IMAX Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q1 2023 IMAX Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. And I would now like to hand the conference over to Ms.

Operator

Jennifer Horsley, Head of Investor Relations. You may now begin.

Speaker 1

Good afternoon, and thank you for joining us on today's Q1 2023 earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer and Natasha Fernandez, our Chief Financial Officer. Rob Lister, Chief Legal Officer is also joining us today. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call.

Speaker 1

In addition, the full text of our earnings press release and the slide presentation have been posted on the Investor Relations section of our site. At the conclusion of this call, our historical Excel model will be posted to the website as well. I would 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 pertain to future results or outcomes. These forward looking statements are subject to risks and uncertainties that could cause our actual future results to not occur or occurrences to differ.

Speaker 1

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 income, Adjusted EPS and adjusted EBITDA as defined by our credit facility are contained in this afternoon's press release and our earnings materials, which are available on the Investor Relations page of our website at imax.com. With that, let me now turn the call over to Mr.

Speaker 1

Rich Gelfond. Rich?

Speaker 2

Thanks, Jennifer, and thank you, everyone, for joining us today. 2023 is off to a very strong start. Across our network sales and global box office, we are soaring to historic highs that position us very well in both the near term and long term. Simply put, it's a great time to be in the IMAX business. Sales activity is booming.

Speaker 2

Year to date, we've already completed 63 signings for new and upgraded IMAX systems around the world, Significantly more than the 47 signings we did in all of 2022. We delivered our highest grossing Q1 ever At the global box office, we captured 3.5% global market share in the period, up over our full year record set in 2022. And we drove extremely strong double digit year over year growth in quarterly revenue and adjusted EBITDA and improved adjusted EPS of $0.30 year over year and operating cash flow $25,000,000 year over year. What's exciting is the geographic composition of these results because they offer proof That IMAX is even more global than ever. Many of our signings came in high value international markets, Validating our strategy to focus on countries where we're generating high per screen averages.

Speaker 2

The Q1 was our highest grossing ever for local language films. Nearly a third of our global box office was driven by non Hollywood films. That included our highest grossing Chinese New Year's ever for local language films and top 3 all time IMAX releases in Japan and India. Many of these films, including India's PaTHAN and RRR and Japan's Suzume drove box office in countries outside their home markets, further establishing IMAX as a leader in the global export of Local Language Blockbusters. As a result, we remain firm that we will drive significant growth in system signings, installations, global box office and adjusted EBITDA throughout this year.

Speaker 2

Today, I'd like to provide updates on Our network growth and sales activity and our global box office and film slate. And then I'll turn it over to Natasha to take you through our financial results in detail before opening it up to questions. First, our sales activity has broken out in a significant way, which is a very positive indicator for long term growth across our global network, box office and financial results. As I mentioned, our sales strategy this year is focused on high box office markets around the world, particularly those where we drove record breaking performance with Avatar the Way of Water and have made significant gains with local language content. Our strategy resulted in 28 system signings in the Q1, all but one of which were for new locations and 63 signings year to date.

Speaker 2

It's important to note that all signings are not equal. Many of these agreements are high quality in terms of market PSAs and increasing our footprint in a high potential growth markets. For the deals we signed during the Q1, the aggregate per screen average was nearly $1,000,000 during 2022. That includes Japan, a market where we drove $1,800,000 PSA in 2022 I recently signed an agreement with Aon to install 7 new systems this year. We signed our biggest deal ever in Indonesia for 10 systems, which will double our footprint in the world's 4th most populous nation.

Speaker 2

We struck an agreement for up to 10 IMAX with laser systems in Thailand, which will also significantly expand our footprint in that market. Around the world, we remain in active discussions on new signings with exhibitors. That even extends to our most highly Penetrated market, North America. At CinemaCon, earlier this week, we announced our biggest agreement for new screens with a new partner in the United States in a decade with EVO Entertainment, an innovative exhibitor with ambitious plans for national expansion. Furthermore, we continue to generate new opportunities for IMAX Enhanced While strengthening our go to market strategy for SimWave, just last week, our partners at HP announced plans to bring the world's first IMAX Enhanced Certified Personal Computer to Market.

Speaker 2

At SimWave, we installed a new Chief Revenue Officer, a veteran digital executive who has served in that role for subsidiaries of TiVo and Nielsen. And last week, IMAX made its first appearance at the NAV show in Las Vegas where Similade's VOD monitor won a product of the year award and we held more than 100 meetings to discuss potential new and expanded partnerships. It's notable that At a time of cost cutting among streamers and high churn among SaaS based solution providers, SimWave has retained its entire client base, underscoring its value as a cost saving solution. We also remain bullish on the long term applications of SimWave technology, including potentially transformative solutions for streamers that allow them to compress video images while preserving optimal quality and saving significant costs. For both SimWave and IMAX Enhanced, we view 2023 as an important stepping stone for these initiatives to make more meaningful contributions to our revenue next year and beyond.

Speaker 2

With our global IMAX system network Almost fully online for the first time in 3 years, we've reached the benefit of having a full diversified content pipeline to push through it. Avatar, the Way of the Water, anchored the quarter, concluding its 2 months and our network has the highest Grossing IMAX 1st run release of all time with $255,000,000 in box office. And with the avatar effect clear in our strong sales activity, we are very excited that there are still 3 installments of this box office juggernaut to come through 2028. We continue to capture an outsized share of the box office on our core blockbusters, including 10% of the domestic opening weekend for Ant Man 3 and 11% for John Wick 4. But our success in Q1 goes well beyond Hollywood blockbusters.

Speaker 2

We delivered more than $80,000,000 in local language box office, our highest grossing quarter for local language films ever. A highly successful Chinese New Year holiday accounted for the lion's share of that figure headlined by Wandering Earth 2, our highest grossing local language film of all time. The quarter also saw the release of India's Pathion, our 3rd highest grossing Indian release of all time. And Japan's Suzume climbed to 2nd on our list of highest grossing Japanese titles of all time as it continued its global rollout. Our local language strategy has played out in 3 distinct phases.

Speaker 2

First, we strategically ramped up Our local language pipeline in key markets during the COVID pandemic to diversify beyond Hollywood as U. S. Studios Postponed releases or conducted failed experiments with day and date streaming. This yielded several big Pandemic era hits from the 800, the first Chinese film shot with IMAX cameras to our highest grossing Japanese Title Ever with Demon Slayer. 2nd, we shifted perception of our brand in critical markets like India and Japan.

Speaker 2

Before the pandemic, we were viewed as a platform for Hollywood blockbusters. Now we're seen as a first choice purveyor of local blockbusters as well. Today, we're entering a 3rd phase. Our success with local language films is extending beyond their home markets and IMAX is becoming a critical player in launching these films around the world. Here are just a few examples.

Speaker 2

Suzumi delivered greater IMAX box office in China than it has in its home market, Japan, RRR has delivered greater IMAX box office in Japan than it has in India. Sathsan has recorded greater IMAX box office outside India in a diverse collection of markets across North America, Europe, the Middle East and Asia. And IMAX delivered 30% of the opening weekend box office for Wandering Earth 2 when it debuted in the U. S. We've only begun to tap the potential here As local film industries around the world grow more advanced and streaming further acclimates global audiences The local language content and viewing with subtitles.

Speaker 2

This month offers a great example of our unique Diversified content portfolio with the record breaking animated debut of Super Mario Brothers, Anchoring a slate that also includes French, Indian and Japanese local language releases playing in IMAX markets throughout the world. In a month, with only 1 Hollywood tentpole on the slate, our April box office Drew last weekend is more than double what it was in April a year ago. The floodgates open wide for Hollywood Blockbusters next month and through July with a very strong IMAX friendly slate that includes new installments of many of Hollywood's biggest franchises, including Guardians of the Galaxy, Fast and the Furious, The Little Mermaid, Spider Man Across the Spider Verse, Transformers, The Flash, which played extremely well at CinemaCon, Indiana Jones, Mission Impossible and of course Christopher Nolan's Oppenheimer shot with IMAX cameras. The back half of the year has strong titles as well, anchored by Film for IMAX releases, Dune Part II and Aquaman and the Lost Kingdom. And we remain committed to the 30 to 40 local language titles for the full year as well as exclusive IMAX Live events Like our successful world premier of Creed III, around the world for a diversifying set of creators and content Owners, it's clear, IMAX is a must have partner for the launch of global blockbuster content.

Speaker 2

In conclusion, we are delivering on the strong promise 2023 holds for IMAX With diverse high quality new signings in key growth markets, a record breaking quarter at the box office, Continued global market share growth and significant progress in the global diversification of our brand and business. We are confident in our ability to drive further global growth across the IMAX network and box office As we carry our strong momentum throughout this year, we look forward to updating you on our progress as the year continues And to creating value for our business, our shareholders and audiences around the world that continue to embrace the IMAX experience. Thank you. And with that, I'll turn it over to Natasha.

Speaker 3

Thanks, Rich, and good afternoon, everyone. As Rich highlighted, we are off to a strong start to 2023 and that positive momentum is clear in our results, Including Q1 IMAX box office of $273,000,000 revenue growth of 45% over the prior year Adjusted EBITDA attributable margin of $27,000,000 or 34 percent of attributable revenue, adjusted EPS of $0.16 and operating cash flow of $21,200,000 The positive business momentum has continued into Q2 With strong global box office and sales activity in the period to date, we are particularly encouraged by the quality and mix Of our 63 signings so far this year, 54 were new systems compared to 30 for all of 2022, 23 with exhibition partners who are new to IMAX in the past year, 25% were in U. S. And Canada, 17% in Europe and 44% were in Japan and Southeast Asia. And as mentioned earlier in the call, the vast majority were in high As announced at the time of our Q4 earnings, we resegmented our business to 2 reportable segments, which we believe are better aligned with how we operate and provide a clearer view of our Entertainment Technology business model.

Speaker 3

The first segment is Content Solutions, which consists primarily of revenues from our agreements with studios and filmmakers for the remastering and distribution of Content to our network, including postproduction services as well as documentary production and live events. The second segment is Technology Products and Services, which is focused on our IMAX system network and primarily includes revenues related to the sale, Lease and maintenance of IMAX systems to our exhibitor customers. Lastly, businesses which are not yet material enough to comprise their own segment are included in all other. At this time, the primary components of all other are IMAX Enhanced and SimWave. I encourage those Looking for more detail on our segment reporting to view our updated historical financial model posted on our IR website.

Speaker 3

Now on to the results. 1st quarter results exceeded our expectations driven by record IMAX global box office and the accompanying Profit incrementality. Notable contributors were the long play of Avatar into February and the robust return of the China box office and our diversified portfolio of Hollywood and local language blockbusters that created a strong opportunity to maximize box office. As Rich noted, the benefit of our global content curation strategy was fully on display in Q1 with about a third of our box office coming from local language films. This includes 16% of local language box office generated outside the country of Content creation.

Speaker 3

This local to global extension of our strategy is proving highly successful. One recent example is Suzume. The Japanese animated blockbuster generated $6,000,000 of box office in Japan, but we didn't stop there. Given the film success and the global demand for anime, We have now exported this film to target regions and cities, generating an incremental $10,000,000 in U. S, China and Rest of World.

Speaker 3

The winning combination of Hollywood and local language content enables us to lower the volatility from Hollywood releases and to optimize the programming of our network to maximize box office for our exhibitor customers, which in turn is driving greater demand for IMAX systems, Creating a positive growth dynamic. Our box office performance led to a record Q1 global market share of 3.5% on less than 1% of the screens, up from 2.6% in Q1 of 2022. Revenue in Q1 was $87,000,000 up 45% from $60,000,000 in Q1 'twenty two. At a 57.5% gross margin, we recognized gross profit of $50,000,000 which reflects growth of 58% year over year. This higher level of revenue and gross profit was driven by improvement in both segments.

Speaker 3

Content Solutions revenues of $32,000,000 comprised 37% of total revenue and grew 53% year over year, driven by strong IMAX box office growth globally with North America up 25%, rest of world up 60% and China up 97% year over year. Gross profit of $18,000,000 grew 43% year over year, driven by the profitable flow through of box office, while gross margin came in at 56.1 percent of revenue, down from 60% in 2022, driven by higher film marketing expenses and cost to operate the IMAX Connected network, which scaled in the back half of twenty twenty two. Technology Products and Services revenue of $52,000,000 comprised 59% of total revenue and grew 36% year over year. For this segment, gross profit of $30,000,000 grew 63% year over year with a gross margin of 57.8%, which was up from 48.5 percent in 2022. This strong result was driven in part by an increase in systems rental revenues resulting from box office growth of 52% associated with our revenue sharing model, which also generated higher revenue flow through to margin.

Speaker 3

Also contributing to our technology products and services results were a higher level of installations under sales or hybrid arrangements and system renewals. In total, we had 9 installations in the quarter, 8 of which were sales to sales type leases and one which was a joint revenue sharing lease. Consistent with our expectations, total installations were in keeping with historical seasonality. System signings of 28 were at their highest Q1 level since 2018 and compared to 7 in Q1 'twenty two. 27 of these signings were from international markets, which were driving strong PSAs and see a clear opportunity to grow our system footprint and in turn box office.

Speaker 3

This momentum has continued into Q2 with 35 signings already achieved. This is a very positive signal and will fuel long term future growth considering the relatively low level of IMAX system penetration, particularly in rest of world. All Other of $3,200,000 comprised 4% of total revenue and grew 168% year over year, reflecting the addition of SimWave as the acquisition closed in September 2022 as well as the growth in IMAX Enhanced. Turning to operating expenses. SG and A excluding stock based compensation of $29,000,000 increased $4,500,000 from Q1 'twenty two, driven by normalized level of business activity, including higher SaaS costs over the prior year as we have returned to a full staffing complement following the pandemic.

Speaker 3

In addition, the inclusion of SimWave expenses contributed $1,500,000 of the increase. As a percentage of revenue, SG and A, excluding stock based compensation, was 33% versus 41% in Q1 'twenty two, an improvement of 7.40 basis points, reflecting cost discipline efforts and the strong operating leverage in our business. Adjusted EBITDA attributable to IMAX was 27 point $3,000,000 or 34.4 percent of attributable revenue and grew 84% compared to $14,800,000 in the prior year, driven by growth across our segments and specifically the high level of box office performance flow through to profit. Adjusted EPS in Q1 was $0.16 which would have been $0.19 except for the negative tax valuation impact of $1,600,000 or $0.03 in Q1 'twenty three. This compares to adjusted EPS loss of $0.14 in the year ago period, which includes a negative tax valuation impact of $5,000,000 or $0.09 We anticipate for the foreseeable future an approximate $1,000,000 to $2,000,000 or $0.03 to $0.04 quarterly negative tax valuation allowance impact.

Speaker 3

As we turn to our balance sheet and cash flows, operating cash flow was $21,000,000 or almost 70% of adjusted EBITDA in the Q1 representing significant growth of $25,000,000 from the use of cash of $4,000,000 in the prior year period. This improvement reflects our higher profits year over year and the accelerating business recovery of our exhibition customers post COVID. For context, operating cash flow for the entire year of 2022 was only 17,000,000 A tremendous start to the year in what generally has been in recent years a weaker operating cash flow quarter. Our capital position remains strong as we ended the year with $99,000,000 in cash and $266,000,000 of debt, excluding deferred financing costs, $230,000,000 of which is our convertible senior notes due in 2026 that bear an interest rate of 0.5 percent per annum with a capped of $37 per share. As of March 31, our available liquidity was 423,000,000 including cash and cash equivalents of $99,000,000 $324,000,000 in available borrowing capacity under the company's revolving facilities.

Speaker 3

Furthermore, as of March 31, dollars 192,000,000 remains available under our share repurchase authorization. To conclude, the Q1 was a strong start to the year. As I said last quarter, we believe and are now seeing that 20 '23 will be a year where the combination of our unique position in the entertainment industry and our high margin asset light Technology focused business model will shine through and the long term opportunities for growth are even more significant. The ceiling is very high when you factor in our global system under penetration along with the emerging potential of our streaming technology backed by our strong brand. We look forward to reporting on our progress on all these fronts going forward.

Speaker 3

With that, I will turn the call over to the operator for Q and A.

Operator

Thank you. Our first question will come from Eric Wold of B. Riley Securities. Your line is open.

Speaker 4

Thanks. Good afternoon. I guess a couple of questions, two questions from me. I guess, Rich, with The 53 signings you've announced year to date and I guess probably what's in discussion and hasn't been announced. Can you I think you talked about the strength of Avatar and whatnot kind of driving these accelerated discussions.

Speaker 4

I mean, there have been periods of other box office strength in The past 10 plus years since the prior Avatar, what makes this different possibly from those other periods? And then how does this impact Your thoughts around kind of ultimately backfilling or penetrating in certain markets as you see where this demand is evading from?

Speaker 2

So Eric, I think that Avatar was a factor and the Avatar effect, which we've talked about. But I think in the quarter there was much more going on than Avatar. First of all, let's talk about Avatar, which as you know we did 11% of the box office Less than 1% of the screens ended $255,000,000 but 13 years ago with Avatar and the Avatar effect, There was one avatar. Now we have avatars coming every 2 years and there are 3 more of them. So in one way, I think of it as an off balance sheet Asset, so if you are someone thinking of getting into the IMAX business, you know for the next Number of years that you have an avatar coming.

Speaker 2

So I think maybe the avatar effect even gets Magnified to a certain extent, but I think besides Avatar, what happened was a lot more kind of systemic event. So, as you know, our local language content, both in its place of origin And in other markets was almost a third of our box office in the quarter and that's kind of a totally different look than we've had in the past. So to give an example, this past weekend, I think we did about $4,500,000 on Super Mario and people say, oh, they played Super Mario. But overall, our box office for the weekend was over $13,000,000 So I think it gets way more likely that you can't just look at the latest Hollywood release that's coming out and again coming forward let's fast forward to this weekend, it's Labor Day in China, which is a 5 day Holiday and we've got 3, we think going to be very successful films playing there. And in India, one of the most anticipated films of the year is opening this weekend.

Speaker 2

So in the old days with IMAX, if you look at it, you'd say, well, there's not a lot coming in North America. It's hard to predict, I don't know. But when you look at it this year, I think it will be oh, and Mario's opening in Japan. You look at it and piece all that together and you'd say, wow, there's a lot of box office coming out of there. And I think it lessens The volatility and the dependence on Hollywood blockbusters.

Speaker 2

So I think people in their markets, they're not just looking At Avatar, but if you are in China, you are looking at anime. If you are in Canada, you are looking at Indian releases. And I think when you put that all together, it all adds up to a much more A predictable, stable box office, which of course Avatar is part of, but I think it's a lot more than that.

Speaker 4

No, that's perfect, Rich. And I guess last question, obviously, you're in the problem of having too full of a slate. I mean, you've got Movies, fighting, etcetera, for room on IMAX, but you're still somewhat tied to film releases and film successes. And I think about SynWave, What needs to happen for that technology to become a true kind of recurring revenue stream that's decoupled From any kind of content release calendar on the streaming platforms or otherwise and what needs to happen for that to become the case?

Speaker 2

I think we need to wait a little while to roll out the products in a more broader way. But the product itself, if you don't recall, basically does streaming optimization, which is it figures out the optimal compression rates on different kinds of content in order to save streamers money. And as a matter of fact, that product, just won an award as best new product In its category at NAB this last weekend and at NAB we had way more discussions and way more leads than Simway as ever had before. So I think we just closed on it 5 months ago. Obviously, the narrative of how streamers can save money It's a really important narrative in that world.

Speaker 2

The total addressable market is quite large And now it's time for us to roll it out. Now we have clients for different SimWave products including Disney Plus and Comcast and Paramount Plus and lots of other clients, But we haven't really pushed this product. And it's this product at this time, which we believe over time could be a game changer. Now do I think it's going to contribute significant revenues in the Q3? No, I don't.

Speaker 2

But I do think as we launch this product and People understand that it's going to gain traction and I'm quite excited about its potential to diversify our revenue and profit streams.

Speaker 4

Helpful. Thanks, Rich.

Operator

Thank you. One moment please for our next question. Our next question will come from Eric Handler of Roth MKM. Your line is open.

Speaker 5

Thank you very much for the question. Good afternoon. Rich, I wonder if we talk a little bit about the local language Films, obviously, you had a very high percentage in the Q1. As you look at Your full year box office guidance for this year of $1,100,000,000 What do you think local language could potentially account And where do you think that amount could go over the next 3, 4 years?

Speaker 2

So Eric, as you know, it's dangerous to predict How particular movies are going to do and I'd rather look at it from a portfolio basis Because part of it is what do you think Hollywood movies are going to do and what percentage that's going to be. But certainly when we put together our guidance which we gave On the last call, we understood that the impact of foreign films could be significant and that's part of what You got us to where we came out. And we'll have more local language films We had last year in Q2. I believe I just went through this coming weekend. But again, I think it's going to be choppy and I think some of it I think it's worth underlining that last weekend in China for an anime Japanese movie Called slam dunk, we did $5,500,000 So this is really a growing area for us and It involves how fast it grows and how far it grows and it also involves what Hollywood films do.

Speaker 2

So I think trying to assess The percentage is very, very difficult other than to say I think the absolute number will be bigger than it was last year.

Speaker 5

Fair enough. And so Let me ask this question then. Let's say, you continue to see very good success with local language films over the next several years. Let's say you doubled the volume of your local language zone count, would that have any consequential impact

Speaker 2

To mention that for local language films, we are actually doing our DMR costs in many of the territories they are being released in. So For example, in India, we just started DMR ing Indian films in India and Chinese films. We do in China And the cost of DMR ing are cheaper in those territories than they are doing them in the United States. So the more product we do there as a percentage of the total product, the average cost should come down.

Speaker 5

That's very helpful. Thanks a lot.

Operator

Thank you. One moment please for our next question. Our next question will come from David Karnovsky of JPMorgan. Your line is open.

Speaker 6

Hi, thanks. Rich, appreciate the success you're seeing in China with local content. But if we look at kind of Hollywood films and we started to see market dates, I think the recent performance is mixed, especially for some of the comic book features. So I'm wondering if you think there's been a shift at all in local taste over the prior 3 years or is this just too much read through from a relatively small sample?

Speaker 2

Well, David, we are not yes, I think it's a relatively small sample. I mean, We are only 4 months away from Avatar, which during the height of the pandemic when a significant part of the country was locked down and we did over $50,000,000 And you go through the slate, even Ant Man, which as you know didn't perform well in China, It wasn't that far off of what the previous hand mounds had done. So one problem I have is that a very short sample size begins being characterized as a trend and I think it's way too early. And if you look at some of the films that have already gotten in I would like Fast and Furious and Transformers and I believe Mission Impossible will get Those are usually very big performers in China. So I think we just had to wait and give it some time, but I personally am very optimistic that movies that played well before that those genres of movies will continue to do well.

Speaker 2

And one other thing I should add is, with 2 parts to it, is the films that have gotten in, in China have gotten in a lot earlier than they used to. So there's much more time for a proper marketing campaign and public awareness to build and that's something Extremely positive. And then, I also think that There will be momentum. So there hasn't been Hollywood film last year very much because of The pandemic and other issues and I think once films start to come in like in the rest of the world, you trail our other ones and momentum sort of builds. I think the momentum will improve the performance of following films.

Speaker 2

So I don't see that as an issue right now.

Speaker 6

Okay. And then just with the potential for Riders Strike, wondering how or if at all you think this could impact IMAX, I would think Studios would hold pretty tight to their IMAX dates, but any risk if we got into a very extended strike that could lead to some movies Maybe later in the year getting pulled off the sleeve to help plug a future gap in the schedule?

Speaker 2

So I think Almost every movie, I hesitate to say every movie, but close to that is already pretty much locked. So I think there is Very little risk for the rest of this year. And again, because we've become much broader than Hollywood, we have much more ability than almost anyone else to slot in other movies at that time. And also remember that only 1 third of our revenues are from North America, So it doesn't impact as much a lot of other territories. But I'm pretty confident in saying this year, I don't really think it would have Much of an impact.

Speaker 2

Now if it's a really prolonged strike and it goes well into 'twenty four, Of course, it could have an impact, but that's not what we're hearing is going to happen.

Operator

Thank you. One moment please for our next question. And our next question will come from Omar Bahiras of Wells Fargo. Your line is open.

Speaker 7

Good afternoon, guys, and thank you for taking my questions. Maybe going back to signings, it seems like you guys are reaching an inflection point here with signings and this is all happening without China. Can you give us some context on what's changed? How are your conversations different with exhibitors? And then also maybe talk about how should we think about the timing of some of these signings?

Speaker 7

Are Are they mostly 23 events or 24 events? Just trying to sort of triangulate here as it relates to, I think you guys The signings are accelerating and you don't even have China in the mix. So would it be fair to think that You have a clear path to get back to like pre pandemic level signings as we move beyond 2023. Thanks.

Speaker 2

So I think there are several factors, Omar. I think one of them is kind of the percentage of the box office that's being done by blockbusters. And as you know, the percentage of movies that were IMAX kind of movies has been rising steadily. But the pandemic kind of accelerated that because a lot of the smaller and mid level movies went to streaming. So I think it just gives us a fuller slate, a more comprehensive slate.

Speaker 2

I don't want I'll repeat myself, but the globalization of the film slate has also made our the outlook of you're someone considering Getting into the IMAX business, you have more confidence and less dependence on Hollywood. I think market share is a big part of it. Our market share is up about 50% in North America since pre pandemic. Overall in the world, it's up about mid-30s percent. So I think people are just more comfortable with the economics.

Speaker 2

I'll give you one like a micro example of that. In Japan, our PSA is around $1,800,000 And in India, they are pretty close to what they are in the U. S. So if you are thinking of getting into the IMAX business and to put a model Together, it looks really attractive to do that. And then I think all of that stems a little bit from the fact That the pandemic has changed consumer behavior.

Speaker 2

So after sitting on the couch for a number of years, not just in IMAX, but In concerts and sports and special events, people when they go out are getting used to paying a premium price for premium experience and that's become more and more important to them. I think when you put all that together and you model it, It just makes the case for to go into the IMAX business more compelling. So I think it's all of that. As to the second part of your question about pre pandemic levels, it depends on the year. And Again, you have to divide the signings.

Speaker 2

You have to divide them into new builds, which new theaters, which put us in more territories. And remember, We don't just get paid from the theaters, we get paid from the studios on that. So that has kind of a double effect and you have to look at upgrades. So I think if you looked at kind of new locations, I do think that they will start to approach Pre pandemic levels, and even this year, we're only 4 months into it with 63 signings. Even this year could approach those levels.

Speaker 2

But I think going forward and remember, Omar, that all this is happening where in some areas of the world the exhibitors are still under some financial restraints. So in North America, We announced the biggest deal we have announced in a decade and you still have exhibitors that are challenged. In Asia, I think it's a lot better And I think that's one reason a lot of the signings have come from there because they came out sooner and they are better capitalized. And I think China, there will probably be a 6 to 9 month lag time and their box office is coming back. But when you put it all together, I think once people get through this period of time, there's no reason we can't go back to historical levels.

Speaker 7

That's very helpful. And maybe going back to the same way, I know you talked about, It's been around 5 months since

Speaker 2

you closed the deal. You've been

Speaker 7

student and you said Head of Sales there. Can you maybe give us a timeline of what are some of The key time just the top priorities that you have over the next 6 to 12 months there and what's The long term opportunity, but not only from an external standpoint, but also how their technology could help IMAX internally as well. Thanks.

Speaker 2

So the timeline is We have developed a number of leads like I said at NAB. We don't want in the first instance necessarily To aim for the biggest clients in the world, I think we want to go for small and midsized streaming companies to demonstrate the use case and document some data that we can use. So I think like literally today, we are following up on those leads And we are trying to get in as many demos in as broader territory as we can. And then as the use case Keeps rolling out and as you mentioned, thank you, I forgot that in my previous answer that we hired A new Head of Revenue and Sales who has actually been in a company recently which he took from like $30,000,000 in sales to 80 in a couple of years. So I think you just have to put those pieces in place, which we are in the process of doing.

Speaker 2

And then I think you demonstrate your use case And then you try and blow it out in a broader way. And we are going to be as aggressive as we prudently can be. But as I said before, I don't think you will see meaningful numbers to IMAX Corporation Come in into sometime mid-twenty 24 to 25.

Speaker 7

Thank you. That's very helpful.

Operator

Thank you. One moment please for our next question. Our next question will come from Steven Laszuk of Goldman Sachs. Your line is open.

Speaker 8

Hey, great. Good afternoon. Rich, you mentioned IMAX's share of the global box office. I was wondering if you could talk a little bit more about your expectations for share of total box As you look at the slate for the rest of 2023, you think that the strong trends in 2022 and 1Q will continue to hold or do you think there's some reversion to the mean that takes place

Speaker 2

this year? Yes, I think they hold period. Hopefully they go up. I'd be really surprised to see a reversion to the mean because the world has changed in a lot of ways. Mid level movies are going to streaming, Foreign language films are going to different countries.

Speaker 2

The level of blockbusters is increasing and Just went through it kind of briefly on the call, but the slate for April was not one when you looked at it on the outside, Maybe Mario, you thought would be okay, but it was not like a summer blockbuster season and we more than doubled What our forecasts were for April and what last April looked at. So as of still April, it's looking like really good. So I don't think in a period where you go into Guardians of the Galaxy and Fast and Furious and Indiana Jones and Mission Impossible, films that are kind of franchises that have always done great in IMAX, that I'd be shocked if our market share went down at that period of time. And also remember is That our network footprint is going to grow. I mean, obviously, we've given install guidance for this year.

Speaker 2

So we'll have a larger footprint than we had. And at the same time, our footprint is increasing, at least in North America, some of the conventional footprint is decreasing. And even though they're not direct competitors, I think that will also give us incremental market share. I'd like to be able to predict, but I don't want to get ahead of myself that will continue to go up, but I certainly don't see it going down.

Speaker 8

Great. Thank you. That's helpful. And then maybe just one on the opportunity in ticket pricing. We've seen some of the major theater operators start to talk more seriously about dynamic ticket pricing Over the last few quarters, I was curious what your views were on dynamic pricing for the box office more broadly and then perhaps more specifically the opportunity for IMAX on pricing over the long term?

Speaker 2

So I'm actually going to start a little more general and then answer your question, Which is one thing I didn't mention, I was talking recently to one of our important European exhibitors and I said, are you over screen? And he said, no, it's not a too much screen problem. It's a revenue problem, revenue per seat. And he said to me, and by the way, one of the deals we signed, he said, whereas in the past, I probably would have invested in more screens. He said, but the ROI on putting in premium things like IMAX is much better than investing in screens.

Speaker 2

So I do think the ability to get that ticket price premium is one way they see going forward. And he said to me, when I do my own internal model And I have a very different economic model. So I think ticket pricing is another example of that. If you look historically during inflationary periods, it's been relatively easy to raise tickets. As I said earlier in another context, Look at the price of concert tickets, sports tickets, it's not like we're pushing against a tide, we're kind of with a tie.

Speaker 2

And also the ticket prices even for IMAX are way lower Then for comparable special experiences in other parts theater, concerts, all those things. So I think there's a lot of way to move. Whether the answer is dynamic pricing or not, I am just not sure. And it's also a complicated question because the studios have a pony And that race too. And the studios have traditionally resisted dynamic pricing.

Speaker 2

I don't know if they're going to feel differently about it this time. And also dynamic pricing like models where the price goes down over time and It's higher for better seats. In IMAX, our percentage of great seats is much higher And most of our films we play for 1 to 2 weeks, so we don't have to fill a box in week 4 or week 5 Like they do. So I think the arguments for dynamic pricing are much less convincing in IMAX.

Speaker 8

Great. Thanks, Rich.

Operator

Thank you. One moment please for our next question. Our next question will come from Steven Frankel of Rosenblatt. Your line is open.

Speaker 9

Good afternoon and thank you. Rich, we talked a lot about local language, but one element that we haven't dug into yet Is the injection of IMAX DNA into films and markets other than China? I know it took you several years to get there in China and now that's a Regular feature, kind of what's the path to having other local language content It's either shot in IMAX or has material IMAX DNA to it.

Speaker 2

Yes, it's something that we're starting to focus on, Steve, more and more. And I think I am not up to speed on a project by project basis. But I know in Japan and in India, we've had specific conversations about using our cameras and this one Filmmaker I know of in Indio, I have talked to myself who is starting a project probably in about 6 months who intends to film it with IMAX cameras. So I do think that's going to be more and more a part of our strategy, particularly The digital cameras because it's not that much more expensive to shoot with them. I would also think In Japan, in particular, because of the popularity of IMAX, it just makes sense for them to do it.

Speaker 2

So, I think that's a trend you're likely to see.

Speaker 9

Okay. And maybe Some of your latest thoughts on IMAX Live. Obviously, now your cup run is over with content, but Maybe some of your thoughts on how you think best to use that capacity?

Speaker 2

So, as you know, we've wired 250 theaters. That was our target for the end of last year. And I think we need to further refine our content strategy and we are in the process of doing that now. I think the things that work very well are these marketing related events. So we are doing a Guardians of the Galaxy Then I think next week with a number of members of the cast.

Speaker 2

Just last week, we actually did something original, which was with Paramount Plus, we took the cast of Picard, the show that streamed on Paramount Plus and we did an IMAX Live event around that. I think we did an event with Scorsese this week around Boa's Afraid or maybe it was last week. And those events I think are good marketing tools. The talent is able to promote its own content. We did CREED III.

Speaker 2

We did live from the red carpet in a significant number of theaters and that worked very well. So I think We're going to focus a lot on that in the near term. I think we'll continue to experiment with things like sports, Concerts, other kinds of things, I think we'll focus more on the distribution model, which is the one that's used Why IMAX in the film business than the original production model, because again that's not where the history of what's made IMAX What it is and then if it continues to deliver good marketing events, so we could add up the numbers and find really good distribution events, then we will go to the next level, which is 500 more, 500 rather than $250,000,000 So we are in the process of using it for what we know works and testing it For what we hope works. That's sort of the short way to think about it.

Speaker 9

Great. Thank you.

Operator

Thank you. One moment please for our next question. Our next question will come from Chad Beynon of Macquarie. Your line is open.

Speaker 10

Good afternoon. Thanks for taking my question and congrats on the quarter and the signings levels. Wanted to start with capital allocation. Natasha, You and the team have reduced the share count nicely in the last few years as noted particularly in 2022 by I believe 5,000,000 shares. Stock market is always fluid, but it certainly looks like free cash flow for you guys is moving in the right direction.

Speaker 10

So how are you thinking about opportunistic or programmatic Buybacks as we look forward. Thanks.

Speaker 3

Thanks, Trav. Yes, so we are continuing to think optimistically about it. When the stock price is In the right level, we'll buy back. We were actually in a blackout for most of Q1, which is why you saw some buybacks, But not as significant as we have historically as we pretty much only had a 2 week open window during that period. And we did put in 10b5-1, but that's So it gets locked in and then it does what it does during based on the price during that time.

Speaker 3

But we you saw Our cash flows for the quarter was a great start to the year. Operating cash flow in Q1 of $21,000,000 exceeded all of 2022 of 2017 and It's a second good cash flow quarter in a row. And in general, if box office is tracking to $1,000,000,000 or higher, good things happen with Margin and in turn cash and so it's the incremental nature of our business. So, as you've seen in the past, when we have excess cash, we go through a cycle of

Speaker 10

That's great. Interesting. Thank you. And then, Rich, I wanted to ask about just, I guess the change in direction with the streaming debate, I know this hasn't really affected you guys as much in the past couple of years, Just given your focus on blockbusterization, but I know this was certainly a positive takeaway for the overall industry from CinemaCon. So wondering if you could just kind of Opine on updated views on this, if moviegoing begets moviegoing and maybe you get some more people out to the theater, if this is a positive or kind of a non event for you guys.

Speaker 10

Thank you.

Speaker 2

Well, I mean, I think the data is clear that a theatrical release Really helps the streaming release and I've read some of the data that is being shared with the streamers and it's just Not a question, a theatrical release helps boost the entire value chain. I mean, there's a reason why people have done it forever like Re selling a product, building a buzz, all of those reasons are really positive. The other part of it, I think this is what you were referring to was Apple and Amazon deciding to release their streaming movies Theatrically, I think for some movies, it will be really good, the blockbuster ones and the more the merrier. I don't think it's a game changer For us because our slate was really there was a lot on it. But for some of the big movies, I think it's a really good addition.

Speaker 2

And Even some of the ones this year looking into whether we could get involved with them. So it's nothing but a net positive.

Speaker 10

Thank you very much. Appreciate it.

Operator

Thank you. We have time for one more question. And our next question will come from James Goss of Barrington Research. Your line is open.

Speaker 9

All right. Thanks very much. Rich, I wanted to ask you about 2 of the international markets, Indonesia and India. Indonesia, because it's Brand new, but very large, I think you said number 4 population. I wonder if you could characterize the market.

Speaker 9

Is it mostly Hollywood content or is it mostly local language With regard to India, I was wondering if there are certain characteristics Production is starting to gravitate toward meeting those elements.

Speaker 2

So for Indonesia, it's mostly a Hollywood market and that's the partner we signed with. We've been in business for a while and they've succeeded by mostly doing Hollywood films. However, we actually as part of our overall theme on this call, We actually did a local language Indonesian film there that sort of did okay and we're talking to them about doing more films there. But I think they're primarily for the time being dependent on Hollywood and just I know you know this Jim, but to remind everyone it's the 4th Most populous nation on the planet. So I think there's possibility there to do a lot more, Obviously, depending on demographic issues and other things like that.

Speaker 2

In India, I was over there for a week Meeting with a bunch of exhibitors and studios. And I think 2 real positives for us is, 1, The amount of local language content that we're doing in India has gone up and that's an important part of their box office. And I mentioned earlier, we have almost the same PSA in India that we have in North America, which is close to $1,000,000 So certainly the economics in India work pretty well. I think India has other kind of structural issues like The potential partners there are much more highly fragmented than they are in other parts of the world. So there's a lot of independence there.

Speaker 2

So like if you look at China, we could do a 50 seater deal. We could just really blow it open. And there weren't a lot of opportunities To do that in India is much more blocking and tackling and it will take some time. And then the third thing I would say about India is that construction and rollout takes much more time there. There's more Bureaucracy, there's more approvals, there's a more government intervention.

Speaker 2

So I'm actually pretty I'm optimistic on the Indian market, but I don't think it's going to turn overnight. I think it's going to take a little time. And one of the things We're doing in India with the right clients, we're actually going to be doing revenue share deals, which we never did in India before. And of course, we'll diversify our risk and be very selective in who it's with, but we're doing that to try and move it along quicker And try and fight some of the structural headwinds.

Speaker 9

Okay. And one other thank you. And one other question, Last one. Going back to one of the comments you made about the premium preference, I wonder if There is any growing appetite for multiple IMAX screens per theater either in the U. S.

Speaker 9

Or internationally Along those lines where you can either stagger times or have multiple content at the same weekend or that sort of thing.

Speaker 2

So we've thought a lot about that over the years, Jim. And I think the pluses for the really big movies, You could really pack it, but someone used the analogy for me, like IMAX is like the church that's built for Easter Sunday, And not every weekend is Easter Sunday. So my concern is how you program it during slower periods of time. And I certainly wouldn't want to Do something that couldn't be an economic success. So what I think is a much better idea would be Filling in the zone, so for example, if an exhibitor has a zone that the 2 theaters are, I don't know, 10 miles apart and they own that zone.

Speaker 2

What I'd like to see them do is put a 3rd Theater at the midway point. And I think that's a much better model than multiple theaters in one location. And that's one that I've specifically Discuss with exhibitors and I think there's some interest in that.

Speaker 9

Okay. Thanks very much.

Operator

Thank you. This will conclude the Q and A portion of the conference. I would now like to turn the conference back to CEO, Rich Gelfond for closing remarks.

Speaker 2

Thank you very much. So this is usually I close by summing up The call, but I'm going to be going on a slightly different direction, which is I think over the last decade plus, It's kind of been theatrical versus streaming and I think there was how who's going to win and how much each one's going to cost The other one and fighting and head on and I've recently been coming more and more to the conclusion that streaming And theatrical can help each other. And I think one of the examples was one of the last questions where more content will help more content from streaming, will help theatrical and I think the performance of theatrical will help streaming. But for me, an even more interesting example is kind of the worldwide phenomenon around anime, which has done really well in IMAX. And anime is actually created through streaming platforms We have lots of data about the individuals who are online and then they take that online community and they turn it into a theatrical community.

Speaker 2

It could be television, it could be movies or another example I would give Like with local language content where exhibitors have lists of people who go to Indian local language films and they promote them when there is a cricket match on. So as I look to the future, I think a lot less about how streaming is a threat and I think a lot more about how both sides are going to be able to figure out How to make the pie much bigger. And that's the way I'm starting to think about it and I just share it because I hope some of you think about it that way. And I really appreciate you being on the call. As I said at the beginning, it's a great time to be at IMAX and look forward to the next quarterly call.

Operator

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.

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Earnings Conference Call
IMAX Q1 2023
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