Q3 2022 Imax Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good day, and thank you for standing by and welcome to the IMAX third quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
I ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to Jennifer Horse, We IMAX Senior Vice President of Investor Relations. Please go ahead.
Thank you for the introduction and good afternoon, everybody. Thank you for joining us on today's third quarter earnings conference call on the call today to review our Q3 results are rich <unk>, Chief Executive Officer, and Natasha Fernandez, Our Chief Financial Officer, Megan collagen.
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.
Replay of the webcast will be made available shortly after the call. In addition, our third quarter earnings press release, and the slide presentation have been posted on the Investor Relations section of our website.
At the conclusion of this call our historical Excel model will be posted to the website as well.
I would like to remind everyone that 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 pertain to future results or outcomes.
These forward looking statements are subject to risks and uncertainties that could cause our actual future results to differ please.
Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes.
Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information future events or otherwise.
During today's call references may be made to certain non-GAAP financial measures.
Discussion of management's use of these measures and the definition of these measures as well as the 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 avail.
On the Investor Relations page of our website at IMAX Dot com.
With that let me now turn the call over to Mr. Richard Calpine rich.
Thanks, Jennifer and good afternoon, everyone. Thank you for joining us as we enter the stretch run of the year IMAX stands on the verge of a very promising period marked by significant potential tailwind.
The blockbuster slate is reigniting with two of the most highly anticipated releases in years Black Panther will conduct forever and avatar the way of water leading into a strong blockbuster slate in 2023.
IMAX system installations are ramping up in the fourth.
And we remain on track to deliver between 80 to 102022 up from 75 in 2021, we continue to drive momentum in technology sales and licensing with recent agreements across key markets, including China, and the middle East and we are accelerating.
The diversification of our global content portfolio, particularly with local language films, which comprised 30% of our global box office in the third quarter and bullied and otherwise saw film slate, we are targeting 30% to 40 local language releases worldwide in 2023.
We are leveraging these trends to unlock significant value for IMAX and its shareholders, even as we capitalize on near term opportunities. We continue to advance our long term IMAX three point al.
Strategy to grow beyond blockbusters, and deliver unique events and experiences globally.
We took a big step forward in the quarter with our acquisition of streaming technology Company Sim wave.
They move immediately strengthens our ability to deliver the best images on any screen anytime anywhere while further diversifying our revenue and growth potential.
Overall IMAX continues to demonstrate differentiation the strength of our model and create opportunities for future growth in any environment.
We drive results through our asset light operating model and recurring technology licensing and maintenance revenues.
And we deliver a differentiated premium experience that is in high demand among our fans and filmmaking partners.
This is evident in our Q3 results, which include double digit year over year growth across revenue gross margin and adjusted EBITDA. Despite a temporary lull in the slate.
Today I'd like to discuss our near term blockbuster film slate and momentum in our network growth a strong position.
Positioning with the opening of Avatar the way of water.
We're accelerating our local language strategy to strengthen and diversify our content portfolio and how we are expanding our technological capabilities and future growth opportunities with the acquisition of similar.
And then I will turn it over to Natasha to take you through our results for the third quarter.
First the blockbuster slate is starting off in the fourth quarter with a strong lineup ahead in 2023.
Adam Prime the pump opening to nearly $11 million worldwide Nymex, including 10% of the domestic box office next week is the long awaited release of Black Panther will condo forever a film for IMAX title tracking to one of the biggest global openings of the year and generating a tree.
Mendes amount of buzz in the year concludes with avatar the way of water more of that in a moment. The 'twenty two 'twenty three Hollywood blockbusters slate is very strong with multiple Marvel films, including Captain Marvel Guardians of the Galaxy and Ant man multiple DC films.
Including <unk> and the flash the highly anticipated new mission impossible, the latest fast and furious events and of course, Christopher Nolan Oppenheimer, which makes groundbreaking use of IMAX film cameras.
On the network side, the fourth quarter is traditionally our strongest period for installations and we're seeing momentum in network sales as well network growth of course strengthens our ability to maximize the strong slate ahead, we remain on target for between 80 to 100 system in.
Collections for the year, we've completed key agreements in recent months, including a nine theater deal in China with Wanda and an additional deal for six new locations in Saudi Arabia, and we continue to install our upgrade mark key locations around the world, including our newly refurbished.
IMAX with laser system and the iconic <unk> in London, as well as our new location with AMC at the Grove in Los Angeles, we're dramatically increasing our footprint in la a valuable commercial proposition and strategic one given how these new market theaters.
It makes us even more accessible to the Hollywood community.
New locations at the Grove and Americana at brand grow our roster of iconic la locations alongside the Tcl Chinese Theatre and Universal Citywalk also forthcoming arent IMAX Dine in theatre with Synopsys at Hollywood Park home of SIFI Stadium.
As well as a new location at the Galleria and Sherman Oaks, the year, culminating with the December release of Avatar the way of water. The first of four new Avatar films planned through 2028.
IMAX has been laying the groundwork for this release for years and we have an incredibly strong foundation on which to build the original avatar remains the highest grossing IMAX film of all time with more than $270 million in box office receipts to date.
$250 million of that came from the initial 2009 release when the IMAX Global network with only about 250 screens in China alone, we generated $24 million in box office, just 14 screens today, we have about 1700 screens.
Worldwide.
Recent re releases of the film have affirmed the strong brand connection between Avatar and IMAX. When the original was re released in China in March 2021, IMAX deliver 30% of the opening weekend box office, despite accounting for only about 1% of Chinese screen.
<unk> and our limited global re released just last month IMAX delivered 20% of the worldwide opening weekend, including nearly 30% of the domestic debut our teams have been in lockstep with Disney on a coordinated marketing strategy. We will also work closely with Jim.
Cameron's light storm entertainment to make sure our theaters already and at the IMAX version of the film will make the absolute best use of our technology and we plan to commit the bulk of our network to three D to help deliver on Jim Cameron's creative vision with the highest possible fidelity.
Avatar the way of water has the potential to be a cultural phenomenon and the same way as its predecessor was and we are confident that IMAX will be part of center stage and we believe we will enjoy the benefits of our strong collaboration with Jim Cameron Light storm and Disney as the <unk>.
Franchise continues over the course of the coming decade.
Beyond Hollywood, we continue to accelerate our local language film strategy around the world. We believe we've only scratched the surface of what local product can do for our results in vibrant and growing film markets like Japan, China, India, and South Korea.
The pandemic set in motion, a massive shift and how moviegoers perceive IMAX prior to Covid audiences. In these markets generally viewed IMAX as a platform for Hollywood films, but as Hollywood Studios held back their films and we partnered with local studios and filmmakers.
The local language and fortify our networks that perception changed.
The World IMAX is increasingly seen as the go to destination for local language blockbusters in the third quarter approximately 30% of our global box office was derived from local language films year to date IMAX as program the highest grossing films in China, India.
Japan and South Korea.
Japan alone our per screen average for the trailing 12 months is a staggering one $9 million.
Successful global releases for IMAX films, including India's RR, and Japan's Dragon ball Super Super Hero are demonstrating the increased export ability of local films and as we look ahead to 2023, we expect the program between $30 million.
<unk> 40 local language films around the World India is a great example of our progress with this strategy.
In 2019 local language films accounted for only 2% of our box office in India year to date in 2022, it's 35%. This is important as 80% to 90% of India's box office is generated by local language, we're at more than 11.
<unk> million dollars in local language box office in India, a year to date nearly three times our previous record year.
Four of our top 10 highest grossing local language Indian films of all time have come this year and even though many theaters in India were closed through March due to the omnicom surge our box office, there is well above what it was in 2019 a record year through.
Three quarters.
As a result, we're seeing momentum in installations in India with four new theater installations projected between now and January a 20% increase in our current Indian footprint. This trajectory shows the upside potential of our local language strategy as the international Studios in film.
Acres grow more advance more ambitious and more successful at exporting content around the world.
Okay.
Looking at China, We continue to take the long view, while managing the business for the current environment.
IMAX has been in China for nearly two decades, we built a strong business and brand over that time, our part of the fabric of Chinese consumer Entertainment our brand awareness in China is upwards of 90% across your cities, we partner with 84 Chinese exhibitors.
<unk> and 207 cities across 31 provinces in mainland China, we have nearly 800 theaters open and China and another 200 in backlog we work with every major Chinese film studio.
Best Chinese film makers are increasingly using our cameras to create mega hits, including the biggest hit in China. The past two years with the 800 and the battle of late Tien Tsin.
Overall, the IMAX China Network has featured eight of the top 10 highest grossing Chinese films of all time.
Rapid diversification to local language content gives us a strong content foundation in China, regardless of the political environment that includes wandering Earth two the sequel to our highest grossing local language film of all time, and our second highest grossing film ever in China, which is tentatively.
Weighted for the lucrative Chinese new year Moviegoing period.
The more thanks to our close relationships with Chinese studios, we're able to move quickly and dropped local language films into our slate when anticipated Hollywood films do not secure release dates that being said.
We're encouraged by what we're hearing from industry sources about the likelihood that the avatar sequel will get into China.
The original Avatar with screened in Shanghai for special Rerelease event, just last month, we maintain our strong position in China. Thanks to our proven ability to navigate changes in the market and we will continue to be nimble and doing so while managing our costs close.
For maximum flexibility.
We also made solid progress with our IMAX live initiative driving further diversification of our global content portfolio in the quarter, we delivered our highest grossing events, yet and our two biggest live content verticals live music and studio interactive fan events.
Brandi Carlile live in the Canyon Hays delivered more than $450000 in box office from a single Wednesday evening showing across nearly 100 IMAX locations in North America. Good for our best overall box office and per screen average for a live event.
And Harry styles Rabid fanbase made our interactive event for don't worry Darling with Warner brothers, the fastest selling live event to date selling out 21 locations and its first 24 hours on the way to nearly 40 sellouts nationwide.
IMAX is in entertainment technology company and investment in technology is enabling the expansion of our global content portfolio and driving long term growth and diversification for the company.
Our transformation to an all IMAX with laser product line is fueling continued growth in markets like China, Japan, India, and Saudi Arabia and around the world with advanced four K projection and 12 channel sound.
We continue to drive adoption of our film for IMAX camera program and expect to launch our first Japanese in India and productions using IMAX certified digital cameras. Soon in response to high demand will also roll out our next generation film cameras next year fueling even.
Greater opportunities for the best filmmakers to create for our platform and we remain on target to connect more than 250.
Five theaters worldwide by year's end, which will scale and drive further opportunities for us in the live space.
IMAX three point strategic.
Strategic vision, it's about growing beyond blockbusters to include unique events and experiences globally by putting our technology in the hands of an expanding set of creative and life partners and becoming a destination for fandom of all kinds.
We took a big step forward in that strategy with our acquisition last month of streaming technology company Sim wave the company's AI based automated tools for assessing and improving live streaming and broadcast video quality are better than anything we've seen on the market.
Which is why partners like Disney Warner Brothers Discovery, Paragon and more are turning to <unk>.
We view it as a low risk acquisition, given similarly has a proven business and client base will generate incremental revenue for IMAX and be accretive in 2023 and make IMAX, even more valuable to its most important content partners.
But we believe there is significant upside by putting together the power of IMAX as global brand behind <unk> Award, winning engineering team and product suite IMAX is opening a new world of possibility prior image enhancement capabilities across not only streaming and theatrical but.
Gaming live sports VR, AR and the <unk>. Indeed, Sim wave is already testing and learning across several of these areas. We are making excellent progress on the integration. The teams are coming together and uncovering new potential synergies, including within our proprietary.
Digital remastering process and similar technologies and.
In conclusion, we are focused on accelerating our momentum and driving value for our shareholders, our strong blockbuster slate, including the release of Avatar two further network growth.
<unk> global content portfolio and the integration of our assimilated acquisition all represent strong potential growth opportunities for our business and we remain as committed as ever to driving future growth by expanding our network our content portfolio and what we can deliver for our fans.
In our theaters and in their homes with that I'll turn the call over to Natasha.
Thanks, Rich and good afternoon, everyone as rich discussed we made good progress in the quarter with results that showcase the strength of our differentiated business model.
As a reminder, we are a global asset light technology licensing business with a low cost base and high incremental margins.
Third quarter 2022 revenues increased 21% to 69 million from $57 million in 2021, primarily driven by our technology network and technology sales businesses.
Adjusted EBITDA of $16 $5 million was up 26% from the year ago period, and adjusted EPS was a loss.
Versus a loss of eight in the year ago period.
A few unique items to call out first.
First the strengthening of the U S dollar had an approximate $11 million negative impact on gross box office.
This resulted in an approximate $2 million or 8% impact on technology network revenue and gross margin.
In SG&A, we incurred $1 million in transaction costs associated with the assembly of acquisition. These costs have been added back in adjusted EBITDA and adjusted EPS.
And lastly, $4 3 million or <unk> <unk> per share non cash tax reserve against our deferred tax assets.
IMAX technology network revenue increased 27%.
$32 million in the third quarter from $26 million in Q3 2021.
Total gross box office was $177 million, an increase of 25% over last year's third quarter box office of $142 million.
These strong results and a light Hollywood tent pole box office period reflects our ability to curate the IMAX slate with local language films re releases such as Avatar, one and live events.
Gross margin for this business were $18 million or 54% up from $11 million or 43% from 2021.
Contributing to this performance with higher box office.
Is that given the licensing nature of this business and relatively.
Flat cost structure resulted in profit increments holiday.
We were able to hold cost flat. Despite 32 film featured IMAX Global Theatre network in Q3 compared to 21 title in the prior year period.
IMAX technology sales and maintenance revenue for the third quarter increased to $33 million from $28 million in last years third quarter, primarily driven by one additional system installation the impact of amendments to the existing theater arrangements and higher revenues from aftermarket sales.
Revenue in the quarter was negatively impacted by 700000 as the theaters in Russia, Ukraine, and Belarus continue to be on non accrual status.
Gross margins for this business increased to $15 4 million from $14 9 million.
Gross margin percent of 47% was lower than the prior year margin of 54% given the aforementioned nonaccrual status of theaters and the impact on margin and increased maintenance and preparation for anticipated volume of <unk> content.
In terms of new systems.
Installed nine new IMAX system, seven of which were sales or FPL and two hybrid.
This compares to eight new IMAX systems in the prior year period of which six were sales or FPL and two hybrid.
As rich highlighted we continue to expect to have between 80 and 100 IMAX system installations in 2000, 2010, which equate to 40% to 16 system installed in the fourth quarter.
Our ability to hit the high end of that range continues to depend in part on how quickly the situation in China.
We have now executed several live events, which are helping to crystallized our strategy and serve as strong references are attracting more events and building partnerships as we look to scale our live event activity in 2023.
We've also made good progress on connecting our theater to the live events 176 connected as of September 30, with a goal of approximately 250 by year end.
The related infrastructure cost depreciation expense and network connection to operate disconnected theater network or <unk>.
$1 million in the period within some distribution.
Moving onto operating expenses SG&A, excluding stock based compensation with $28 million in the quarter, which was down sequentially, however, higher than 2021 level of $23 million.
As a reminder, the prior period Q3, 2021 benefited from $1 $5 million in COVID-19 government really benefit.
Furthermore, the year over year increase in SG&A was primarily driven by increased stock cost returned to normalized work scheduled a higher level of marketing expense as we increased our digital footprint and $1 million in transaction costs related to the <unk> acquisition.
With respect to greater China box office improved sequentially from $26 million in Q2 to $39 million in Q3, an increase of 50%.
While not at full potential box office. This quarter was in line with the 41 million experienced in Q3 2021, driven by the success of local language titles, including Luna, which is second in greater China box office. This year only behind the Chinese new year title bottle of late changing Tam.
With the Rolling Colvin theater closures in Q3, the IMAX, China network with open on average 82% during the quarter, we are continuing cost reductions IMAX, China to bring greater flexibility to our model.
At the end of September we closed on the acquisition of assembly for $21 million in cash and IMAX shares.
And the potential $4 million in future earn outs.
As rich described.
<unk> xylem business with streaming optimization technology revenues expected to breakeven in Q4, 2022 and accretive in 2023.
It also brings US a team of 30 high caliber software engineer, a short drive from our Toronto headquarters as well as an established client base of four of the 10 largest global streaming company.
During Q3 and through the nine months, we generated positive operating cash flow respectively.
This compares to a use of cash of $2 6 million from $20 million in Q3 and September year to date of 2021.
Our cash flow generation is improving as revenue increases and as the broader industry recovers from the Covid pandemic.
We ended the quarter with $87 million in cash and $238 million of debt, excluding deferred financing costs.
$60 million of cash was held at IMAX, China from $27 million in IMAX Corp.
As of September 30, 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 facility, we have approximately $437 million of available liquidity as of September 30th.
Capitalizing on what we view as an undervalued stock price during the quarter, we repurchased approximately 418000 IMAX shares at an average price per share of $14 62 for a total cost of $6 1 million.
Subsequent to quarter end, we have purchased an additional one 1 million shares through October 26th.
Bringing our year to date repurchases to approximately $4 6 million IMAX shares at an average price per share of $15 37 for.
Our total cost of $71 million.
During the quarter the board approved a $200 million increase to our share repurchase authorization and our remaining available under our program as of October 26 $204 million.
For the nine months ended September 30th IMAX, China, repurchased 3 million shares at an average price of approximately $1 <unk> per share for a total cost of 3 million U S dollars.
We intend to continue to be opportunistic in repurchasing shares when we view our stock price is disconnected from the underlying fundamentals of the business. We view this as an efficient high ROI way to return capital to shareholders by increasing their ownership share and IMAX to acquire.
During ourselves at an attractive multiple.
One measure of the impact of this capital deployment is looking at how much adjusted EBITDA per share we've added from share reduction.
Q3, adjusted EBITDA grew 26% year over year, while adjusted EBITDA per share of <unk> 29 grew 33% that repurchases over the past year added seven percentage points of growth when looking at adjusted EBITDA on a per share basis.
Our focus is on driving greater revenue adjusted EBITDA earnings and free cash flow per share and to do so at an attractive ROI.
Overall, we believe our third quarter results showcased the strength of our curated content portfolio.
Revenue, while not fully recovered globally post pandemic is driving positive adjusted EBITDA now at eight quarters in a row supporting investments and creating a positive flywheel that will feed future earnings expansion through our high margin asset light technology centered business model.
Supporting our business with a strong balance sheet with substantial liquidity that enables both strategic investments like <unk> and our three point on strategy aimed at driving growth in addition to share repurchases.
And finally, we look forward to the fourth quarter, and 2023, which feature IMAX friendly titled a contract model that allows us to maximize theater utilization with local languages and live events and the growing tech portfolio that positions us to further diversify our revenue base overtime.
With that I will turn the call over to the operator for Q&A.
Thank you ma'am.
As a reminder to ask a question you will need to press star one on your telephone.
Please standby, while we compile the Q&A roster.
I show. Our first question comes from the line of Eric Handler from <unk> Partners. Please go ahead.
Thank you and good afternoon.
That's it.
Of the things you can control.
We're doing a very good job.
China.
There's a lot of unknowns with what the government will or will not do I'm. Just curious are you getting any insights from your theater partners in terms of.
Possibly intentions with with locked down our expectations for how long Lockdowns may go on.
Our movies actually getting approved right now.
How you are viewing the rest of the year in China, and I've got a follow up.
So Eric I wouldn't say the insights are coming from other from our exhibition partners, but I think there are more coming from our team in China, which is obviously part of the expertise. They have is understanding what's going on in the government you and I know each other.
Long time, and you know one of my favorite sayings, it's never as good as it looks today as bad as it seems and what we're hearing from the government has set the COVID-19 restrictions are starting to loosen up a bit we heard that.
And mid to late November there, allowing some foreign dignitaries and groups and to the country without warranty deems as you know in Hong Kong they've started to lift some of the quarantines now for <unk>.
Three day short term kinds of visits so I think one of the things going on as the party Congress.
Came out with a fairly strong affirmation.
President and chief policies, but our own view, which I talked to you about a lot is that the lifeblood of the system depends on the economy ultimately in the economy hasn't done well under the current policy situations.
One reason, we spoke in our scripts to what's going on in China is to the extent of our network and the extent of our business. There we're embedded in the Chinese entertainment system in a way that no Western company is and Thats why we went through all the numbers. So I can't tell you in the fall.
Fourth quarter as the numbers go up here or is it going to be the first quarter, but I can tell you that there have been breaks in the COVID-19.
Just curious this for months and quarters at a time and we perform extremely well and I think when those breaks occur will perform extremely well again I think the one thing to really watch as avatar.
In the fourth quarter, because I think if avatar perform according to our expectations and also gets in as we think is more likely than not.
That very quickly that will change the narrative around China and the narrative around the introduction of non Chinese films into China. So it's still a long way of saying is I don't know exactly but again, we've been there for over 20 years and we built a unique platform.
Forum that I have no doubt will endure for a long time and be very profitable, but I can narrow it down to a specific part of the quarter.
That's helpful.
And then with regards to buybacks is good to see you have been active in the market in the first several weeks.
Of October .
Were you blacked out at all in the third quarter with regards to buybacks.
And as part of that too historically for a number of years you have been a bit.
<unk> argue given where stock prices are you willing to use some of your credit line to buybacks.
So you made a good observation, Eric we were blacked out for a large part of the third quarter, which is why we didn't buy any stock and we did buy stock as soon as the blackout was lifted I'll go farther at lids. When similarly was announced that's one that's when we started.
<unk> stock again.
It's a complicated question about using debt to buy back shares I think.
You've got to look at how much below what you consider fair value. It is now that actually has a cost to it which it used to be free as you know up until this year and I think our board and we have a sub committee of our board that could add very quickly we will decide what to do based.
On the stock price and based on the film slate and based on performance and make decisions.
Alright, and then one last thing along those lines I mean, you do have a lot of your cash in China.
What are the costs. These days, if you want to repatriate that cash.
Well I mean, the biggest cost Eric is that we have 30% non IMAX shareholders. As you know so if we've distributed that cash there'll be 30% leakage to not directly to IMAX, but that hasnt been an issue for us we've gotten.
Hey, dividends in China, as you know of which we get 70% of them and we are.
Consistently high and our company.
Payables and receivables because we do all the manufacturing for China here, so getting money out of China is.
Not really been an issue for us.
Fair point, Thanks, Rich I appreciate it.
Thank you.
One moment for our next question.
And I show. Our next question comes from the line of Eric Wold from B Riley Securities. Please go ahead.
Thank you.
David.
On the going to install guidance in backlog.
You, obviously maintained the 80 to 100 install guidance I know you mentioned that a lot of that getting to the high end is based on what's going on in China.
Zumba two months last year.
A fair amount of visibility more than that wide of a range. So I guess is it.
How many are really kind of you considered borderline that may leak out of this year and if they do leak.
Is it what does the Q1 or first half installs or is there a chance you could.
Get delayed to the back half of next year.
You mean, Eric we kept the guidance we kept the guidance because that's where we think it is we have a lot of visibility into it but.
So today Wuhan shut down so I think we're comfortable with the range, but we don't know what we don't know so I mean, we.
Could tighten it but we want to be right. We don't want to be wrong. So that's why we've kept it at that parameters, but if you ask me.
Is there a way we could get to the high end of that range. Absolutely. If you ask me could we fall below the low end of that range I think thats highly unlikely.
So we.
We take these calls and our guidance really seriously and we do have a status report on where all the SaaS.
So it's hard.
Hard to do better when you don't have.
<unk> visibility and you don't have predictive ability of whats happening halfway around the world and yes. So I would think if they if some of them.
And by virtue of the range I mean, we have confidence in a lot of them given where we are today and some of them drifted I would expect it would be into next year. The early part of next year. I mean, these are people who have confirm that theyre going to do installs. So we're not going out of our way to hedge it but we just don't want to as a <unk>.
Company represent that we.
No everything there is going on in those markets, we don't but thats a very educated guess.
That's fair rich I appreciate that and just a follow up is as you start thinking about next year and presumably you get.
On the Q4 call, we're just giving guidance for 'twenty three installs.
China really the only variables.
The drivers of that range or are there other.
Things you think about it.
In other parts of the world or.
And whatnot that could really impact that number or is it really just China is the one year really focus on is really driving the heightened motorboats wherever next year's range maybe.
So I don't want to sound defensive but our our PSA has in Japan are $1 $9 million a screen, we have a lots of discussions going on now in Japan about signings and installs for next year. In addition to whatever is in our backlog. So I think when we get to the.
Fourth quarter of next year, we will see how many of those we sign and we'll see where they stand.
No.
It's not all China Theres, a lot of other things going on in our company and our backlog in <unk>.
Even for the rest of the year a lot of the installs we have marked our outside of China, We know exactly where those stand and those aren't at risk by the same kind of factors that I discussed earlier.
Thank you.
We're in the process of doing our budget right now and <unk>.
By the way and really mentioned this on the call, but I will add to the tone of our signings business.
Stronger now than it did in the last quarter, there's a fair amount of activity going on but we're not yet ready to quantify that since it's not signed but I will say our business is feeling better now than it did a couple of months ago. So when we get to this time next year, we will give.
Our best guess.
Perfect. That's helpful. Thank you rich.
Thank you.
And our next question comes from the line of Steven Cahall from Wells Fargo. Please go ahead.
Thank you maybe first Natasha I was wondering if you could help us unpack the gross margin performance in the third quarter.
The sales and maintenance gross margins were down about 700 basis points. You mentioned there is I think I heard a $700000 hit from the kind of Russian sphere theaters as well as some installed prep and so since you've got a lot of installs ahead and the Russia drag is still there I was wondering how we should think about the sales and maintenance.
Gross margins for the fourth quarter, and then I've got a follow up.
Sure. So as you look to the fourth quarter.
We generally have.
40% margin on our maintenance business than any of our box office. It's all incremental if you look to avatar and Black Panther.
Gross margin percentage was at 47% this year with 54% prior year.
Two factors impacted that.
Less high margin financing and higher maintenance costs as we prepare for avatar and <unk>.
It's been a long time, since we've had <unk> and particularly for avatar.
Very important for us as we as we look for that so.
The other part of it as your scale in STR maintenance business and I think we've given the guidance of that that we will have a split up 40%, 60% JV for the remaining 40% to 60 installs in Q4 and.
And that's sort of how I would look at Q4 gross margin.
Great and then just one on on Sim wave I mean, I think the history of the company has really been a supplier of technology to.
So makers and exhibitors and I guess audience kind of by design. It seems like Youre really looking to expand the pool of businesses.
Technology that you want to provide should we think of Sim wave as the beginning of kind of more to come in terms of technology that you own or acquirer being used by <unk>.
A broader field of.
Businesses are consumers kind of a broadening of your technology portfolio or would you describe this as more opportunistic where you saw something that you've thought fit nicely into some other things youre doing.
And Thats why its in where it made sense.
We very much take up ourselves Steve is.
Our technology platform and as you know.
We don't own virtually any theaters in the world and that most virtually all of our income comes from licensing our technology and maintaining our technology and ancillary businesses. So we've always been looking around for ways to expand on the kinds of technology, we can do and.
We're incredibly excited about Sim wave.
That company has grown 25% compounded for number of years and by the way they are not even outside the United States and Canada, and we think we could do a lot there, but we think we could expand.
Similarly, and non linear ways and because of that.
The technology, they have and the engineering team they can help us solve a much bigger problems.
In the entertainment.
Payment industry, So again somebody like Disney decided to bed on our streaming service which was.
A specific that we bet on the growth of streaming revenues because thats, how we get paid so virtually whatever its streaming service. It is.
Plan on expanding.
The basket of services that we can provide from what <unk> does now.
Optima optimize.
Streaming technology, which in English that means we could save a lot of money for the streamers by analyzing the kinds of content and the.
Kinds of devices, and how to sort of blend that to help them save money, which is a very very big deal, but we think there are products. We can develop that we haven't talked about it at all that could potentially be game changing in a very material way and whether they are in house developed over their acquisition.
I think it's too soon to say, we're not going to bet. The company on a big acquisition, we never have and one that we're going to do that but I think we are super intrigued by what we've got here and it's only been a little more than a month.
Made a lot of progress in integrating the teams and the kinds of problems that theyre looking at.
Great. Thank you.
Thank you.
And I show. Our next question comes from the line of Mike <unk> from Goldman Sachs. Please go ahead.
Hey, good afternoon, and thank you very much for the question. It was encouraging to hear the installation guidance reiterated for the year I was just wondering if you could.
Talk a little bit about whether or not you still see the same mix of sales type versus sorry same mix versus.
Grades versus new installs and sales types versus <unk>.
And then separately I was wondering if you could talk a little bit about.
The relocation product.
When is that.
When does that usually happen in what's usually the business case for it. Thank you very much.
What do you mean by the relocation projects.
It was mentioned in the press release.
Eight IMAX theater systems were relocated from original locations year to date.
Really understand what that was.
That means my acres.
If for whatever reason and there's a variety of reasons one it's not.
Working at a specific location or another means meaning from a financial point of view, but the most common kind of thing as an exhibitor will start will terminate its lease and our multiplex, which is based in one place, but they still owe us the revenue stream under that theater. So we will accommodate them in.
Try and move it somewhere else so it doesn't shrink the network.
They put it in another theater in the past.
You want to talk about the mix sure.
Mike our mix.
New installs versus upgrades is 35%, new installs and 65% upgrades for Q for Q4.
And so we're fairly in line historically on an annual basis in our upgrade skew more to JV.
And in Q4, we expect approximately 65% and Thats just driven by the fact that we'd like to have a mix between the benefit of having a JV that has a recurring revenue stream and that you have sales in mcl types that have an upfront revenue stream.
And then overall.
We commented in our deck that our mix is 40% for sales sales type lease and 60% for JV. It's for Q4.
Excellent. Thank you rich thank you tushar.
Thank you.
And I show. Our next question comes from the line of Chad Beynon from Macquarie. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Wanted to ask about the local language initiatives and really just kind of the multi year opportunities you talked about.
The content for 'twenty, three and in your slide deck you show the growth just in terms of local language titles.
Can you just kind of help us understand the broader studio stability for these non majors that are producing these should we think about 2023.
Potentially an anomaly or do they have the vision the balance sheets and really the demand to come back to keep this product going in partnering with you guys beyond 'twenty three.
No. These are major studios in other countries in the world. So we've done I don't know between five and 10 movies in Japan with Tahoe, which is the largest studio in Japan and actually I was over there I don't know a couple of months ago and those movies are doing really well.
And they.
They want to do a lot more of them and they are also not only doing well in IMAX, but like in the U S where the studios have discovered that they create more positive conversation around the movie and Theyre, helping the movies so back to Japan, because on top of my mind.
But two of the movies demons layer and shouldn't even Chilean became two of the biggest movies of all time in Japan. There were filmed in IMAX and in India I think this year.
Four of the biggest 10 movies.
In India, where IMAX related movies, and our box office in India with IMAX movies is I think 33% of the total box office now. So this is a real business and exciting business and again it allows us to diversify away from Hollywood and not to belabor the point the one point.
$9 million PSA in Japan.
Looking so I don't misspeak, but I think the majority of that has been Japanese films or at least a very large portion of it. So there's been a migration from where consumers used to think of IMAX as a place to see Hollywood films on a global basis now I think people around the world take about it as a place to see.
Drift offs, whether they are local ones or Hollywood, one turn of debt.
As a real business that will stick around if I had to speculate grow.
Okay. Thanks, Rich and then my follow up just in terms of any.
Any indication of kind of preorders for for Black Panther are probably a little far out FERC for avatar.
But I guess when can we start giving you a good sense of.
Of how the demand is kind of ahead of some of these massive releases.
While avatar ticket, it's still go on sale.
So November 21, so we have no idea about that although exhibitors around the world are all extremely optimistic about it and have expressed this.
Black Panther.
It opens in about a week or two do we have any sense made in about resales now, yes pre sales are very solid for black Panther.
<unk> highly anticipated.
We were discussing earlier in the day the Premier just happened last week and the reviews for the movie are extremely solid with this much time before released I think it bodes very well for both pre sales and the opening weekend.
Perfect. Thank you very much appreciate it.
Thank you.
And I show. Our next question comes from the line of David <unk> from Jpmorgan. Please go ahead.
Alright. Thank you just one for rich just following up on China with the party Congress behind Us.
Wanted to see if you have any update on the pipeline for Hollywood films in China, I know you mentioned some optimism around the avatar not sure if you've seen anything yet around blackout them I think there were some different new stories around that just wanted to get your.
Okay.
I heard a rumor today I hesitate to repeat it but someone for my Chinese office told me. This morning that he thought black Adam was going to play and kind of mid November again, I can't confirm that but thats, what I was told.
Other than that I think we're waiting to hear the official word on avatar and.
There were a couple of things going on in China, One was the party Congress.
The bureaucracy, whether it's at a standstill waiting for certainty. So I think you'll start to see.
That break in the next month or two and announcements come out about it.
I know there've been a number of films submitted so there is a queue there.
So again I don't know when but I would expect over the next few months for the year.
Okay, and then turning to <unk> I apologize if you entered this in your commentary around Q.
Q4 margin, but a outsized or unique marketing expense, we should be aware of as it relates to avatar in the quarter.
Yes, I would say, yes. This is rich.
Sure.
We think avatar is going to be a very big movie and.
We're going to spend some money.
To support it and we think it is a very good ROI on it and.
We we wish we could find other opportunities to invest that we think are going to be as good as avatar to want to add anything in the test and also as you look to black Panther as well and Thats a filmed for IMAX movie and so usually those types of movies, we put a little more behind it as well because of our.
<unk> DNA.
Thank you.
Thank you.
We have time for one last question.
Our last question comes from the line of Michael Hickey from Benchmark Company. Please go ahead.
Hey, Rich Natasha happy Halloween guys. Thank.
Thanks for taking my questions.
Yes.
On the installations I realize you still have a fairly wide range here.
For this year, which I respect obviously a lot we still don't know I think probably most of your valuation consideration now though is on 'twenty, three which you havent provided guidance on installations, Natasha, which I understand why but when you think about sort of midpoint or low end of your range. This year.
Are you comfortable qualitatively that.
You would think to drive installation growth in 'twenty three I have a follow up.
So the answer is we don't know how to answer that question. A few times there are territories like the middle East.
And Japan and other places in Asia that are absolutely, killing it there are places like China that are still in Covid lockdown.
Answer the question for me about how those are going to be dealt with I could fill it in but I said earlier the pace of our best signings business and inquiries is on a better trajectory than it was several months ago. So if that trajectory continues given how difficult the last few years.
Have been I would hope that that would turn into increases in the number of installations, but it's premature to predict that right now without having more data.
Alright format.
The last question, which obviously a lot of companies reporting sort of consistent narrative here economy's impact.
Consumer or vice versa.
In broad areas of weakness curious when you look across all your geos, which obviously have their own.
<unk> profile are you seeing.
From a weakness.
Impact.
Ticket sales or the broader box office and then when you think about.
'twenty, three where maybe you have a real recession I guess from that one now.
And I realize that the box office.
Historically recessions, but obviously you've never had.
<unk> competition.
Like we do now.
With volumes growing in that environment.
So semi 2008 was one of the best years, we had.
Add one eight to nine when it was broad based recession as you said our business generally recession resistant IMAX is an affordable luxury you might cancel a vacation or a restaurant, but it's really a getaway experience.
You're right in home trade trends have changed but we continue to pick up market share. This year early in the year I mean, I know this seems like ancient history.
Top gun and Jurassic World.
Doctor Strange, where only a few months ago, and our indexing and our market share really good. So I don't think thats going to be an issue.
Thanks, Rich good luck guys.
Thanks, a lot and happy Halloween.
Thank you. This concludes our Q&A session at this time I'd like to turn the conference back over to rich Kaufman CEO for closing remarks.
So I have.
A unique advantage.
Some of you not all of you, but I've been here for close to 30 years and I've come to understand as I said to Eric earlier that it's never as good as it works embedded as it seems and when <unk> pain made a speech I don't think it changes the long term value of IMAX in China.
Whereas huge consumer proposition or we've done very well on the other hand, I don't think when we have.
One movie it changes the narrative in a material way with one possible exception, which is avatar because thats out one movie there's four of them coming and second of all I think when you look what that did to our business not only when the movie came out but over the re releases in the last couple of years.
And the preparation that.
We are doing and the coordination we have with Disney doing it. So I scratch my head I know Ceos aren't supposed to talk about this stuff, but when I see where our stock has been going with the release of black.
Black Panther two at Avatar, I really scratch my head because as you know the theme of this call was where in the past purpose of really.
Turning it around in a super positive way and I guess, we'll find out but from my point of view and listening to us about our buybacks recently, we certainly think we're headed in the right direction.
So thank you all for your support.
This concludes today's conference call. Thank you all for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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