this year versus next year.
Given that it might bump it up too much in the second half of this year.
But there's also a cost to doing those releases.
And I have a couple of others.
With that first so.
Jim on that one I'm actually going out to La next week in a meeting with pretty much every studio. So I can answer that better next week, then I can this week because I haven't been out there for a while.
But more based on thought then on discussion.
I think this year's slate.
Is pretty much where it is right I think at least in the U S. On the course of vaccinations and disease is pretty well known obviously places like Europe, and India more uncertain, but.
I would be surprised to see much movement from 'twenty one 'twenty two at this point I think it's largely where it is.
And I think 'twenty two is.
Pretty set also.
I think the studios have youre right about cost of carry but obviously interest rates are pretty low. So it's less cost of carry but I think the studios have been less focused during the pandemic on.
On the economics and more focused on <unk>.
Streaming strategies, Eric <unk> strategies, which to some extent it makes sense right because people were in their houses they werent going to movies.
But I think so I don't think thats been Paramount the accounts carrying cost at the point I think as things open box office numbers start to post people will be more focused on that which I guess supports my view of that not a lots going on.
Okay.
I was also wondering is.
To the extent that some of the smaller films might be more at risk on moving to.
Streaming et cetera is there any potential benefit to IMAX box office from a smaller slate of.
Smaller films versus the blockbusters, which obviously you need the.
First on releases.
I don't really think so Jim.
Look at every year like I don't know.
On a seven or eight films make up a vast majority of our.
Box office people go to IMAX to see blockbusters and see them in a special way I think the cost of marketing the smaller films.
Building awareness and I also think the brand Association of IMAX. The brand Association is more with.
On top gun Maverick than it is with marriage story and I don't think thats going to change I think that some.
I just don't think that's who we are.
Okay. The last thing I'd ask is Japan.
Japan's your current emerging market start claims.
Are there other markets and in the index circle capable of warrants in March.
Or indigenous TMR treatments.
Sure I mean, I think the middle East for sure and Saudi Arabia, specifically.
We have a backlog of something like 30 theaters, there, but I think we only have three theaters open and the territory. Today. We are on a couple more opening this year, so and the per screen averages. There are extremely strong so I expect when things get back to normal there'll be activity going on there.
And they're already has a lot of discussions going on I think China is still has a fairly long way to go.
Other places in the Middle East.
The Emirates I think there is other examples in the Emirates.
I'm just trying to think Latam, we're underpenetrated, but I think that may take longer to get started and come out of the pandemic.
That's more or less where I see it Jim.
Alright, thanks, very much and Patrick I'll add my congratulations and thanks to you and it'll be good to see Joe back for at least a temporary period.
Thank you Tim I appreciate it.
Thank you. This concludes today's Q&A I would now like to turn the call back over to rich Gilson from <unk>.
Closing remarks.
Thank you.
Operator.
So everybody yes.
Really it's been a a.
A difficult year for all of us on a professional basis a personal basis.
Every basis.
I think for IMAX, we definitely feel like we're coming out of it right now we've come out of it in Asia and the only kind of carburetor holding us back right now is thoroughly some movies in particularly in North America with the movies have seem to have done pretty well and then obviously the pandemic.
In places like India, and Europe, but if you sat here you can definitely feel it happening even a couple of months ago people were saying will people come back to the movies and now the dialogue has changed to when will people come back to the movies. So we're feeling pretty good about where we said we think we're on a path.
GAAP to recovery and.
I think the pandemic forced us to do two things which was.
That net.
Battened down and I think look at what we're good at and not and I think our strengths have become apparent to a lot of constituencies, including the studios filmmakers and investors and.
And I think we've also used the period of time to try and figure out ways to move into other areas such as in the home and we've laid the groundwork for that I've said I think it's too early to make a firm predictions on where it goes but we try to use this period of time to be strategic.
And I think we.
We have an <unk>.
Hopefully the results will follow that and I think I'll end by saying.
Many of you who've been around a while know Joe Sparacio. He knows the company extremely well. So we're really fortunate to be able to fill the gap until we can recruit with Joe but.
Patrick has been a tremendous asset and helping strategically and professionally and a lot of ways and building IMAX said we.
We in the IMAX family wish him well so thank you very much.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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