Q2 2022 Imax Corp Earnings Call
Yeah, I'll, probably on wholesale IMAX Corporation's second quarter 2022 earnings conference call. At this time, we are assembling today's audience I plan to be underway. Shortly we appreciate your patience and please remain online.
[music].
Good day and welcome to the IMAX Corporation second quarter 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the call back over to Mr. Anthony.
Please go ahead ma'am.
Hello, everyone. Thank you operator, good afternoon, everyone and thank you for joining us on today's second quarter conference call on the call today to review the financial results are rich Galperin, Chief Executive Officer, Natasha Fernandez, Our Chief Financial Officer, Matt in collagen President of IMAX Entertainment and Rob Lister.
Our our chief legal officer are also joining us today.
Today's conference call is being webcast in its entirety on our website.
Replay of the webcast will be made available shortly after the call.
Christian the full text of our second quarter 2022 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 also be posted to the website 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 results or outcomes.
Forward looking statements are subject to risks and uncertainties that could cause actual future results or occurrences to differ.
These refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes of 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 because of new information future events or otherwise.
During today's call references maybe 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.
Adjusted net income or adjusted net loss adjusted EPS and adjusted EBITDA as defined by our credit facility are contained in this afternoon'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 let me now turn the call over to Mr. Rich Calpine.
Rich.
Thanks, Heather and good afternoon, everyone. Thank you for joining us.
In the second quarter IMAX delivered strong year over year growth in global box office total revenue gross margin and our trailing 12 month. Adjusted EBITDA is nearing $100 million are fast rebound and strong performance demonstrate once again the appeal of our high margin.
Asset light business model, Unlike our licensees and exhibition or technology products services and licensing.
Revenue streams are not burdened with high operating cost or capital intensive business requirements.
On our last earnings call, we look eagerly towards this summer is fantastic slate and the rich pipeline of blockbusters stretching over the next two years with summer now in high gear that slate is fulfilling its promise across the last two years, we've been unwavering in our belief that.
When people feel safe and content is in supply audiences will return to the movies.
The lingering doubt among the skeptics are quickly evaporating as we drive record breaking results at the IMAX Global box office affirm IMAX as a critical launch platform for major entertainment franchises and help blockbuster releases reestablish their dominance of the cultural.
Conversation.
It's no longer a question of whether global consumers will come back to the cinema for blockbuster movies. They are back its not just the ship superhero fans. It's not just the millennials and Gen Z. It's movie fans of every demographic in every region around the world turning out for films.
Across virtually every genre.
The data is showing that people everywhere are going back to the movies and many of them in increasing numbers are choosing IMAX now is IMAX helps to lead the global resurgence and moviegoing, we're redoubling our efforts to drive future growth for the company.
Expanding our global theater footprint.
Hi Tech portfolio and technology platform.
Today I'd like to discuss the growth trends IMAX is seeing at the global box office and our strategic outlook for China, How IMAX is driving growth across all our global networks and content portfolio and a strategic effort to drive long term growth by expanding the IMAX.
<unk>.
First our results at the global box office underscore the strength and differentiation of IMAX.
Not an exhibitor and it's obvious that is further demonstrated by our results.
Spider first quarter nearly devoid of blockbuster releases.
Year to date domestic box office through June <unk>, 2019, our best year ever by only 5%.
And in contrast, the domestic exhibition industry was down 35% over the same period.
IMAX domestic box office for the second quarter was on a par with the second quarter of 2019.
In fact, our domestic box office in June even surpass June 2019.
We continue to increase market share.
Our domestic market share in the second quarter was five 3% and May alone, we captured an impressive seven plus percent.
Domestic box office for the first time at IMAX history, we delivered three consecutive $25 million plus global openings with Doctor Strange top gun and Jurassic World.
Top gun Maverick has been an unbelievable success, which has nearly doubled our initial projections and will top $100 million in global box office, Brian Max.
From Avatar, two Avengers top gun Maverick joins a long list of you got to see it in IMAX blockbusters films that became inextricably linked with our brand and readily demonstrates the power of our platform.
A lot of credit for that goes Tom cruise, a director, Joe Kaczynski, who conceptualized top gun and IMAX shot it's unbelievable flight sequences and IMAX exclusive expanded aspect ratio remained big champions of our technology.
<unk> delivered the highest IMAX opening weekend indexing ever for a film debuted over $100 million.
And our index reached as high as 16, 4% in the films initial IMAX run we look forward to bringing top gun back to our network in August what will no doubt continue to excite fans.
Just last weekend IMAX delivered roughly 12% of the opening weekend box office, the Jordan Peele, no, which the visionary director shot with IMAX film cameras.
You can see the film for IMAX working closely with our post production teams post any opening night IMAX live event at our Lincoln Square flagship and achieving a first in the history of IMAX, making our iconic film cameras part of the movie itself.
No coincidence that we are driving strong indexing and unprecedented market share at a time when more filmmakers than ever.
Alright, embracing and creating for IMAX than ever before it is also notable that we're driving these strong results even as concerns bill over inflation and the potential for a recession.
This tracks with what we've seen during previous economic downturns.
IMAX is historically, a recession resistant business going to the movies is an affordable luxury certainly cheaper than things like travel and live events.
In fact since 1980 the U S has seen seven recessionary years, and then all of those years gross box office growth.
<unk> for IMAX.
As this pace of network growth ever was during the <unk>.
Eight recession of 2008 and 2009.
Sure.
Hi momentum at the global box office of striking but even more so given we've done it without the real benefit of China due to Covid lockdowns in China for much of the first half of the year and nearly all of the second quarter, China has contributed little to our overall results.
The environment in China remains challenging, but we're beginning to see some early encouraging signs as of yesterday, 91% of IMAX theaters in China, where operational 92% of our Beijing theatres were open and 55% of our Shanghai theaters were open.
With various capacity limitations.
During the second quarter IMAX, China box office saw sequential improvement as the quarter progressed as more theaters became operational and Jurassic World Dominion was release day and date has already seen in the domestic market.
Assistant cadence of releases is critical to getting audience is back in the theaters.
Beginning earlier this month the pipeline of fresh local content in China began to slow or accelerate with detectors versus loose and Mozart from space. We are seeing encourage increased sales for this weekend's debut a moon man and the action film Warriors of future volatile.
On its heels in August we are also seeing incremental progress and Hollywood movies, gaining entry to the Chinese market.
Most recently Jurassic World Dominion became the first Hollywood film and more than a year the gross over $145 million.
In China.
That comes on the heels of the Batman Fantastic Beast and ambulance all gaining approval.
Of course, there is no question that the bar for approval remains higher now given the broader issues between the west and China. However, we believe two developments should help clear the way, but more of Hollywood films to gain entry into China first the failed experiment of day to day.
Streaming releases for blockbusters has been abandoned this guided effort that unleashed rapid piracy and China and second the backlog of local Chinese films that built up throughout the pandemic is now running its course, which should create more space.
For Hollywood content and the slate.
We are encouraged by the mix of local and Hollywood films.
The Chinese network through the end of the year, whether it's the current crop of local language summer films. The always lucrative October national holiday period Avatar, the way of water, which we feel is a good chance to gain entry to China, given James Cameron and the franchise's history.
In the market.
And the sequel to the biggest Chinese film of all time wandering Earth is tentatively slated for Chinese new year. In 2023, we are optimistic the situation will continue to turn as Lockdowns are fully lifted and consumers are free to get out and enjoy out of home experiences.
<unk>.
There are many similarities to where we are at the end of summer 2020, when COVID-19 restrictions began to ease in China local blockbusters like the 800.
Ultimately opened two record breaking business, we've been in business successfully in China for more than 20 years, we've seen up years and we've seen down years, we remain confident that the recent setbacks in the market are only temporary.
As I said earlier, we are focused on building box office to drive growth across our network, our content portfolio and by evolving and expanding the IMAX platform.
First in terms of network growth or market share gains and the strength of our brand globally are beginning to accelerate sales activity in important markets as our partners in the exhibition industry look to IMAX has a driver for future growth.
As key industry touch points, including Cinema Khan film Festival and Central Europe .
Turn to in person.
Seeing optimism and growing demand for the IMAX experience.
We've been very active with our exhibition partners signing agreements for new theaters, and solidifying locations and timelines for the rollout of contractual backlog in the past three months, we've announced new theater agreements with key international partners, including Aon in Japan major.
Cinemas in Taiwan, and Odeon in the UK.
As we work locations for the launch of contracted theaters across key markets, including the U S, India, Spain, Italy, Germany, France, the UK and the United Arab Emirates.
At the same time, we're enhancing and diversifying the IMAX content portfolio that portfolio consists of Hollywood blockbusters more of which feature IMAX DNA local language blockbusters across a growing international footprint, a new generation of IMAX documentary.
And exclusive live events and experiences experiences.
<unk> roster of new partners.
The Hollywood pipeline looks very strong through the second half of 'twenty, two and into 'twenty three.
The summer is followed by a strong fall slate that includes Marvel's Black Panther sequel at Gcs Black Adam.
And as I mentioned the year concludes with the several lease of Avatar the way of water. The first of four planned avatar sequels next year, we expect to have multiple Marvel films, including new installments of Captain Marvel Guardians of the Galaxy and Ant man.
Multiple DC films, including <unk> and the Flash <unk>.
Anticipated new mission impossible, the latest fast and furious event and of course, Chris Nolan Oppenheimer, which makes groundbreaking use IMAX film cameras.
We're also very excited to see Marvel Studios forthcoming slate presented at comic Con last weekend, which culminates with two new Avengers features in 2025.
In addition to the previously mentioned China title, we have a robust slate of local language titles in key markets like Japan, South Korea and India.
In fact, we expect to release approximately 15 local language titles across roughly 50 IMAX markets in the third quarter alone.
The first project and our reignited documentary slate Blue Angels with J, J Abrams bad robot and top gun Maverick breakout Star Glen Pal has completed principal photography in advance of its release next year, we're excited to bring modern IMAX documentaries.
So our network and create new business opportunities around them given the demand for compelling documentary contest across the landscape.
Yes.
We are already in conversations with streaming services about downstream licensing opportunities for Blue Angels.
Finally, we are pursuing our vision of growing beyond blockbusters to include unique events and experiences globally by putting our technology in the hands of an expanding set of content creators and platform partners are becoming a destination for fandom of all kinds where make.
Good progress building, our connected network to support these events and enable the delivery of live and interactive content with low latency and superior visual and audio clarity. This is a capability that is unmatched by anyone in the global marketplace and partner.
Ship with leading top tier ISP partners, including Verizon NTT, Orange and others. We've now expanded our connected network to more than 100 theaters across the United States, Canada, and Europe , and we expect to double our connected footprint by year.
Zahn with locations in Asia, and the Middle East as well. We've also focused on the expansion of our IMAX enhanced initiative. Our goal is to grow the footprint of enhance further across streaming platforms and high end devices with growing our presence on Disney plus more.
Recently with the IMAX enhanced release of Doctor Strange and the multi verse of madness in June and we recently added LG to our roster of device partners, while expanding our partnership with Philips as well.
We're also looking at building out our tech stack to further drive the IMAX experience on streaming platforms and incorporate software tools that would yield recurring revenue and our streaming partnerships across both IMAX live and enhance we can make smart incremental investments in new.
Revenue driving opportunities given how we've successfully managed the challenges of the past two years to maintain a very strong balance sheet.
In conclusion IMAX is capitalizing on a strong pipe blockbuster pipeline to drive solid results growing share at the global box office and strengthen its brand with consumers.
As we do we are committed to building on our strength and to drive further growth for the company by expanding our network our content portfolio and what we can deliver for our fans and our theaters and their homes.
We look forward to furthering our transformation into a premier global technology platform for entertainment and events of all kinds and remain focused on accelerating our financial momentum and driving value for our shareholders with that I'm happy to turn it over to Natasha.
Thanks, Rich and good afternoon, everyone as rich mentioned, we posted another quarter of significantly improved performance driven by an exceptional film slate that highlighted IMAX DNA.
Operating results continue to improve which serve to highlight our superior differentiated business model. As a reminder, we are a global asset light licensing business with a low cost base and high incremental margin.
Second quarter 2022 revenue increased 45% to 74 million from $51 million in 2021, adjusted EBITDA increased to $25 million versus $9 million in the year ago period, and adjusted EPS improved to <unk> from a loss of 12 in the year ago period, net income and <unk>.
Yes for the quarter was constrained by a $3 million or <unk> <unk> per share impairment of a Chinese film investment due in part to Covid related Lockdowns and depressed box office levels in China. In addition, the quarter was impacted by 5 million or <unk> <unk> per share valuation allowance against our deferred.
Tax asset.
A remnant of the pandemic, which creates uncertainty regarding the ultimate realization of these assets.
IMAX technology network revenue increased 134% to $46 million in the second quarter from $20 million in Q2 2021.
Total gross box office was $248 million, an increase of 128% over last year's second quarter box office of $109 million.
As we expected the appeal of the Q2 slate drove strong box office results with domestic box office in May and June eclipsing that of the same period in 2019.
Gross margins for this business for $31 million or 67% up from $9 million or 44% in 2021 due to the higher box office, driven revenue and the operating leverage inherent in our business model.
<unk> technology sales and maintenance revenue for the second quarter decreased to $24 million from $29 million in last year's second quarter.
The lower revenue was the result of seven fewer revenue system installations versus the prior year comparative period period, as China zero Covid policy for much of the quarter affected our ability to grow the IMAX footprint in that region.
This quarter, we installed four new IMAX systems, three of which were sales or STS and one hybrid. This compares to 11, new IMAX systems of which nine were sale or STL and two hybrids in the prior year period.
Gross margins for this business decreased to $13 million from $16 million, which reflected the lower level of installation activity, particularly in China and a loss of revenue associated with the theaters in Russia, Ukraine and Belarus.
These factors were partially offset by an increase in maintenance margin.
Conversations with our exhibition partners around network expansion continue to build given our performance in the second quarter and a strong slate ahead and into 2023. If history is a guide avatar will be a catalyst already we are seeing exhibitors accelerate installations to get ahead of the highly anticipated sequel.
We expect to exceed the number of installations achieved in 2021 with a total of between 80 and 100 systems. This year.
Our ability to hit the high end of that range will depend on how quickly the situation in China continues to improve.
Moving onto operating expenses SG&A, excluding stock based compensation was $30 million in the quarter, which was above the comparative quarter in 2019 of $26 million and higher than 2021 levels of $22 million.
Year over year increase in SG&A is primarily driven by increased staff costs. As we returned to normalized work schedules of $3 million negative variance year over year related to foreign currency movements, mostly in greater China and other expense areas like increased travel and office costs as the business returns to more normal.
Life operation.
With respect to China during the period of prolonged theater closure, we managed our cost proactively by adjusting our work week, while maintaining our ability to quickly scale operations as soon as theatres fully reopen and business normalizes.
We have also significantly reduced marketing G&A and other discretionary spend.
These important steps taken during the quarter to reduce our costs in China will help the second half of the year.
We ended the quarter with $110 million in cash and $230 million of debt, excluding deferred financing costs.
$77 million of cash was held at IMAX, China and $33 million of IMAX Corp.
Our $300 million revolving credit facility remains undrawn when combined with our cash on hand, and the Undrawn component of our IMAX, China working capital facilities, we have approximately $470 million of available liquidity.
In May the company chose to terminate the covenant waiver period under the credit agreement.
PON. This election, the original terms of the credit facility were reinstated, including but not limited to full access to our investment in share repurchase baskets as well as the $75 million minimum liquidity covenant with no longer in effect.
Capitalizing on what we view as an undervalued stock price during the quarter, we repurchased $2 7 million IMAX shares at an average price per share of $15 92.
For a total cost of $43 million.
Subsequent to quarter end, we have purchased an additional 71000 shares bringing our year to date repurchases to approximately $3 2 million IMAX shares at an average price of $15 99.
For a total cost of $50 million with $25 million of remaining available room under our current program, which we recently extended for 12 months.
For the six months ended June 30th IMAX, China repurchased one 5 million shares at an average price of U S. Dollar.
<unk> 26 per share for a total cost of $1 8 million U S dollars.
We intend to continue to be opportunistic in repurchasing shares when we view our stock price as disconnected from the underlying fundamentals of the business.
Overall, we believe our second quarter results represent the key fundamentals of our business and we look forward to building on our momentum.
<unk> are turning out to see their favorite movies in IMAX.
Increased revenue is driving profitability improvement highlighting our superior high margin asset light business model, we have a strong balance sheet with substantial liquidity to support strategic investments aimed at driving growth and finally, we remain excited for the strong slate of IMAX friendly titles that too.
We released later this year and in 2023 with that I will turn the call over to the operator for Q&A.
Thank you, ladies and gentlemen, if you would like to ask a question. Please state your question Star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function as can often like to signal to reach our equipment, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We will now take the first question from Eric Handler from <unk> Partners. Your line is open. Please go ahead.
Yes, good afternoon, and thanks for the question.
Rich I wonder if we could just dig down into China, a little bit here.
Specifically I know the government does doesn't give a lot of lead time with films, but are you getting any visibility at all into the back half of the year slate, particularly around the October Hollywood The October holiday period, what Hollywood films might actually get.
Approved and then also for installs which were.
Pushed out of <unk> in China.
Are you is there already a plan to get those installed and how is that going.
Yes.
Hi.
Idea of what needs to happen to get those theaters open again.
Okay. So in trying to answer them in order of your questions Eric.
I think there are some promising signs about more Hollywood films getting and as a matter of fact, we don't have permission to say it on the call, but we've heard one film that is getting in the name.
Probably towards the end of August a decent size Phil and.
As I said in my remarks.
I think avatar again at the end of the year because of Jim Cameron's relationship with China, and how well is moving there.
I think a lot of things going on in China, especially with the less or a little bit of intensified because the.
Election of the new leader in China is in early November so I kind of look around that date and I think people are just being fairly cautious in caf in China before that period of time.
He is kind of doesn't want to do the wrong thing so.
Cautiously optimistic will be the words I would have about some of the films getting in and I think the log jam will probably open up.
After the election on your second question. The installs that went out at Q2, I mean, obviously you couldn't install if there was a lockdown and you see so.
My answer would be that.
One thing was more return to normal and the Covid levels go down then it's more business as usual, that's where they would happen with that said when we gave our guidance for the year. We took into account some things that have moved forward from next year because of avatar as.
Well as things that move back from early in the year because things were closed and now they are open. So if I could be more specific I would be but I think you're better off focusing on the overall range that we gave and trying to predict which particular ones are moving from quarter to quarter.
<unk>.
In terms of Shanghai.
As you probably know it was schedule to pretty much open up I think it was around July eight.
Overall, and then it slid back a little bit.
Our offices are in Shanghai as you know most of our employees live in Shanghai I think the only context. Thank you give is that this.
This lockdown is a lot less rigorous than the earlier, one and I would say anecdotally the people who work with us don't get the sense that it's going to be as long term and then it's more short term lift but again.
Not being there.
And the government not being more specific.
Giving you more of my impression.
Hi, guys.
Understood. That's all very helpful. And then just as a quick follow up question.
Can you talk about maybe some of your live events that are scheduled for the back half of this year.
I'll turn that over to Megan.
Yes.
We are in the process right now.
Making some announcements that will be coming out in September .
We have some.
Video events that are lining up.
We're going to be doing something with many daydream.
Some music events, but we're going to be announcing them when we put our tickets on sale to drive the tickets on sale date. So those will be rolling beginning in September .
And.
<unk>.
We also have.
An announcement coming.
With an ongoing partner that we'll be announcing again in the early fall.
And by studio heads what Megan.
The Q&A is yes.
Joe last call we've done a number of those we did it around Jurassic World. We did it around no with Jordan Peele, there have been a syrup meeting Q&A as before after meeting so that that just detail on what you mean by studio.
Very helpful. Thank you both.
We will now take the next question from Mike <unk> from Goldman Sachs. Your line is open. Please go ahead.
Hey, good afternoon. Thank you very much for the question I just have two.
First it was encouraging to hear about the new theater agreements in Thailand, and the U K and Japan.
I was just wondering if you could.
Talk a little bit about the pace of signings.
Yeah.
And whether or not those signings have.
Been skewing more towards sales type or joint revenue sharing and <unk>.
Has there been any meaningful change relative to pre pandemic.
And then second just on the installs outlook. Thank you very much for that.
I was just wondering if we should think about that 80 to 100 installs.
A good run rate beyond this year rich I know you mentioned there may have been some pull forward yoda avatar, but it was also impacted by Covid lockdown, So any general thoughts around that would be great. Thank you very much.
Well, thanks, Michael and I'll start with that I wouldn't think of 80 to 100 is the run rate.
China has been closed for six months and we have a backlog.
Over 200 theaters in China typically they as you know the backlog churns in about a three year period of time and.
In the first quarter actually until May or June there really wasn't a film slate and then the third thing I'd say about this year is that exhibition was just coming out of the Covid period. So they were financially challenged they werent going to make commitments on their financing wasn't necessarily in place. So.
I would be surprised although im not you shouldnt consider this to be guidance, but I would be surprised if.
The run rate next year it wasn't higher than it was this year I think.
A lot of extraneous events going on simultaneously this year.
In terms of signings again, it's a variation on the answer to that one Michael which is again.
They didn't open the year and say well I know Todd.
Over $1 billion and I know Doctor Strange is going to be this and drastic world and I know, it's going to be a really great year I don't know IMAX is going to do 95% of the 2019 box office in the first six months.
You would be I mean, I think they're being a little bit cautious and say, let's see how it opens let's see how IMAX does.
So as a result, the first half of the year the signings were slower than our typical run rate pace and the way I would look at it. Michael first you have engagement then you have a period where people run through the numbers and we actually look at the sites.
Figure out if we could do the theater or their exclusivity and things like that and then we actually get into deal negotiation. So as you saw in the second quarter. Thanks.
Things started to pick up a little.
Lot of deals right now, which are close so I would expect in the next month or so you will see signings activity pick up again, because its a cycle and I think we are.
Negotiating a number of things that we haven't yet signed but I think it's going to have to wait until the cycle goes forward a little more to get back to quote unquote normal and then the last question. You asked I think was about the relationship between sales type leases and JV.
Is it what it is typically the answers I'm not really sure Michael I don't think that it's dramatically one way or the other because nothing's kicked up to me that's kind of said we're doing more of this but I don't really remember the exact number I think it's around the same as it stands.
Great. Thanks for the thoughts and remarks rich I really appreciate it.
No problem.
We will now take the next question from Eric Wold from B Riley Squeeze. Your line is open. Please go ahead.
Thanks, Good afternoon.
Rich, maybe just I want to follow up a little bit on the China situation obviously.
We know it's kind of fluid and visibility is not that great, but maybe just take it kind of.
Somewhat of a worst case scenario, let's let's say.
Hollywood titles never regained the same level importance to that market.
As he did before whether that's because of <unk>.
Censorship and she does not want.
Change gallons or whatever the reason is it just.
<unk> regained the prominence in the number of approved titles remains extremely low can cannot market box office get back to pre pandemic levels under that scenario, where you really.
Mostly driven by local language titles.
I mean, I think first era.
I just have to say that's.
Hey.
Scenario that I think is extremely unlikely then I'll then I'll answer your question, but in my mind, it's kind of like saying.
Yes, it's Hollywood releases, 10% of the number of films next year then it releases today, how are you going to perform and I really do think it's that remote we have our feet on the ground in China. We have a lot of personnel, we talk to people all the time and I think there was just so much going on.
<unk>.
Including the lockdowns, including the backlog.
Chinese local language films, including.
Issues with Hollywood that came out of the pandemic, where piracy because of J&J releases and I think the paradigm is just change there. So I think what you're suggesting is remote but I think.
If it happens we didn't react to it the box office would be lower for US. There's no question about that however, if you look at our increase in local language films and you look at other kinds of events that we're trying to do.
Documentaries, we would try and make up as much as that as.
Possibly could and again when you look back in 2020, one when China came out of the pandemic without Hollywood films, we actually did really well on citizen part of your question, but in Japan. In fact, when there were no Hollywood films, we did about $1 5 million per screen average using low.
The language films and.
Filling it in.
Sure.
I mentioned in my remarks, and it's in the press release for the third quarter. We've all read a lot of headlines about there not being a lot of movies available and big movies, but for IMAX. We have 15 foreign language films local language films in the third quarter and for IMAX, We're doing special.
Releases of DMR jaw.
And we will have a number of live events in those places. So if there were no Hollywood films zero it would affect us, but we're pretty agile certainly much more agile than the exhibitor community and I think we make up for a lot of it in other ways.
No.
You answered exactly what I was looking for as I know.
We just have to make the choice.
Here or in China, you ever you've kind of weekend are weaker.
Of what films Youre going to highlight on IMAX screens.
Definitely sounds like there's enough replacement.
<unk> got worst eastern took place, but obviously, we don't think so.
But I don't want to show that you've got that flexibility and I appreciate that thank you.
Thank you Eric.
Okay.
We will now take the next question from Steven Cahill from Wells Fargo. Your line is open. Please go ahead.
Yes. Thank you. So maybe first just you give the amount of theaters a percent that's back online in China. I was wondering if you have any sense of like what the recovery is in attendance and where thats running now I'm guessing it's significantly below that 98%.
Of spaces that are back online, but would love to get some sense.
Secondly, I'm wondering as you go into a lot of these install negotiations given how strong the slate has been post COVID-19 given how strong it looks going forward and with recession, often being something that theatres wanted to invest ahead of because they tend to get more attendance do you have any sort of kind of negotiating strength in terms of the terms you might.
Ask for when some of those and then finally, just wondering if you have material revenue yet from IMAX enhanced and if theres any new streaming services, where we might see that show up on thank you.
Yeah.
Okay. That's a lot of questions if I Miss one of them come.
Come back to me please fix the size.
Thanks.
Attendance in China is definitely not 91% of what we would expect or have seen.
There are several reasons for that first of all.
There is diminished capacity in certain cities in Beijing, and Shanghai, It's only 50% to 75% capacity and there are some restrictions in other cities.
The bigger reason is on the content side and there just haven't been as Eric Wold asked right before there havent been Hollywood films that haven't even been.
Chinese films.
I will give you more context, so we're a little bit hopeful going into this weekend. There is a movie coming out that came out actually called Moon man and.
Mal yarn, which is the ranking service it was right at nine six out of 10 and generally anything over known as <unk>.
Considered quite good and <unk>.
Yeah, I think again I could be wrong, but.
We closed I think value estimated something like a $4 5 billion dollar ultimate for that movie which is about.
Florida 5 billion, RMB, which I think is about $500 million.
So the run of the movie so that would be a significant return but again.
On Maui, Adam reporting public information, which ive seen and.
<unk> sales have been decent for the movie. So there just hasnt been that turning point getting people back and as we've talked about in 2020. One once it started to reopen it wasn't really until the 800 came out.
Sort of in a way like in the U S. When some some of the key movies came out and then they would open the flood gates. So doctor strange in that top gun and Jurassic world to create a sense of normalcy. So I think you need that kind of cadence, but it's possible that debt.
We're close to the beginning of that point and we have to see I hope I know, it's not a perfect answer, but I hope that gives you a sense of the way we see the market.
In terms of negotiating leverage you asked about.
I think it's too soon to see anything like that again, we've just come through this.
Even if we had leverage it's unlikely we'd use it right now with either studios or the exhibitors I think the industry is in the early stages of getting healthy and we're in this business for the long run we've been in it for over 50 years and I don't think we look at the business.
How can we use short term leverage to increase short term results.
Now during the pandemic, we worked with our exhibitors to get the industry healthy and we gave concessions.
We alluded to this but it's worth mentioning for a moment. We spent a lot of time in the last couple of months because we then enforce it.
Stalls schedules that we're adding a lot of the car types because the industry wasn't a place to do that but over the last couple of months, we've really reinforce what the rollouts are on a global basis with our exhibitors and the fact that we acted the way we did I think has come back to us since virtually.
All of the.
Companies that we gave a break of negotiated reasonable rollout schedules right now so that's more of a philosophy rather than.
I don't want to overstate it but.
I can't think of any but I just to protect myself, maybe there were a few but virtually every one of them out of backlog with US has negotiated a reasonable rollout that works for both of US I think our philosophy of doing business has worked very well for us.
Exhibitors.
And then.
Your last question was material revenue on it has.
On live and I think.
It's Megan gave the answer to live I think.
The end of the year, we will see more revenue.
Ken.
Can't characterize it as material or not because I don't know how it is going to perform and I don't know what its going to come out, but I think.
Youll be able to see an acceleration.
It's a revenue stream as more events come online and I mentioned my remarks, but again this is something I want to reinforce that we've really been installing at a much more rapid pace.
So.
New new IMAX theatres that can play y and that whereas when we built out the original network that was in our control with IMAX theaters, because we had to get people to sign up for the theaters. Now these are existing IMAX theaters. So we're building out that at a fairly significant.
<unk> right now and.
Again.
Prefer not to give specific guidance on that but I think as the network starts to grow out youll start to see revenues accelerate there and I feel pretty good about how our rollouts going right now.
Great. Thank you.
Okay.
Next question from Mike Hickey from Benchmark. Your line is open. Please go ahead.
Hey, rich Natasha Heather congrats guys on a strong quarter.
Awesome to see your business back.
Rich I guess.
First question I was just curious if you could speak to sort of the broader health.
Of your of the exhibitor market I guess, most specifically domestically you're business is back but when you look at sort of the attendance trends across the broader circuit theres still a pretty big disconnect.
From what we're seeing this year compared to 2019, despite the slate. So just sort of curious why you think that is.
Is that sort of disconnect sustains.
That could impact your business and then I have a follow up on the touch.
Good question Mike.
It's the lack of film products, mostly so.
During as I said during the first three months of the year, there was very little film product in the domestic market.
I think it's picked up a lot in the second quarter I guess, we'll figure out how much when the companies start reporting.
And I think there is an imbalance is a little bit in the domestic market in terms of the number of theaters.
I've said this before there are.
The number of movies coming out is in size with the way the number of theaters that are out there right now and you know the 20 <unk>.
The 25 plants and things like that.
Not fulfill market to fill those theaters the way it did in 2019 and as you said I mean, we.
We're all the way back because our network is sized in a different way also as you know well, Mike We're global and if you look at some of the results like on top.
Top gun I would say the international results were surprising I mean.
They are great, but I think just how well that franchise internationally and again the international nature of our business presents a different dynamic.
Ed.
People on the exhibition business and then also we have a lot of local language content. So to the extent, there's a shortfall we can fill it in different places. So I think it's just a lag for them there needs to be more titles coming out on a more consistent basis, and I think if and when that.
Happily sell trend more towards where they were in 19 than they are now.
Nice thank you rich.
Just curious on that one thank you for the installation guidance, that's certainly more than I expected.
Just curious sort of.
Why now I guess.
Have sort of the confidence to give us some visibility here, where I think this is the first time you sort of re initiated.
Your view, what you can do for the year.
<unk> sort of alluded to maybe worsening maybe Darcy you answered sort of curious.
Given this is the second half build here primarily.
Since mobile to guide.
And then.
Can you give us a comp.
Where you were in 19 I have 120, but I don't know if that includes.
Grades are not in any color I guess Natasha on the mix.
Between sales.
<unk> Jv's hybrids.
Grades would be great. Thank you.
Sure Mike.
Rich alluded to as well that we've talked with exhibitor partners than we've been firming up the rollout schedules for our datasets.
Phoenix systems, and we're proud of the team for working so hard with all of our exhibitor partners outside of China, showing on the slate and igniting growth plans in key markets and so with all of that work done we've been able to firm up and feel confident about the install guidance that we're providing.
And as for the mix I mean.
Definitely Q3 will be higher than levels seen in Q1, and Q2 and the vast majority of these plans for Q4 and we are.
Fairly balanced between JV and sale and STL.
We look at it for Q3 and Q4.
That guidance includes upgrades or is that incremental.
Yes. The guidance. We've provided includes upgrades about one third upgrades in Q3 key locations.
Okay perfect Alright, guys. Thank you very much good luck.
Next we have David <unk> from Jpmorgan. Your line is open. Please go ahead.
Okay.
Hi, This is John on for David.
Most of my questions have been answered, but I did want to refocus and on live events can you give us some color around how the consumer reception has been any highlights of attendance to these events are learnings as COVID-19 impacts have become a little with the parent and I guess, maybe what's the reception from artist to other events offers.
<unk> been so far thanks.
Yeah happy to do that so I mean I think we're.
We're dealing with a range of events, but I think one of the things that were.
We're looking at it.
We are capable of being able to scale. Our then into theaters right now we're talking about 100 theaters as rich said.
We're talking about nearly 200 theatres by the end of the year and that allows you to be in.
Across North America and into Europe .
For artists, whether youre, a musician or ACR, a filmmaker youre able to be in lots of places at once you are also able to give stan that increased sensor fandom, which is a super special Super.
Where opportunity for people.
In places outside of New York, and Los Angeles, where you may not be able to access those kinds of opportunities and we're seeing that people are really gravitating to those experiences so whether you're talking about a Q&A or youre talking about what we did most recently with Jordan, Peele and know and Youre getting and asthma.
<unk> introduction before a movie that you weren't expecting or you are getting are highlighted.
Premier event prior to the opening which kind of ring fences IMAX and we get a special premiere in advance of this down which not only increased box office that sets us apart from everybody else before the movie opened it also signals to audiences that debt.
And a premium and even more immersive experience in the film itself and audiences are really responding to it on the music level.
Dealing with the artists all the time, we have artists coming through our offices and into our theaters experiencing the technology understanding how they can utilize that technology and I can only say that there is going to be a wide breadth of experiences that will be served up over the course of the next year because.
When you're dealing with the sound system youre dealing with the screen the capability to utilize those films content and live content and be able to use that intermix creatively, whether youre launching an album, whether you're using it to deploy against catalog content, whether youre using it.
And to scale, our concert Theres a lot of opportunity there and artists are very interested in how this can be utilized in new fresh ways. So.
We've had a tremendous success both on the artist side that also I think the reception that we have received and when we've done concerts and certainly you can go online and see the reactions is tiny in concert to understand how much people enjoy the experience of being in an IMAX theater and watching an artist that they really love.
Great we will keep an eye out for some of those experiences going forward.
That's pretty much it for me thanks, guys.
Thank you.
Yeah.
Next question will be from Jim Goss from Barrington Research. Your line is open. Please go ahead.
Okay. Thanks, I've got a couple also.
First there's usually a pretty big lull between say.
August and September or October this year is no exception.
As outlined in your page 11 slide.
I know you've indicated.
Bringing top gun back and that's it tremendous resilience you have other plans to fill in both in the domestic market and rest of the world ex China is you talked about China quite a bit so I wondered about the other parts.
Yes, I think I mentioned, Jim that we have 15 foreign language films in the third quarter, I think like four or 5% from China and the other 10 up from other territories. In addition to that as you mentioned.
Nov has only played in North America. So we're applying that in the rest of the world starting in a couple of weeks and I think that'll do pretty decent box office.
Were also weak.
<unk>, meaning converted into IMAX of jaws, and I can tell you that particularly jaws, because I havent seen the other one looks spectacular.
But we will see what the appetite is to come back and see it I hope it's a lot.
I don't think its ever been released in IMAX and I don't think you have to be sort of a genius to make the brand association that big shark IMAX summer. So we have some hopes around that we're having we're bringing avatar in and I think given the promotion around.
The opening of Avatar, where all the water.
There should be a decent.
Interest and people and leasing Avatar maiden said there are a couple of live events. We're looking at during that period of time so.
Between all of that I think we will.
It sounds like.
The last quarter, but I think we have lots of opportunities.
Okay and.
Thanks for that and <unk>.
You've been.
Perhaps the biggest beneficiary of this premium preferences attendance has resumed.
I was wondering if you have any.
Concern extra risk of loss of customers back to some of the non IMAX films as things normalized to a greater extent.
Or do you think you're establishing some new IMAX favorable habits that you think you can sustain.
Well I mean, the market share numbers suggest.
As the preference is growing to go to IMAX, rather than alternative ways of seeing it anecdotally.
Anecdotally you look at the conversation the cultural events, we've created around a number of these movies coming out over the last period of time.
And again, the global nature of the numbers coming out so.
Yes.
I don't have a crystal ball, Jim on where thats going but looking at the numbers that I've looked at looking at our brand recognition I should also add that we put in place some more digital marketing efforts in different ways to promote the films not only through live.
We just talked about but.
Other ways in the ecosystem on a global basis and given the way looking forward to the film slate again without going through it again, but yes films shot by Christopher Nolan, who typically index very well Marvel films DC Comics films 23 slate is very IMAX for.
So I would like to think that these trends have staying power.
Okay, maybe one last quick one.
The DMR process benefits from more films for the efficiency you create and now you're also doing it domestically and internationally, which I assume has some different staffing how.
How is that process working in terms of the efficiency of creating product and.
Hunting for those costs.
Well, it's always worked well Jim and actually.
We're in the process of moving a bunch of that to the cloud.
Make it more efficient and make it more user friendly on a global basis. So as you know we're always ahead of the curve and trying to think of the next thing. So it's worked well and I think it will get more efficient.
Alright, Thank you very much.
We'll take the next question from Chad Beynon from Macquarie. Your line is open. Please go ahead.
Good afternoon, Thanks for taking my question.
Just one from me kind of a follow up on gross margins or EBITDA margins I guess in line with the last comment.
But this one is more directed for the Stl's and the installations that you said should.
Spend in the back half of the year and into 2003 give.
Given everything that we've seen with inflation and supply chain.
Should there be pressures on the margins when you install these or can we start to see some gross margin on those installs.
Closer to what we saw back in 19, and 20 or 18 and 19 when things were really humming along thank you.
Well, we know we have inventory and we were concerned about some of the supply chain issues. So we we filled.
Pretty much a lot of what we have to install this year, we bought it into backlog.
Bought it against our backlog. So I don't think we have a lot of pressure on the cost side again. The margin is always a mix of which installs you have and what parts of the world. So I can't answer that question, but I can tell you that we haven't really left ourselves vulnerable this year to the supply chain issues.
I appreciate it thank you very much nice quarter.
Thanks, John .
It looks like there are no more further questions at this time I would like to turn the call back to our speakers for any additional all closing remarks.
Yes, thanks, operator, and thanks everybody.
For.
For joining our call.
If you just go out to a very high level.
Some part of our network almost half has either been closed or operating at limited capacity when you add China and Russia. So literally do the math and we manage to be almost <unk>.
<unk> Nikko to 2019, the best year.
Imax's history, so any life isn't perfect, but I think if you're sitting where IMAX is and what the macro trends and the wind at your back.
Quite pleased with where we ended up for the quarter.
And I'm pretty pleased with where we are for the year. So we will be back to you at the end of the next quarter.
Appreciate your taking the time to answer all of those very.
Very well thought out questions to ask callers thought out questions. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
[music].
Okay.
Sure.
Okay.
[music].