Q2 2021 Imax Corp Earnings Call
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Good day and welcome to the IMAX Corp, second quarter 2021 earnings Conference call.
Today's conference is being recorded at this time on wives rhythm on mute there will be a Q&A session. After our prepared comments at this time I would like to turn the conference over to Mr. Brett Harris head of Investor Relations.
Please go ahead Sir.
Thank you and good afternoon, everybody. Thank you for joining us today on today's second quarter earnings conference call on the call today to review the financial results for Rich Gulf on Chief Executive Officer, and Joseph Raphael, Our interim 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 a replay of the webcast will be made available shortly after the call. In addition, the full text of our second quarter earnings press release, and 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 to the website as well.
Today I'd like to remind you of the following information regarding forward looking statements today's call as well on 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 to occur.
Occurrences to.
Well.
Please 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.
Today's call references may be made.
Made to certain non-GAAP financial measures discussion 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 and adjusted EBITDA as defined by our credit facility are contained in this morning's press release and our earnings materials, which are available on.
And on the Investor Relations page of our website for IMAX Dot com with that let me now turn the call over to Mr. Richard Gulf on rich.
Thanks, Brad and good afternoon, everyone. Thank you all for joining us today.
With theaters reopening audiences, returning and the pipeline of Hollywood blockbusters.
<unk> steadily growing from a trickle to flood the global box office continues to show encouraging signs of improvement. Indeed, we believe IMAX is leading the global recovery of the film industry.
And equally positioned to benefit immediately from the upcoming acceleration of Hollywood.
Hollywood blockbuster releases and poised to take market share as the world Reopens.
Our results for the second quarter clearly demonstrate this.
The company delivered its best gross margins and adjusted EPS of the pandemic era, Despite a Hollywood slate only slightly.
Slightly better than prior quarters, demonstrating again, the high margin nature of our asset light licensing business we.
We delivered our third consecutive quarter of positive EBITDA.
Our global network earned $109 million in box office.
Surpassing initial projections, thanks to better than expected domestic performance for a SEC.
In consecutive $100 million, plus ox office quarter.
We've already eclipsed our total 2020 box office for local language films and.
And we easily drove year over.
A year quarterly growth revenue gross margin and EBITDA, demonstrating how far we've come since the second quarter of 2020 for first quarter, we felt the full breadth of the pandemic.
We are confident these positive trends will not only continue to accelerate with a full slate.
<unk> of exclusive theatrical releases later this year.
We will have unique advantages to effectively manage through COVID-19 we.
We built the only global out of home platform for blockbuster entertainment with a diversified footprint across 85 countries and tariffs.
Worldwide.
We have a flexible asset light business model and.
And we are in in demand global brand loved by audiences worldwide critical to filmmakers and studios and ripe for new business opportunities, including our IMAX enhanced home and entertainment.
<unk>.
Even in a world of shifting windows and evolving distribution model, an IMAX release as a window unto itself.
Moving to draw on moviegoers for the theaters guide premium revenue and launch event films into the ecosystem.
Now with Covid.
And then finally receding in many key markets, we're beginning to see the industry stabilized and establish stronger forward momentum than at any other time during the pandemic.
As a result, we see an opportunity for IMAX to further expand and diversify our global network.
Covid grow and diversify our content portfolio and lean into the increase blockbuster <unk> of the movie business.
Today I'd like to provide a strategic update on the reopening on future of our global network.
Signs of strong audience demand for the IMAX experience.
Why IMAX is well positioned as windows and distribution models evolve and finally, our fast accelerating content pipeline.
But first let's look at the current state of our network.
<unk> Global network is now 90% open higher than at any time.
And the pandemic era.
The domestic net worth is about 95% open and operating at about 90% capacity and internationally, excluding China as theaters are about 80 per se to open and at around 67% capacity in China, our theaters a virtue.
100% open.
Continue to open more theaters and seat capacity limitations ease for the availability and in the domestic and international markets already up over the launch of Black widow earlier this month.
We installed nearly 100 systems.
For our network and signed 80 during the pandemic as exhibitors look to IMAX career invigorate their businesses with a differentiated premium offering.
And we continue to add premiere flagship locations around the world locations that offer significant box office.
Potential and further enhance the prestige of our brands.
This month, we opened our first ever theater in Con, France, and a brand new state of the art multiplex Digital Art Gallery, and advent space on the Mediterranean.
For the theater is already drawing interest as a screening location.
Patients from the many international events hosted in Con most significantly including the film Festival.
We are currently installing our biggest IMAX screen in the world and Leon Berg, Germany.
Measuring at 22 meters high and wider than a Boeing 737, we needed.
17000 seats hockey Arena in Ontario.
For all on paint the screen, but for shipping it across the Atlantic.
And IMAX theaters will be featured in several of the iconic Los Angeles cinemas that have recently transferred ownership, including the growth in the Americas.
<unk>.
<unk> will reopen next month and Sherman Oaks.
Which has already reopened with Regal, both AMC and Regal continue to look for opportunities in the marketplace at IMAX theaters and newly acquired marquee location.
We continue to see considerable room.
<unk> around the World IMAX Global network currently stands at just under 600 centers worldwide with a backlog of 419 theater.
And we see a total addressable market of 3300 theaters driven by the many international markets around the world.
We're moviegoers are clamoring for our on rival.
Arrival experience.
Not only on theaters reopening audience demand is remarkably strong and we expect it to continue to grow as COVID-19 with fees and more moviegoers regains.
Click level returning to theaters, perhaps the most encouraging.
<unk> trend for the second quarter is the domestic box office, which continues to demonstrate the same pent up demand for blockbuster that we've seen in Asia and the middle East.
New Tentpole releases continue to pass every day test at the box office.
<unk>, a day and day release.
On HBO, Max that's still versus Com has delivered more than $100 million.
At the domestic box office, and $460 million globally, including $37 million in.
In IMAX so far.
Hyatt place to the first exclusive theatrical blockbusters beliefs.
The summer season vastly exceeded expectations delivering delivering an opening on par with what was expected pre COVID-19 despite significant capacity limitations in place at the time.
<unk> has also performed up to pre pandemic levels, thanks to our board.
Global rollout designed to maximize the theatrical.
The theatrical window.
And most recently black widow opened to a $158 million.
Worldwide, giving IMAX, it's best opening for Hollywood film and it's the best domestic opening weekend box office in.
Indexing on per screen.
Average during the pandemic era.
As we've said for recovery of the box office will be a gradual incremental process.
A faucet not a light switch, but it's clear that we're headed in the right direction.
Additionally.
Many of the studios that have experimented with hybrid relief strategies are recommitting to exclusive theatrical releases for blockbusters.
For the last thing around a 45 day window for most painful.
This benefits IMAX as it enhances it.
The event.
<unk> nature of an exclusive theatrical release and further increases IMAX his role as curator of blockbuster.
Given that films generally only play in our network for 1 or 2 weeks at most we are well positioned to take advantage of that compressed demand.
<unk>.
Filmmakers are clamoring for secure and make the most of their IMAX window, whether its shooting with our cameras.
Including IMAX exclusive expanded aspect ratio for Cree.
<unk> exclusive events like the preview that universal screen for Jurassic World Dominion, but.
<unk> 9 for.
For the exclusive Din June preview, we hosted in select locations last week.
All of this helps drive demand and ultimately market share for the IMAX experience.
Also the experimentation we've seen amongst studios in the past year along with.
For out of leases from pure play streaming companies has underscored the irreplaceable role for the theatrical release in launching and growing franchise property debt.
Kind of IP that is driving the entire ecosystem right now.
For all its value screening is yet.
Moving on a blockbuster film franchise and all the downstream revenue our franchise film create.
At the end of the day for US still no event and entertainment that command the attention of culture, a global theatrical blockbuster really.
On IMAX is at the Vanguard of.
These culture defining moments.
So the table is set for a strong rebound at the box office with 1 outstanding exception, a steady supply of big Bankable blockbuster films.
Certainly the global box office has demonstrated that it is ready for business with the films that have.
Held their release dates during the summer season.
For the summer season has still been lighter on blockbuster releases than we'd hoped for studios takes a conservative approach pushing many tentpole releases into the fall of 'twenty, 1 or 'twenty 2.
Right now the only real issue.
Building on the box office back from a faster rebound as supply.
That is changing though that's the Hollywood content pipeline is accelerating with strong slate ahead.
When Marvel Shang Chi leases on September <unk> that kicks off the cadence of major blockbuster.
So roughly every 2 weeks, including denim.
Bond June eternal popped on Maverick Spider man and the matrix.
The pipeline as we've said is remarkable.
The instance in the second quarter, the only global blockbuster.
Busters, we had with exclusive theatrical releases or F 9 and a quiet place part II.
Compare that with Q2 of 2022, which is absolutely staff with franchise films, including the new store mission impossible John Wick.
Transformers.
<unk> World.
Disney's light year, and Brad Pitt action or bullet train.
Even beyond Hollywood, the IMAX content portfolio emerges from the pandemic stronger and more diversified given the way we've leaned into local language production during COVID-19 and.
And our brand in key institutional market.
As I mentioned in 2021, we've already surpassed our total 2020 box office for local language film and.
And we expect to top of our record breaking 2019 local language box office by the end of the third quarter.
Strained the critical Chinese market is also demonstrating pent up demand for Hollywood blockbusters with F..9 proving now on a global blockbuster franchise. The season exclusive theatrical release, the Chinese market will embrace it as we've seen it do in the past.
The table is set strong rebound for the global film industry. The reopening of theaters is accelerating audiences are coming back and big numbers and the flow of blockbuster content into theaters. This fall and beyond is unprecedented.
As we.
Some maybe in the second quarter as blockbusters returned to theaters, our numbers will improve markedly.
IMAX experience has been in strong growing demand around the world and we are strengthening our position as 1 of the world's Premier Entertainment experiences.
Look forward to building on our unique privileged.
Privileged position in the entertainment ecosystem, driving new opportunities for growth and creating value for our shareholders. Thanks.
Thanks again to all of you for joining US today. Please continue to do everything you can to stay safe and healthy.
That I will turn it over to Jos for ICF.
Demonstrates rich and good afternoon, everyone.
Rich mentioned, we posted another quarter of significantly improved performance as our network continues to reopen in the U S and across the World operating results continue to improve which serves to highlight our superior business model.
As a reminder, we are a global asset light licensing business with a low cost base and high incremental margins.
This quarter's serves as a preview for what is to come as Hollywood films, returning nervous too are quickly reopening global network.
We ended the quarter with $214 million in cash from $241 million of debt on.
$115 million of cash was held at IMAX, China and $99 million at IMAX Corp.
In the quarter, we paid down on the balance of our credit facility.
For the full $300 million on drawn which when combined with our cash on hand, and Undrawn component of our IMAX, China on working capital facility gives us approximately $530 million of available liquidity.
As I discussed.
The second quarter. Please remember year over year results reflect the almost complete closure of our network in the second quarter of 2020.
Second quarter, 2021 revenues increased to $51 million from $9 million in 2020.
Adjusted EBITDA increased.
Moving to 8.7.
$7 million versus an EBITDA loss of $18.5 million in the year ago period, an adjusted EPS loss improved to 12.
From 44 and.
In comparison to the year ago period.
IMAX technology network revenue.
Increased $19.7 million in the second quarter from essentially nil in Q2 of 2020.
The reopening of the company's network, particularly in Asia, and the U S drove box office of 109 million versus $3 million in Q2 of 2000.
20.
Gross margins for this business were $8.7 million, which increased from a loss of $6.5 million in Q2.2020, largely due to higher box office, driven revenue and the operating leverage inherent in the business model.
IMAX technology.
Technology sales and maintenance revenue for the second quarter increased $28.7 million from $4.6 million due to higher sales on SCO revenue as installation of new systems increase and an increase in maintenance revenue commensurate with the reopening of the network.
This quarter, we installed 15, new IMAX systems.
Of which were sales or stl's, 2 of which were hybrids. We installed 3 IMAX systems in Q2 of last year installation activity increased.
Both year over year.
And sequentially demonstrating continued IMAX system demand from our exhibition partners.
Gross margin for this business increased to $16.1 million, representing a 56, 1% margin commensurate with the higher revenue levels.
SG&A.
Excluding stock based compensation declined 4% to $22.4 million in the quarter as compared to $23.3 million in the comparable period last year.
The reduction in SG&A included an increase in costs allocated out of SG&A.
And then to inventory and cost of goods sold a $4 million, partially offset by a $1.5 million decrease in various COVID-19 wage related programs.
In the second quarter, we spent $1.8 million on capital expenditures, including 900000.
<unk> invested in equipment for joint revenue sharing theatres.
We believe our second quarter results represent another milestone in the company's emerging merchants from the pandemic.
Strong box office in the U S and parts of Europe demonstrate the same signs a.
Pent up demand, we continue to see in China.
Increased revenue was driving profitability improvement highlighting our superior high margin asset light business model.
We have a strong balance sheet with substantial liquidity and.
And finally, we remain excited for the strong.
Slate of IMAX friendly titles set to be released later this year.
With that I will turn the call over to the operator for Q&A.
Thank you think you'd like to ask a question. Please signal by pressing star 1 on your telephone keypad and if youre using speaker from.
Please make sure your mute function is turned off for a while you're taking on to reach our equipment.
Star 1 to ask a question, we'll pause for just a moment to allow everyone an opportunity for questions.
And we will go first to Eric handler of MCM partners.
Thank you very much and good afternoon.
Rich I Wonder maybe you could give.
A little peek into how your.
Installation.
By installations might look for the back half of this year at least maybe for the third quarter when the what kind of visibility you have there and I've got a follow up question.
Yes.
I don't think were doing it we made a policy during the pandemic not to do that.
Cause it's so unpredictable and if so territory to territory, but as you as you saw last year, we were surprisingly.
Active installations.
Even though the world wasn't open up and I think there'll be activity at the second half of the year on as you know, we usually backend loaded in these things, but I'm just not going to be specific until we know.
Where I would say from what the course of the viruses.
Understood and then.
1.
Wondered if you could talk about.
Youre, obviously seeing good.
Local language.
Turnout for films in China.
How are you sort of going to be implementing similar policies and.
Other countries and where you see some opportunities on the back half of this year.
Yes, I mean I've been surprised by how robust some of these markets arent IMAX and.
China. This weekend, we released a movie called White Snake, and we did on 9% on the box office and it was fairly successful film in China, So I'm continually surprised and I think over time.
You'll see these local language films keep edging up until they eventually have the same kind of indexing debt.
Hollywood films are but it is a strategic initiative of ours and we.
We're working closely in different markets.
And do you want to give some specific.
Examples for sure in Japan, We've set 2 records over.
The pandemic era with.
Keith films.
That has a broken record and we have a 5.6 share deal with telehealth, Delaware continuing.
<unk> worked very closely with that company could be not yet.
Leasing accounts that also have a non sheath theyre using.
Using the IMAX certified camera program, so really leaning into the technology and looking to continue to align closely on.
The reduction also in Korea, we've had some success with local language product and the great thing when a movie does breakout.
Like we saw with demons player.
Those films are able then to be exported out of say Japan.
Our prior it was a record setting film and are able to be distributed in the United States in Europe in Korea, there is a <unk>.
Market for them outside of Japan, and so it's been a very successful program for us.
Great. Thank you very much.
Okay.
Our next question.
Ronnie.
Yes.
Thank you. Thank you Greg. Thank you very much on top 2 questions. If I may the first 1 rich I'm wondering if you have.
For the view on how much you know the fact that black widow open for the day and date for <unk>.
Once that May cannibalize.
<unk> revenue, even keeping them on talk about the box office in general I'm not sure. If you have any more insight than we do but that might.
And then secondly, I'm just curious.
When we going forward and kind of the new World Post Covid.
IMAX just sort.
How many years you kind of index better as a percentage of the total box office given this new kind of assuming heavy world moviegoers are clearly leaning into kind of more experimental kind of experienced kind of movies.
Clearly a positive for you, but I'm wondering if you have a sense of how much of what we've seen in the numbers is it keeping a notable positive.
So on your first question Alexia There is really no question on my mind.
The combination of <unk> and a lot of <unk>.
Piracy and people haven't really talked about that much but clearly there was a lot of piracy that accounted for the cannibalization on <unk>.
Significantly affected.
So for us at the end of the day, it's hard to quantify it but some statistics I find interesting our debt F..9 which is the more traditional distribution model grows to about 700 will gross around $700 million worldwide at the end of its run.
The buyer will gross around half of that so again are they comparable movies. This Saturday I thought black widow was a great movies. So on I think about it I have no doubt a lot of money was left on the table, but I cant.
Perfectly say what it is in terms of post COVID-19.
I do think debt, we will continue to index better in fact in countries that have emerged faster than North America, we've seen us have a bigger percentage of the box office I just referenced China on the 9% few minutes ago for local language films.
Having.
Higher indexing and I think what you're also going to see is just going to be more and more blockbusters. Because I think the studios are going to take their more lower cost releases and put those direct to streaming but the kind of movies that IMAX does on will concentrate around.
Around the theatrical releases and I think since SaaS IMAX as sweet spot I would expect us to continue to have pretty good indexing numbers.
Thank you.
And from that to our next question from Eric Coldwell B Riley.
Yeah.
Thank you good afternoon.
A couple of questions I had 1.
I wanted to try to follow up on.
The first question from Erika I know, you're not giving system installed visibility of not trying to push the average any numbers in general, but just kind of what what is the mindset.
From exhibitors in general around the World, obviously that they had plans to get stuff installed in 2020.1.
Independent dynamic based on their schedules for those guys disrupted and now we're sort of reopened as just kind of everything that was back on kind of shifted out by some period of time just.
As a.
Placeholder or are they kind of seem to you look you know we're ready to go as soon as possible. Once we have the green light kind of what's what's their mindset in terms of wanting to get those installed that was on the backlog previously.
So I think the mindsets pretty good Eric as you know and again I don't remember exactly the numbers in 2020, but we have something like around.
Around 70, installs and close to the same number on signings in 2020 and that was when everything was shut down and in fact, what we've done is we've gone back and we've tried to.
Work with the exhibitors and plan out where they are at with the backlog and we haven't we've taken.
Virtually nothing out of the backlog, we reaffirm their desire to be in the IMAX business and we're in negotiations now about how that rolls out I would say a lot of the rollout is going to be in countries that are open and healthy now so places for healthier like like Asia.
And.
Yes.
In places like Europe, and North America. They are committed to it but I think we have to work with them on sea seeing.
What the right schedule is but again as I said to Eric's question before I think the cadence will be similar to last year.
With it being backend loaded.
1 quick follow up on that day 1.
Quarter, obviously, just does not a trend make but I know you talked about the cadence expected kind of get back to where it was in Q2 that the 9.
Sales have been installed.
Equal to what you did in 2018.
Asia 19 made years second quarters does that kind of I don't read too much into 1 quarter was that kind of indication that things are kind of hopefully getting back where they werent from the installed pattern.
Eric I'm going to refer to your statement that you can't draw a trend from 1 quarter either way.
I would just say there's so many factors.
Factors now places just opening up.
People refurbishing, which some of them day in even during the pandemic.
I wouldn't generalize about it.
Okay, and then just final question.
Okay, and you start getting back to normal book.
Within IMAX in the industry how.
How should we think about operating expense trends.
Kind of over the coming quarters and year or so.
On kind of as we get back to hopefully.
Normal situation what is what does that IMAX is kind of operating expense level look like versus where it was pre COVID-19 or are there other inherent savings still baked.
Dan or is it going to get back to where it was.
So Eric we're trying to track with our expenses.
Opening of the network and the introduction of movies so.
The biggest issue now as I said on my prepared remarks are there just Florida a lot of movies being released so as I said.
You see more movies release.
You'll start to see some of the expenses ramp up obviously, because you need maintenance people out there and you need.
You need to track debt on the other hand, we were very SG&A.
Focus before this happened as you know.
Over the last several years, we've had very little growth in our opex. So it'll be as vigilant as possible during that period of time, where we don't have to.
Wrap up prematurely again I use the word cadence before moving to try to time the cadence how.
Our expansion of our expenditures to the cadence of our revenues as we reopen.
Helpful. Thank you.
Okay.
And we'll go next to Steven Frankel from call It <unk>.
Good afternoon rich.
Richard.
First of all on though.
The local titles in China, where are you in these excusing more IMAX DNA as their production guidance.
Improved.
Hi.
The IMAX certified camera program.
Incredibly successful.
Not just domestically, but internationally I touched on it earlier as we incorporate it in our.
Japanese operation in cleaning operation has also been something we have been buying in our <unk>.
Chinese productions.
<unk> had several movies over Chinese new year on something that we're actively talking to filmmakers and production.
For we really do focus.
The Chinese calendar allows for.
Chinese new year becomes a very big moment.
Focused income at the biggest productions in those films that are the ones that were really aiming for for some of that some of that sounds we'd like to be invalidated for.
So acute with our cameras and those are the ones that were targeting.
Certainly some of that come out over the summer day.
Is it that kind of the 2 big <unk>.
Pieces of business and we're in conversation on all year long, we're very active we have people on the ground that are having those conversations and on.
And continuing to kind of educate the film community around.
On what it means tissue with our camera that is a very specific process.
And it is.
It's something that requires.
Production work and specific Corp.
Both pre and post production.
That we work very closely with the filmmakers to do to get that level.
Effort to the balance.
So.
You should expect anywhere from 3 to 5000 per year in China to be shot with our cameras.
Great. Thank you and then.
Because I don't want Joseph Hill.
There was a meaningful sequential step up in R&D this quarter.
Is that just kind of.
Getting back and people will engage staffing up for is there some new initiatives that might be ramping up that this is the beginning of the new spending pace for Robert.
Good day.
No I think its just going back to for some semblance of normalcy.
As you saw from the node on SG&A.
Amounts allocated.
To inventory and cash.
Cost of goods for starting the third somewhat.
Somewhat to normalcy, so let's see.
Sure.
Sure.
Okay, great. Thank you.
And we'll move to our next question from Mike Hickey of Benchmark company.
Hey, Rich Joe Brad Thanks for taking my questions Congrats on the quarter welcome back Joe.
Nice to hear your voice again shock.
Anyway.
Curious on the Delta there.
They're in.
Hard to know for timing impact yet.
On a curious year over year, you're seeing.
Change in attendance trends as that seems to that infection to be picking up momentum also wondering.
On the reissue of math.
In La <unk>.
Yeah.
On a couple of follow on.
So it's too early to say.
Mike in terms of whether it's having an impact.
I personally don't think it's going to cause I think among the vaccinated people is not a lot of.
In a reticence to go on to theater segment on.
And we've seen no indication of them by the way and let's start on Asia, again, which we like to talk about a lot. The resurgence in box office. There was all in the non vaccinated population.
China.
Set records for.
As new year, but very little vaccination with Megan we saw that in Japan. We are the 2 biggest movies in the history of Japan, and the 2 biggest IMAX movies in Japan with demons layer and Shane evangelist. So.
I just don't think this is.
Like could it be a hi Karl.
China, obviously on unless it gets much more on control that is now and there's no evidence for that but I really don't think of the present debt Thats a significant.
Significant game changer.
Thanks, Greg.
The other question you mentioned sort of that outlines.
Meyer.
Some regions like China.
And so in the <unk> era.
We have it.
<unk> seen that.
We haven't seen that.
North America so.
Think about.
On the box office recovery here.
On the U S.
An important region for you how do you sort of balance.
The factors in terms of what Youre going to take do you think could really.
Have that.
<unk> film or why are we still sort of.
P&L working.
On the right direction, but not that sort of outlier for them and so on Japan, China sort of fill the buyers didn't flow into that window.
Clay just sort of share issue.
For our Doctor.
Yes, yes, yes, it's pretty simple answer Mike.
Olivia.
Releasing movies.
In Asia, the 2 biggest of all time in Japan, and China The record Chinese box office by 30% on the content distributors there on release movies under their traditional model.
There really hasnt been a big global release with a theatrical window.
I think youre going to start to see that coming in coming months with things like that on.
Jay.
That youll get into bond and you'll get into.
Top gun and a lot of other things so.
The releases in the United States The studios have been.
So extremely conservative.
Moving dates and then they.
Tried.
I think partly in response to.
It depends on it but.
But partly in response to their own mixed agendas to push day in day, and I think it's pretty clear that day.
That hasnt.
To deliver the same kind of box office on a return as the alternative and I think when you look ahead and you look at virtually every studio is a 45 day window for next year other sort of ex.
<unk> around it a little debt, but I think once you good content day and day releases with marketing.
Marketing campaigns, you will see the same thing I think.
I think people in North America.
Net.
The same mental and physical attitudes as they do in the rest of the world.
Last question just for store.
Follow up to your answer there.
<unk> been in the industry now book.
In fact remember rich.
Just sort of gut instinct here because there's so much no.
So on <unk>.
But just sort of your sort.
All of you on the day and day from.
Disney when they think about international on piracy.
And the important.
So.
The <unk> window.
When we sort of get into 2020 to call it.
Do you think that sort of continue on this path or do you think there's enough evidence that.
So for.
Submit that 45 day window for us from them.
Right.
So I don't know what their window will be but I know that every studio has sort of seen the same data on that.
He has seen.
Related to that studio and I think what Disney did was experiment during the pandemic, which is what they've said they were going to do and.
For Bob Jay pad sales.
I think 1 of the Investor day.
It's our normal it takes the actuals really important any theatrical exclusivity is important and I think when he looks at his data and the pandemic is in the rearview mirror is going to come to the conclusion, everyone else does switches.
And I remember the way to maximize value is to have a theatrical window.
Hey, Mike I don't want to get carried away, but it's not that complicated you used to sell on the same property 5 times now you're selling it once you're bringing forward some revenues may be lumpy.
Some windows.
Selling it but I don't think there are proof points, yet that that's a better model on a.
There's lots of smart people and I think they will come to the same conclusion.
Thanks Scott.
And we'll go next to Jim Goss.
So it is from Barrington research.
Thanks.
Recognizing that IMAX does have some clear advantages in terms of demographics served in blockbuster availability I'm wondering rich if you have any concerns.
The overall theatrical.
<unk> Commission business would be pressured in the way that would lead to more consolidation that could have repercussions for IMAX, maybe particularly for North America, but perhaps in other markets as well.
So Jim the fact is that 85% of our box office is concentrated in the top 20%.
<unk> ex of theaters.
It doesn't really affect me very much because if there is consolidation.
Nobody is going to close the top 20% of theaters and in fact during my prepared remarks, I mentioned, the Arclight and the fact that now some of those theatres were bought.
AMC and some of them were bought by rebuilt actually on newer to our benefit because.
The location, even though the chain.
Went away on the theaters, which were high performers were great additions to our biggest clients from the world and they were smart enough to put an IMAX.
So I think consolidation among the top end of screens is probably good for us and I think the elimination screens at the bottom and they are pretty much has no effect because nobody puts an IMAX theater in the bottom 20% screen.
Okay, Great response.
Theater.
Another question I'm wondering about the.
The trend of the number of films, receiving BMR treatment, especially since we have a lot of the digital product are you getting more granular in your approach to content for.
On the globe and does that give you a lot of lot more flexible.
<unk> for the potential to take advantage of your screen.
Yeah, well I mean, I think we've talked a lot about local language, we were forced to during the pandemic. So I think the available there definitely is more availability than we've had before so the same kind of a trend.
<unk> had some big movies, we get a high percentage of our box office from.
A relatively small number of movies I think during those acquired or periods. When you have access to more content, whether it's international or whether it's domestic it should help our per screen averages and should help our overall.
<unk> performance.
Okay, and 1 last thing in terms of the construction issues that have been brought up earlier.
Is there any trend in terms of.
I know you've tended to focus on hybrid.
On projects.
Between somewhere.
Between joint revenue sharing sales take place for image.
You're skewing in 1 direction or another right now with.
Whatever incremental theaters you are creating.
Jim.
As you know the wire in a lot of signings in the first half for the year and Thats.
It's typical I mean, we had some but not a lot. So I don't think thats enough to draw a conclusion on a trend, but our team is out there talking to.
Lots of potential partners over the world and I don't think Theres been a change in approach from the partner's point of view.
Okay. Thanks very much.
Thanks, Jim.
Yeah.
And at this time I would like to turn the call back to Richard for any additional or closing comments.
Thank you operator, I mean, all I can say is that the last 3 quarters, we've had positive Eva.
It continues to reinforce the fact that we are an asset light model when it gets turned on it for us.
A lot of it goes straight to the bottom line. We don't have leases. We don't have we have almost virtually no net debt.
We're in very good shape financially.
EBITDA and you could see how the beginning of the comeback to domestic has translated right to the bottom line and we think as the world continues to come back on that IMAX is financial results will reflect that in.
We get more confident as the year goes on in terms of.
Based on the recovery on.
So thank you very much operator.
And ladies and gentlemen.
Today's call.
Thank you for your participation.
May now disconnect.
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Good day and welcome to the IMAX Corp, second quarter 2021 earnings Conference call. Today's conference is being recorded at this time on was on mute there will be a Q&A session. After our prepared comments at this time I would like to turn the conference over to Mr. Brett Harris head of Investor Relations. Please.
Sir.
Thank you and good afternoon, everybody. Thank you for joining us today on today's second quarter earnings conference call on the call today to review the financial results are rich Gulf on Chief Executive Officer, and Joseph Raphael.
<unk>, our interim 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 a replay of the webcast will be made available shortly after the call. In addition, the full text of our second quarter earnings press release.
Please go ahead 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 to the website as well I.
I'd like to remind you of 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.
And this comes.
These forward looking statements are subject to risks and uncertainties that could cause our actual future results to occur.
Our current to differ please 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.
Today's call references may be made to certain non-GAAP financial measures discussion 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.
<unk>, our loss adjusted EPS and adjusted EBITDA as defined by our credit facility are contained in this morning's press release and our earnings materials, which are available on and on the Investor Relations page of our website for IMAX Dot com with that let me now turn the call over to Mr. Richard Calpine rich.
Thanks, Brad and good afternoon.
<unk> net 1 thank you all for joining us today.
With theaters reopening audiences, returning and the pipeline of Hollywood blockbusters steadily growing from a trickle to flood the global box office continues to show encouraging signs of improvement.
We need we believe IMAX.
<unk> is leading the global recovery of the film industry.
And equally positioned to benefit immediately from the upcoming acceleration of Hollywood blockbuster releases and poised to take market share as the world Reopens.
Our results for the second quarter clearly demonstrate this.
Every company delivered its best gross margins and adjusted EPS of the pandemic here, Despite a hollywood slate only slightly better than prior quarters, demonstrating again, the high margin nature of our asset light licensing business.
We delivered our third consecutive.
Sure a positive EBITDA.
Our global network earned $109 million in box office, surpassing initial projections, thanks to better than expected domestic performance for a second.
On consecutive $100 million, plus ox toughest quarter.
Of course already eclipsed our total 2020 box office for local language films.
And we easily drove year over year quarterly growth revenue gross margin and EBITDA, demonstrating how far we've come since the second quarter of 2020, the first quarter, we felt the full.
For the pandemic.
We are confident these positive trends will not only continues to accelerate with a full slate of exclusive theatrical releases later this year.
We will have unique advantages to effectively manage through COVID-19.
Building.
Brad 3 global out of home platform for blockbuster entertainment with a diversified footprint across 85 countries and territories worldwide.
We have a flexible asset light business model and we are in in demand global brand loved by audiences worldwide.
On to filmmakers and studios and ripe for new business opportunities, including our IMAX enhanced home and entertainment initiatives.
Even in a world of shifting windows and evolving distribution model, an IMAX release as a window unto itself proven to draw.
Bradley.
Theaters guide premium revenue and launch event film into the ecosystem.
Now lets COVID-19 finally receding in many key markets, we are beginning to see the industry stabilized and establish stronger forward momentum than at any other time during the pandemic.
I'll move as a result, we see an opportunity for IMAX to further expand and diversify our global network.
ROE and diversify our content portfolio and lean into the increased blockbuster <unk> of the movie business.
Today I'd like to provide a strategic update on.
On the reopening on future of our global network.
Signs of strong audience demand for the IMAX experience.
IMAX is well positioned as windows and distribution models evolve and finally, our fast accelerating content pipeline.
But first.
Let's look at the current state of our network.
IMAX Global network is now 90% open higher than at any time and the pandemic era the.
The domestic network is about 95% open and operating at about 90% capacity and internationally excluding China.
Theaters are about 80% open and at around 67% capacity in China, our theaters are virtually 100% open.
Continue to open more theaters and seat capacity limitations ease for the availability and in the domestic and international.
National markets already up over the launch of Black widow earlier this month.
We installed nearly 100 systems for our network and signed 80 during the pandemic as exhibitors look to IMAX for rear invigorate their businesses with a differentiated premium offering.
We continue to have premier flagship locations around the world locations that offer significant box office potential and further enhance the prestige of our brand.
This month, we opened our first ever theater in Con, France, and a brand new state of the art multiplex digital.
Art Gallery, and advent space on the Mediterranean.
Theater is already joint interest as a screening locations from the many international events hosted in Con most significantly including the film Festival.
We are currently installing our biggest IMAX screen in the world.
And Lee on Berg, Germany, measuring a 22 meters high and wider than a Boeing 737, we needed a 17000 seats hockey arena in Ontario for unfurl in paint the screen before shipping it across.
Anthony.
And IMAX theaters will be featured in several.
Of the iconic Los Angeles cinemas that have recently transferred ownership, including the Grove and the Americana, which AMC will reopen next month and Sherman Oaks.
Which has already reopened with Regal, both AMC and Regal continue to look for opportunities in the marketplace.
To place at IMAX theaters and newly acquired for key locations.
We continue to see considerable room for growth around the World IMAX Global network. Currently stands at just under 600 centers worldwide with a backlog of 419 theater.
And we.
We see a total addressable market of 3300 theaters driven by the many international markets around the world, where moviegoers are clamoring for a rival.
Rivaled experience.
Not only on theaters reopening audience demand is remarkably strong and we expect it to continue to grow.
As COVID-19 risk fees and more moviegoers regain.
Click level for turning to theaters.
Perhaps the most encouraging trend in the second quarter is the domestic box office, which continues to demonstrate the same pent up demand for blockbuster that we've seen in Asia and the middle East.
Net.
New tent pole releases.
To pass every day.
At the box office despite.
Despite a day and day release on HBO, Max Zillow versus Com has delivered more than $100 million.
At the domestic box office, and $460 million globally, including $37 million.
IMAX so for a quiet place 2.
First exclusive theatrical blockbusters beliefs for this summer.
Season vastly exceeded expectations.
Delivering an opening on par with what was expected pre COVID-19.
<unk> significant capacity limitations in.
It was at the time.
<unk> has also performed up to pre pandemic levels. Thanks to our bold global rollout designed to maximize the theatrical.
Exclusive theatrical window.
And most recently black widow opened to a $158 million.
Worldwide.
Employee, giving IMAX, it's best opening for Hollywood film and it's the best domestic opening weekend box office in the indexing on per screen our.
Average during the pandemic era.
As we've said for recovery of the box office will be a gradual incremental process.
On a faucet not a light switch, but it's clear that we're headed in the right direction.
Additionally, many of the studios that have experimented with hybrid relief strategies are recommitting to exclusive theatrical releases for blockbusters.
We're seeing around a 45.
5 day window for most painful.
This benefits IMAX as it enhances.
The event nature of an exclusive theatrical release and further increases IMAX his role as curator of blockbuster.
Given that films generally only play in our network.
For 1 or 2 weeks at most we are well positioned to take advantage of that compressed demand.
Studios and filmmakers are clamoring for secure and make the most of their IMAX window.
It's shooting with our cameras.
<unk> IMAX exclusive expanded aspect ratio.
But creating exclusive events like the preview the universal screen for Jurassic World Dominion before F 9 or.
For the exclusive Din June preview, we hosted in select locations last week.
All of this helps drive demand and ultimately market share for the IMAX.
Okay.
Also the experimentation we've seen amongst studios in the past year, along with movie releases from pure play streaming companies has underscored the irreplaceable role on the theatrical release in launching and growing franchise property.
The kind of IP.
That is driving the entire ecosystem right now.
For all its value screaming has yet to create a blockbuster film franchise and all the downstream revenue our franchise film create.
At the end of the day for US still no event and entertainment that command the attention.
Spirit's share a global theatrical blockbusters.
And IMAX is at the Vanguard of these culture defining.
On this.
So the table is set for a strong rebound at the box office with 1 outstanding exception, a steady supply of big bankable blockbuster.
On a cult film.
Certainly the global box office has demonstrated that it is ready for business with the films that have held their release dates during the summer season, but.
But the summer season has still been lighter on blockbuster releases than we'd hoped for studios.
Our conservative approach pushing many tentpole.
Cluster leases into the fall of 'twenty, 1 or 'twenty 2.
Right now the only real issue holding the box office back from a faster rebound as supply.
That is changing though as the Hollywood content pipeline is accelerating with strong slate ahead.
For Rowan Marvel Shang Chi leases on September <unk> that kicks off a cadence for major blockbuster releases roughly every 2 weeks, including venom.
Bond June eternal top gun, Maverick Spider man and the matrix.
Brian as we've said is remarkable for instance in the second quarter. The only global blockbusters, we had with exclusive theatrical releases or F 9 and a quiet place part II.
Compare that with Q2 of 2022, which is absolutely staff.
With franchise films, including the new store.
Cash and impossible John Wick.
Formers.
Our ASIC World Disney's light year, and Brad Pitt action or bullet train evenly.
Even beyond Hollywood, the IMAX content portfolio emerges from the pandemic.
The pipe longer and more diversified given the way we've leaned into local language production during COVID-19 and strengthen our brand in key institutional market.
As I mentioned in 2021, we've already surpassed our total 2020 box office for local language film.
And we expect to.
For a record breaking 2019 local language box office by the end of the third quarter for.
For critical Chinese market is also demonstrating pent up demand for Hollywood blockbusters with F..9 proving that 1 on global blockbuster franchise the season exclusive theatrical.
Tablet the Chinese market will embrace it as we've seen it do in the past.
Some payable as said strong rebound for the global film industry. The reopening of theaters is accelerating audiences are coming back and big numbers and the flow of blockbuster.
<unk> interest.
Later, this fall and beyond is unprecedented.
As we demonstrated in the second quarter as blockbusters returned to theaters, our numbers will improve markedly.
<unk> experience has been in strong growing demand around the world and we are strengthening our position.
Because 1 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.
Thanks again to all of you for joining US today. Please continue to do everything you can.
<unk> to stay safe and healthy with that I'll turn it over to Jos for ICF.
Thanks, Rich and good afternoon, everyone as rich.
Rich mentioned, we posted another quarter of significantly improved performance as our network continues to reopen in the U S and across the world.
Operating results continue to improve which serves to highlight our superior business model.
As a reminder, we are a global asset light licensing business with a low cost base and high incremental margins.
This quarter serves as a preview for what is to come as Hollywood films.
Turning on this.
Who are quickly reopening global network.
We ended the quarter with $214 million in cash.
Cash from $241 million of debt.
Wondered $15 million of cash was held at IMAX, China and 99 million.
<unk> and IMAX Corp.
In the quarter, we paid down on the balance of our credit facility, leaving the full $300 million on drawn which when combined with our cash on hand, and Undrawn component of our IMAX, China working capital facility gives us approximately 530 million.
Of available liquidity.
Yes.
As I discuss the second quarter. Please remember year over year results reflect the almost complete closure of our network in the second quarter of 2020.
Second quarter 2021 revenues increased to 50.
$1 million from 9 million in 2020.
Adjusted EBITDA increased increased to 8.7.
$7 million versus an EBITDA loss of $18.5 million in the year ago period, an adjusted EPS loss improved to 12 cents from 44.
In comparison to the year ago period.
IMAX technology network revenue increased $19.7 million in the second quarter from essentially nil in Q2 of 2020.
The reopening of the company's network, particularly in Asia and the.
<unk> drove box office of $109 million versus $3 million in Q2 of 2020.
Gross margins for this business were $8.7 million, which increased from a loss of $6.5 million in Q2.2020.
Largely due to higher box office.
Driven revenue and the operating leverage inherent in the business model.
IMAX technology sales of maintenance revenue for the second quarter increased $28.7 million from $4.6 million due to higher sales and FTL revenue as installation of new systems increased.
And an increase in maintenance revenue commensurate with the reopening of the network.
Sure.
This quarter, we installed 15, new IMAX systems, neither of which were sales or stl's 2 of which were hybrids. We installed 3 IMAX systems in Q.
2 of last year.
Installation activity increased.
Both year over year and sequentially demonstrating continued IMAX system demand from our exhibition partners.
Gross margins for this business increased to $16.1 million representing a 56.
6.1% margin commensurate with the higher revenue levels.
SG&A, excluding stock based compensation declined 4% to $22.4 million in the quarter as compared to $23.3 million in the comparable period last year.
The reduction in SG&A included an increase in costs allocated out of SG&A and into inventory and cost of goods sold a $4 million, partially offset by a $1.5 million decrease in various COVID-19 wage related programs.
In the second.
Quarter, we spent $1.8 million on capital expenditures, including $900000 invested in equipment for joint revenue sharing theatres.
We believe our second quarter results represent another milestone in the company's emerging merchants from the pandemic.
Strong.
Strong box office in the U S and parts of Europe demonstrate the same signs of pent up demand, we continue to see in China, Inc.
The increased revenue was driving profitability improvement highlighting our superior high margin asset light business model.
We have a strong bad.
Balance sheet with substantial liquidity.
And finally, we remain excited for the strong slate of IMAX friendly titles set to be released later this year.
With that I will turn the call over to the operator for Q&A.
Thank you.
Thank you Brad to ask a question. Please signal by pressing star 1 on your telephone keypad.
Using speaker phone. Please make sure your mute function is turned off for a while you're taking on.
On to reach our equipment.
And for Star 1 to ask a question, we'll pause for just a moment to allow everyone an opportunity for <unk>.
Question.
And we will go for 2.
Eric handler of <unk> partners.
Thank you very much and good afternoon.
Rich I Wonder maybe you could give a.
A little peek into how your.
Installation.
Installations might look for the back half of this year or at least maybe for the third.
Quarter, when the what kind of visibility you have there and I've got a follow up question.
Yes, I mean, Eric I don't think were due on it we made a policy.
The pandemic not to do that because it's so unpredictable and it's solid territory to territory, but as you as you.
You saw last year, we were surprisingly.
Active installations, even though the world wasn't open up and I think there'll be activity at the second half of the year on as you know, we usually backend loaded in these things, but I'm just not going to be specific until we know where it say it from.
Course of the viruses.
Understood and then.
Wondered if you could talk about.
Youre, obviously seeing good.
Local language.
Turn out for films in China.
How are you sort of going to be implementing similar.
Fees and other countries and where you see some opportunities on the back half of this year.
Yes, I mean I have been.
Surprise by how robust some of these markets arent IMAX and <unk>.
China. This weekend, we released a movie called White Snake, and we did on 9% on the box office.
Office sales fairly successful film in China, Aside I'm continually surprised and I think over time Youll see these local language films keep edging up until they eventually have the same kind of indexing.
The Hollywood films are but it is a strategic initiative of ours and.
Paul we are working closely and different markets made on do you want to give us on specific examples for sure.
In Japan, we expect to record.
Sure.
Net pandemic era with.
2 films.
That has a broken record.
We have on <unk> with Cal House debt and we're continuing to work very closely with that company can be not yet releasing.
For leasing accounts that also have a non sheath theyre using.
Using the IMAX certified camera program.
Heading into the technology and looking to continue.
Align closely on our production also in Korea, we've had some success with local language product and the great thing too when a movie does breakout.
Like we saw with demons player.
Leave it at that.
These films are able then to be exported out and say, Japan, where it was a record setting down and are able to be distributed in the United States in Europe in Korea, there is a marketplace and outside of Japan, and so it's been a very successful program for us.
Great. Thank you very much.
Oh gosh.
Our next question from.
JP Morgan.
Hi, Thank you. Thank you Greg Thanks, very much on tap 2 questions. If I may the first 1 rich I'm wondering if you have.
Come join.
On how much the fact that black widow open for the day in day for Piedmont, how much that may have cannibalized.
Ken.
Revenue from Keybanc camera on talk about the box office in general on Turkey of any mine.
And then secondly, I'm just curious.
When we.
Going forward and kind of the new World Post Covid.
IMAX just sort of continues to kind of index better as a percentage of the total box office given you know in this new kind of assuming heavy world moviegoers are clearly leaning into kind of more experimental kind of experience kind of movies.
Nearly.
We also live for you but on 1.
Thank you have a sense of how much of what we've seen in the numbers.
Total deposits.
So on your first question Alexia There is really no question in my mind, that's a combination of <unk> and a lot of <unk>.
Piracy and people haven't really talked about that much but.
We are popularly though it's a lot of piracy debt accounted for the cannibalization on significantly affected the box office at the end of the day.
Hard to quantify it but some statistics I find interesting our debt 9 which is the more traditional distribution model growth.
About 700 will grow around $700 million worldwide at the end of its run and black widow will gross around half of that so again are they comparable movies. This happy I thought black widow was a great movie. So when I think about it I have no doubt a lot of.
<unk> left on the table, but I can't.
Perfectly say what it is in terms of post Covid I do think debt, we will continue to index better and in fact in countries that have emerged faster than North America, we've seen us have a bigger percentage of the box office I just.
Money was referenced China on the 9% few minutes ago for local language films.
Having a higher index, Sam and I think on what you're also going to see is just going to be more and more blockbusters because I think the studios are going to take their more lower cost releases.
Those direct to streaming but the kind of movies that IMAX does on will concentrate around the theatrical releases that I think since SaaS IMAX as sweet spot I would expect us to continue to have pretty good index in numbers.
Thank you.
And we'll move to our next question from Robert Olson.
B Riley Securities.
Thank you good afternoon.
A couple of questions here 1.
Wanted to try to follow up on the.
The first question from Erika I know you're not giving.
System until visibility I'm not trying.
Pushed out or give any numbers in general, but just kind of what is the mindset.
From exhibitors in general around the World, obviously, they had plans to get stuff installed in 2020, 1 going into the pandemic based on their schedules. Those guys are disrupted and now we are starting to reopen as it is.
Everything that was the back on.
I'd kind of shifted out quite some period of time just.
As a placeholder or are they kind of saying to you look you know we're ready to go as soon as possible. Once we have the green light kind of what's what's their mindset in terms of wanting to get those installed that was on the backlog you know previously.
So I think the mindset is pretty good Eric as you know and again I don't remember exactly.
<unk> the numbers in 2020, but we have something like around 70 installs and close to the same number of signings in 2020 and that was when everything was shut down and in fact, what we've done is we've gone back and we've tried to.
Work with exhibitors and client.
Where they are at with the backlog and we haven't we've taken.
Virtually nothing out of the backlog.
Reaffirm their desire to be in the IMAX business.
And we're in negotiations now about how that rolls out I would say a lot of the rollout is going to be in countries that are open.
On our buffet now so places for healthier life.
Asia and.
Yes.
Places like Europe, and North America, they are committed to it but I think we have to work with them on C. C.
What what the right schedule is but again as I said to Eric.
And how long before I think the cadence will be similar to last year with it being backend loaded.
So that's number 1.
1 quick follow up on that 1.
1 quarter, obviously, just kind of not a trend make but I know you talked about the cadence you expect to kind of get back to where it was in Q2.9.
It's quite Joseph installs were.
Equal to what you did in 18, and 19 and that made years second quarters does that kind of I don't read too much into 1 quarter was that kind of on vacation and things are going to hopefully get back kind of where they werent from the installed matters.
Eric I'm going to refer to your statement that you can't draw a trend from 1 quarter either.
The way.
I would just say there's so many factors now places just opening up.
People refurbishing, which some of them day in even during the pandemic.
Didn't generalize about it.
Okay, and then just final question.
Can you start getting back.
Back to normal book.
Within IMAX in the industry, how should we think about.
Operating expense trends.
Kind of over the coming quarters and year, or so and kind of as we get back to hopefully normal situation. What is what does that IMAX is kind of operating expense level.
Like versus where it was pre COVID-19 or there isn't inherent savings don't baked in or is it going to get back to where it was.
So Eric we are trying to track with our expenses.
Reopening of the network and the introduction of movies so.
The biggest issue now as I said on my prepared remarks.
We will look like Theyre, just Florida, a lot of movies being related so as I as you see more movies release Youll start to see some of the expenses ramp up obviously, because you need maintenance people out there and you need.
You need to track that on the other hand.
We're very SG&A.
Sorry.
Focus before this happened as you know over the last several years, we've had very little growth in our Opex. So we are going to be as vigilant as possible during that period of time, where we don't have to.
Ramp up prematurely.
Again I use.
Before moving to try to time, the cadence out of our expenditure of our expenditures to the cadence of our revenues as we reopen.
Helpful. Thank you.
Okay.
And we'll go next.
Or keeping frankly with Paul here.
Hi, good afternoon Richard.
First of all on the.
Local titles in China, where are you in these achieving more IMAX DNA as their production guidance.
Improved.
Hi.
On the.
And that certified camera program.
On incredibly successful not just domestically, but internationally I touched on it earlier.
Incorporated in our.
Japanese operation in creating operation has also been something we had been.
And finally in our Chinese.
Chinese productions, we had several movies over Chinese new year on something that we're actively talking to filmmakers from production.
For.
Really do focus.
For the Chinese calendar allows for.
Chinese new year becomes a very big moment.
Focusing some of the biggest productions in those films are the ones that were really aiming for for.
Some of it comes we'd like to be invalidated for.
So as that shoot with our cameras and those are the ones that were targeting.
<unk> and <unk>.
Certainly some of that come out over the summer day to that kind of the 2 big seasonal pieces of business and we're in conversation on all year long. We're very active we have people on the ground that are having those conversations and on.
And continuing to kind of educate the film community around.
On.
On what it means to shoot with our cameras that is a very specific process and it is then and it is.
It's something that requires.
Production work in specific for both pre and post production.
That we work very closely with the filmmakers to deal with.
To get that level.
Effort to the balance sheet so.
You should expect anywhere from 3 to 5 films a year in China to be shot with our cameras.
Great. Thank you and then.
Because I don't want Joseph Hill.
There was a meaningful.
For a sequential step up in R&D this quarter.
Is that just kind of getting.
Getting back and people will engage staffing up or is there some new initiatives that might be ramping now that this is the beginning of the new spending pace for AGA.
Okay.
No.
I think its just going back to for some semblance of normalcy.
And as you saw from the node on SG&A.
Amounts allocated to.
Through inventory.
Cost of goods for storage.
Somewhat to normalcy so rich.
Yes.
Okay, great. Thank you.
Okay.
And we'll move to our next question from Mike Hickey of Benchmark company.
Hey, Rich Joe Brad.
Thanks for taking my questions Congrats on the quarter welcome back Joe.
Nice to hear your voice again share.
Sure.
Anyway.
Joining us on the Delta.
Barry.
Hard to know for timing impact yes.
I'm curious your view, if youre seeing any sort of.
Change in attendance trends as that seems to infection can be picking up momentum.
Also wondering.
The reissue of math.
La <unk>.
In Taiwan, a couple of follow on.
So it's too early to say.
Mike in terms of whether it's having an impact.
I personally don't think it's going.
Going to cause I think among the vaccinated people, there's not a lot of.
In a reticence to go into theatre second on.
And we've seen no indication of them by the way in Southern Asia, again, which we like to talk about a lot the rich.
Surgeons in box office there was.
And then on vaccinated population.
China.
Records for Chinese new year, but very little vaccination and what made them. We saw that in Japan. They are the 2 biggest movies in the history of Japan, and the 2 biggest IMAX movies in Japan with demons layer on Shin event.
So.
I just don't think this.
And could it be a high correlation there obviously on unless it gets much more out of control that Theres now there is no evidence for that but I really don't think that the present that thats a significant game changer.
Jill.
The other question you mentioned sort of that outlier.
Success in regions like China.
In Japan.
On the pandemic era, yes.
Habit.
Exactly seeing that.
Haven't seen that.
Yeah.
North America, so when you sort of think.
I think about.
The box office recovery here.
In the U S.
An important region for you on having sort of a balance.
Factor in terms of what.
Youre going to take do you think could really.
Have that breakout.
Why are we still sort of.
P&L working the right direction, but not that sort of outlier for him and concerns in China.
So the buyers didn't flow.
That window.
Slate for the carriers.
You brought doctor.
Yes, yes, yes, it's pretty simple answer.
Mike.
On the Cvs.
Or at least a movie in Asia. The 2 biggest of all time in Japan, and China. The record Chinese box office by 30% on the content distributors there on release movies under their traditional model.
They are really.
So it hasnt been a big global release with a theatrical window I think youre going to start to see that coming in coming months with things like that on.
<unk> G.
Then youll get into bond and you'll get into.
Top gun and a lot of other things.
Really so.
The releases in the United States. The studios have been extremely conservative about moving dates and then they.
Tried.
I think partly in response to.
On the pandemic, but partly in response to their own mixed agendas to push.
Things day in day, I think it's pretty clear on that.
That hasn't delivered the same kind of box office on a return as the alternative and I think when you look ahead and you look at virtually every studio has a 45 day window for next year on others are experimenting around it a little debt.
But I think once youre good content day in day releases with marketing campaigns, you will see the same thing I think I.
I think people in North America.
On the same mental and physical attitudes as they go into the rest of the world.
Last question.
Follow up to your answer there obviously you've been in the industry now book.
Remember rich.
Just sort of gut instinct here, because there's so much noise.
<unk>.
On pack, but just sort of your.
Sort of view on that day in day.
Yeah.
Following about international on piracy.
The importance of.
Yeah, good readout.
When we sort of get into 2022.
Do you think.
2 new on this path of GP systems.
Every day in Scottsdale.
So on them.
Submit that 40.
We made that statement.
Right.
So I don't know what their window will be but I know that every studio have sort of seen the same data on that.
As seen on.
Obviously related to that studio and I think what Disney did.
For us experiment during the pandemic, which is what they said they were going to do and I remember Bob shape at saying, that's I think 1 of the Investor day.
So normal he thinks the actual is really important and theatrical exclusivity is important and I think when he looks at his data and the pandemic.
Did well in the rearview mirror is going to come to the conclusion, everyone else does which is the way to maximize value is to have a theatrical window.
Mike I don't want to get carried away, but it's not that complicated you used to sell on the same property 5 times now youre selling a.
Yes.
You're bringing forward some revenues may be lumpy.
Some windows when you're selling it but I don't think there are proof points, yet that that's a better model on I think there's lots of smart people and I think that will come to the same conclusion.
Thanks Scott.
1 we will go next to Jim Goss of Barrington Research.
Yes.
Thanks.
Recognizing that IMAX does have some clear advantages in terms of demographics served in blockbuster availability I'm wondering rich if you have any concerns.
Okay.
Oh, Yes, Michael exhibition business would be pressured in the way that would lead to more consolidation that could have repercussions for IMAX, maybe particularly for North America, but perhaps in other markets as well.
So Jim the fact is that 85% of our box office is concentrated.
Over on the top 20% of theaters.
It doesn't really affect me very much because if there is consolidation.
Nobody is going to close the top 20% of theaters and in fact during my prepared remarks, I mentioned, the arclight and for <unk>.
Fact that now.
And some of those students were bought by AMC and some of them were bought by rebuilt actually in order to our benefit because.
Location, even though the chain.
Went away on the theaters, which were high performers were great additions to our biggest clients on the world and they were smarter.
The staff to put in an IMAX theater, so I think consolidation among the top end of screens is probably good for us and I think the elimination screens at the bottom and they are pretty much has no effect because nobody puts an IMAX theater in the bottom 20% screen.
Smart Thanks, Great response.
Another question I'm wondering about the.
The number of films, receiving DMR treatment, especially since we have a lot of the digital product are you getting more granular on your approach to content around the globe and does that give you a lot.
Okay, a lot more flexibility and potential to take advantage of your screen.
Well I mean I.
I think we've talked a lot about local language, we look for us too during the pandemic. So I think the available there definitely is more availability than we've had before so.
<unk>.
<unk>.
Existing big movies, we get a high percentage of our box office from <unk>.
For a relatively small number of movies diabetes during those acquired or periods. When you have access to more content, whether it's international or whether it's domestic or should help our per screen averages.
It should help our overall performance.
Okay, and 1 last thing.
In terms of the construction issues that have been brought up earlier.
Is there any trend in terms of.
I know you've tended to focus on hybrid.
Projects.
Between somewhere between joint revenue sharing sales take place for image various you're skewing in 1 direction or another right now with.
Whatever incremental theaters you are creating.
Yeah.
Jim.
As you know the wire in a lot of signings in the first half.
A year and Thats typical I mean, we had some but not a lot. So I don't think thats enough to draw a conclusion on a trend, but our team is out there talking to lots of potential partners over the world and I don't think theres been a change in approach from the partner's point.
For the year.
Okay. Thanks very much.
Thanks, Jim.
Yes.
And at this time I would like to turn the call back to Richard for any additional or closing comments.
On thank you operator, I mean, all I can say is that the last.
3 quarters, we've had positive EBITDA continues to reinforce the fact that we have an asset light model when it gets turned on it.
For us a lot of it goes straight to the bottom line. We don't have leases. We don't have we have almost virtually no net debt.
Yes.
<unk> through a very good shape financially and you could see how the beginning of the comeback to domestic has translated right to the bottom line and we think as the world continues to come back that IMAX is financial results.
That in.
We get more confident as the.
Where it goes on in terms of the pace for the recovery.
Thank you very much operator.
And ladies and gentlemen.
Cool.
Today's call. Thank you for your participation you may now disconnect.