AVITA Medical Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 26, 2023

There are 10 speakers on the call.

Operator

Thank you for standing by, and welcome to IMAX Corporation's Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the call over to Jennifer Horsley, Head of Investor Relations. Please go ahead.

Speaker 1

Good afternoon, and thank you for joining us on IMAX's Q2 2023 earnings conference call. On the call today to review the financial results are Rick Elfon, 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 on the website as well. I would like to remind you all 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 reconciliations to non GAAP financial measures 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

Richard Gelfond.

Speaker 2

Thanks, Jennifer, and thanks, everyone, for joining us today. What a weekend and what a quarter. We're pleased to join you today on the heels of a historic few days at the global box office, a weekend where moviegoing reasserted itself As an unparalleled cultural and commercial force, and IMAX demonstrated its ever strengthening position at the vanguard of cinema. The paradigm shift to IMAX has never been more apparent. IMAX obliterated expectations With a $35,000,000 opening for Oppenheimer, delivering a staggering 20% of the film's global debut on only 7 40 screens.

Speaker 2

In China, we delivered more than 16% for local blockbuster Creation of the Gods On just 1% of total screens, our best ever indexing for China Film, and we scored 20% of the debut of Mission Impossible 7 in Japan on just 48 screens. All this combined to lift IMAX to a 46 $400,000 weekend, the 4th best in the history of IMAX. There is real heat around our brand and technology in the marketplace right now, and this is evident in our strong financial results for the Q2. IMAX drove more than 30% year over year growth across revenue as well as adjusted EBITDA, Net income and earnings per share, including nearly $33,000,000 in adjusted EBITDA and adjusted EPS of $0.26 Per share, we grew signings for new and upgraded IMAX systems with 84 worldwide year to date, far more than the 47 we achieved in all of 'twenty two. And we maintained our record breaking Share of the global box office from 2022, even as more non IMAX and mid and low budget films As a result, we remain on track to deliver significant growth In system signings, installations, global box office and adjusted EBITDA for the full year.

Speaker 2

What's remarkable is we delivered despite a Q2 slate that yielded mixed results at the box office. This speaks to the differentiation of IMAX and the diversification of our business across box office and network sales, as well as Hollywood and local language content. This potent mix makes IMAX a consistent winner In a dynamic global marketplace for entertainment, increasingly it is clear the future of the movie business is IMAX. The shift to premium experiences and moviegoing that IMAX created is no longer just a post COVID trend. It's the new normal, the way forward.

Speaker 2

IMAX is a strong global brand in a time when local language content is exploding As a future growth driver of the global box office, international markets continue to offer our biggest opportunity for network growth. Finally, as studios hone their distribution strategies across theatrical and streaming, our end to end technology and is well positioned to deliver the highest possible quality across both. Additionally, We recently took a significant strategic step with our proposal to acquire full ownership of our IMAX China subsidiary. Our expansive footprint, strong market share, brand and industry relationships and our mix of Hollywood and local language films Make us very optimistic about our business in China. Today, I'd like to provide updates on our box office and film slate With a focus on the shift to IMAX we're seeing in moviegoing, global momentum behind our brand with a focus on network sales activity And then I'll turn it over to Natasha to take you through our financial results in detail before opening it up to questions.

Speaker 2

First, as we look at our global box office, the dominant trend continues to be our market share. Through June of this year, Our share of global box office is 3.3% and this month is on pace to be one of our best Jollys ever. In North America, for the first time ever, we've delivered more than 10% of the opening weekend box office for 6 consecutive releases of $50,000,000 or more. The Q2 also saw IMAX continue to expand its impact in animation. We reached our number 1 and 2 biggest animated movies of all time with the Super Mario Bros.

Speaker 2

Movie and Spider Man: Across the Spider Verse. Perhaps the best indicator of the power of IMAX was the significant attention devoted to our play times for Mission Impossible, Dead Reckoning Part 1 and Oppenheimer and the competition for our screens in the broader summer marketplace. And IMAX is delivering with both excellent films. Our debut with Oppenheimer gave us our best indexing of any major release ever, Global, domestic and international is the biggest IMAX debut in our long and wildly successful partnership with Christopher Nolan and it helped turn the film into an unmistakable cultural event With IMAX selling out 4 am shows and people traveling hours and sometimes flying across borders to see it in IMAX film. Mission Impossible 7 delivered the highest grossing IMAX debut of the franchise and has earned more than $33,000,000 globally for IMAX to date.

Speaker 2

The back half of the year has strong titles as well, including film for IMAX releases Dune 2 And Aquaman and the Lost Kingdom, Apple's Napoleon from Ridley Scott and Killers of the Flower Moon from Martin Scorsese, both scheduled for exclusive theatrical release. While there is some concern about release date shifting due to the labor strikes, We believe nearly all our second half slate has wrapped shooting. Additionally, given our surging indexing, We believe studios will be reluctant to move films on our slate and potentially sacrifice an already agreed to IMAX window. Furthermore, our diversified programming strategy will help offset the impact of a shifting Hollywood slate. Local language films will continue to bolster our slate in the second half.

Speaker 2

We now expect to program more than 40 local language films Worldwide in 23, up from the 30 to 40 we initially projected. We've had several solid wins In local language in recent months, IMAX delivered more than $10,000,000 with the Chinese blockbuster, Lost in the Stars, a mystery thriller We opportunistically added to our slate within a matter of days in the quarter. As I mentioned earlier, we delivered 8,600,000 This weekend, with Creation of the Gods 1: King of Storms, 16.6 percent indexing and our biggest Summer debut ever for a Chinese film. And in Japan, IMAX was granted its first ever day and date release For a Studio Ghibli film, How Do You Live, the final film from the legendary Japanese director, Hayao Miyazaki. How Do You Live delivered one of the biggest IMAX opening weekends of Japan of all time, with IMAX earning 16% of the film's debut box office on just 44 screens.

Speaker 2

To date, IMAX has delivered more than $2,800,000 with the film. We expect that we'll have a long run-in Japan and select markets worldwide throughout the rest of the year. Our performance across a unique Mix of local language blockbusters continues to be a catalyst for network growth, and we see potential for Oppenheimer to drive further growth As we've seen with films like Avatar 2, where we vastly outperformed. As I said earlier, We now have 84 signings this year compared to 47 for all of last year. We're seeing exhibitors bring more IMAX to their existing Multiplexes globally to drive growth rather than adding more conventional screens, such as multinational exhibitor, Kannopoulos, which in May signed a deal to double its IMAX footprint.

Speaker 2

We also more than doubled installations in Q2 over Q1 of 'twenty three, with 20 in the period. And that number reflects our continued focus on high growth markets beyond North America and China. Year to date, we've grown our rest of the world footprint by nearly 6%. While there continues to be discussion About China and the economy, we remain bullish. Like many of the world's most successful multinational category leaders, We've built a robust business in China over decades, yielding 100 of 1,000,000 of dollars in revenue.

Speaker 2

This year IMAX box office in China through mid July is up more than 150% year over year versus exhibition, which is up almost 60%. Our market share in the first half has been remarkably strong, 4.6 percent of the overall box office on less than 1% of the screens. We program a healthy mix of local, Hollywood and international content, particularly Japanese anime. And while Hollywood blockbusters Have shown softness in China. Our average opening weekend indexing for Hollywood releases has soared to 15% In China, again, on 1% of the screens, up from 10.7% in 2019.

Speaker 2

As China emerges Further from COVID and moviegoing recovers, we believe there is upside for Hollywood and local films in the market. As we expand across the world, we are expanding across platforms. In the Q2, we announced an agreement to sell worldwide rights Our forthcoming documentary, The Blue Angels, to Amazon Studios, a first of its kind deal that will see the film go to prime video following an exclusive run-in the IMAX network. We continue to refine our go to market strategy with SimWave, And we're seeing a positive response, with streamers encouraged by our efforts to champion quality in that space. We remain focused on solutions for streamers that allow them to compress video images while preserving optimal quality and creating significant cost savings.

Speaker 2

In conclusion, we believe our performance and broader market trends Demonstrate a paradigm shift in cinema with IMAX getting increasing market share and that for our remarkable indexing It's clear evidence of a structural change in moviegoing where increasing numbers of consumers on a global basis seek out IMAX. The future of the movie business is IMAX and it's a bright future. We created and continue to lead The shift to premium moviegoing that is most in demand among audiences, filmmakers and studios. We are the only global premium theatrical platform with unparalleled scale at a time when global markets and local content are the most promising drivers of future growth. Finally, our strong brand and technology enable us to expand and create value across the ecosystem and capitalize on the interconnectivity between theatrical and in home entertainment.

Speaker 2

We are confident in our ability to build on our momentum, deliver a strong second half to 'twenty three and drive further global growth across the IMAX network. Thank you. And with that, I'll turn it over to Natasha.

Speaker 3

Thanks, Rich, and good afternoon, everyone. As Rich shared, Q2 was an excellent quarter, which showcased the diversity and strength of our technology centered business model. Our signing momentum continues and installations are ramping while box office grew through a diverse mix of content and without the benefit of any mega hits like Top Gun in the prior year quarter. In summary, our results included IMAX box office of 2 $68,000,000 revenue growth of 32% over the prior year, adjusted EPS of $0.26 up from $0.07 in the prior year period and adjusted EBITDA attributable of $33,000,000 or 35 percent of attributable revenue. As I noted, Last quarter, we are seeing this winning portfolio of Hollywood and local language content create for us lower volatility from Hollywood releases as we optimize the programming of the IMAX network to maximize box office.

Speaker 3

This in turn is driving greater demand by exhibition customers And as Rich highlighted, Q3 is off to an incredible box office start With our biggest July opening weekend ever, global and domestic, led by Oppenheimer, as well as local language titles, Lost in the Stars, Creation of the Gods Part 1 and How Do You Live putting us on track to achieve our highest ever July box office. Now for a closer look at the Q2. IMAX box office of 268 was up 8% year over year and roughly in line with Q1 box office with very positive profit flow through given the mix of titles. This included hit animated titles, not historically the mainstay of IMAX, such as Super Mario and Spider Man: Across the Spider Verse, coupled with good contribution from blockbusters like Guardians of the Galaxy and Fast 10. Add to that, a China box office that was fueled by a mix of local language and Hollywood titles.

Speaker 3

The performance in Greater China led to IMAX box office market share in Q2, up 5.2% on 1% of the screens, driven in part by an average indexing of 15% on Hollywood releases. Total revenue in Q2 was $98,000,000 up 32% from $74,000,000 in Q2 2022. At a 59% gross margin, we recognized gross profit of $58,000,000 which equates to growth of 31% year over year. This higher level of revenue and gross profit year over year was driven by improvement in both segments. Content Solutions revenue of $31,000,000 comprised 32% of total revenue and grew 6% year over year driven by IMAX box office growth.

Speaker 3

Gross profit of $20,000,000 or 64 percent of revenue grew 15% year over year, driven by the positive profit flow through from stronger box office performance along with lower film marketing expense given the mix of titles and recovery of China. Technology Products and Services revenue of $64,000,000 comprised 65% of total revenue and grew 49% year over year. For this segment, gross profit of $36,000,000 grew 42% year over year. This very strong result was driven by a higher level of IMAX system installations under sales or hybrid arrangements as well as system renewals and amendments. In total, we had 20 installations in the quarter, 13 of which were sale or hybrid and 7 which were joint revenue sharing leases.

Speaker 3

Of the installations, 14 were in international markets, reflecting the strong momentum we are seeing in those geographies. Signing momentum also continues with 46 coming in Q2, which is more than 3 times the 13 signings in Q2 of 2022. The Rest of World strength is evident in the 84 signings we've had so far this year. 68 of signings, Over 80% were new systems compared to 30% for all of 2022. 26% were with exhibition partners who are new to IMAX in the past year.

Speaker 3

25% were in U. S. And Canada and 13% in Europe. Nearly half were in Japan and Southeast Asia, including the 7 Aon signings from January, which are all installed and off to a strong start. Three signings were in China, all of which signed within the last month, and the vast majority were in high PSA countries.

Speaker 3

Turning to operating expenses. We are investing for long term growth and to exploit our differentiation and strong brand. R and D expense of $2,800,000 increased $1,400,000 reflecting our investments in new technology, including streaming SG and A excluding stock based compensation of $32,000,000 increased $2,600,000 from Q2 2022, driven by the inclusion of SynWave expenses, which were not in the prior year, given the acquisition closed at the end Q3 2022. As a percentage of revenue, SG and A excluding stock based compensation was 33% versus 40% in Q2 2022, an improvement of approximately 700 basis points, reflecting the strong operating leverage in Our business model coupled with continued cost discipline efforts. Adjusted EBITDA attributable to IMAX was 32,800,000 A growth of 29% over prior year of $25,400,000 The growth across our segments highlighted earlier and the strong incrementality and operating leverage in our business model drove this excellent result.

Speaker 3

From a margin perspective, Adjusted EBITDA attributable to IMAX was in the mid-30s at 35.4 percent and the strong performance flowed directly to the bottom line with adjusted EPS in Q2 of $0.26 which compares to $0.07 in the prior year period. As we turn to our balance sheet and cash flows, operating cash flow through 6 months was 25,900,000 representing significant growth of $31,000,000 from the use of cash of $5,300,000 in the first half of twenty twenty two. This improvement reflects our higher profits year over year and the accelerating business recovery of our exhibition customers post COVID, including year to date collections of $43,000,000 in China. For context, on a consolidated basis, operating cash flow For the entire year of 2022 was $17,000,000 Our capital position remains strong as We ended the quarter with $95,000,000 in cash $262,000,000 of debt, excluding deferred financing costs. Of the $262,000,000 of debt, dollars 230,000,000 reflects our convertible senior notes due in 2026 that bear an interest rate of 0.5 percent per annum with a capped call taking us to $37 per share.

Speaker 3

As of June 30, our available liquidity was $420,000,000 including cash and cash equivalents of 95,000,000 and $325,000,000 in available borrowing capacity under the company's various revolving facilities. Furthermore, During the quarter, our Board approved a 3 year extension to our share repurchase program through June 2026. As of the end of Q2, There was $191,000,000 remaining available under our share repurchase authorization. Our strong liquidity position gives us ample resources to fund the $124,000,000 to acquire full ownership of IMAX China as announced on July 12. To conclude, Our results through the Q2 display the strength of our business coming from the combination of our unique position in the entertainment industry and our high margin asset light technology focused business model.

Speaker 3

And we continue to believe that the opportunities in front of us are even more significant when Considering three factors. First, as Oppenheimer results underscore, there is strong demand specifically for IMAX as the most premium entertainment technology company with unmatched global scale. 2nd, the success we are having in programming a diverse array of content across our platform, which is supercharging our signings momentum in installations and third, the emerging potential of our simWave streaming technology backed by our strong brand. We look forward to reporting on our progress on all these fronts going forward. With that, I will turn the call over to the operator for Q and A.

Operator

Our first question comes from the line of Eric Handler of Roth MKM.

Speaker 4

Good afternoon. Thanks for the question. Rich, I wonder if you could talk a little bit about your Chinese local language market share. I mean, Correct me if I'm wrong, in pre pandemic, I remember a good movie would do like a local language movie in China would do 3% to 5%, maybe 6%, but you seem to be consistently getting better from that and obviously 16% from Creation of God's way above average. Is there anything that you can point to in China?

Speaker 4

Are they just getting used to seeing their own biggest films in the IMAX format? Is there any marketing going on? Anything you could point to there?

Speaker 2

Yes. So Eric, I think about around the time of Pre pandemic, a few years before that, we made a strategic shift to doing local language films and IMAX. And I think before that, audiences were conditioned to seeing Hollywood films in IMAX, but they weren't conditioned to seeing Chinese language films in IMAX. And I think once we started that, People got used to it. So IMAX wasn't a place that was associated with Hollywood films.

Speaker 2

It was a place associated with films of all types. And you're right, I don't have the data in front of me, but my memory, just to be clear, I could be off by auto. But I think we used to do like 2.5%, 3% of the market on Chinese local language films. And most recently, It's been more in the 5% to 6% range. And that's part of a global trend.

Speaker 2

I mean, one of the points we're trying to make on the call It's been this paradigm shift where IMAX was kind of ancillary to the movie. But I think what you're seeing now is IMAX The future of cinema, well, like primary of the movie. And I think what it reflects is during the pandemic, people kind of got tired I'm sitting on their couches and especially in China, where it's smaller apartments and less room. And I think They've decided when they go out, they want something really special to go out to. And as you said, The market share for this weekend's film was kind of unprecedented.

Speaker 2

And in my introductory remarks, I talked about Japan and even the anime in Japan, which is homegrown and IMAX is really outgrossing. So I think it's all part of this Bigger model where people are seeking out IMAX is a separate thing. And instead of just saying, Oh, Oppenheimer, Let's go see it in IMAX, they're saying, let's look at what's in the IMAX and let's go see that. And that's been our long range plan for a while. Great.

Speaker 4

And then just as a follow-up. Last year, you did very well with local Indian content. And it looks like you've been Getting some really good momentum in that market. Haven't heard as much this year. I have no clue what big blockbusters they have on their slate or how those are spaced out.

Speaker 4

But anything you could say about the India market?

Speaker 2

Yes. First of all, I should say that Oppenheimer was the biggest opening In the history of India. So I mean, I'm just talking about the business in general. In terms of local language, we do have Some that we're going to show in the second half of the year. Overall, I think we had 20 to 30 international films in the second Half of the year, but there's even a very major one, Eric, which I'm embarrassed to say, I don't remember the title of it.

Speaker 2

We could fish it out before this call ends. I'll come back to it. But there are several Indian ones and as you know, strategically, we want to do more of them.

Speaker 4

Thank you very much.

Operator

Thank you. Please stand by for your next question. Our next question comes from the line of Steven Frankel of Rosenblatt Securities.

Speaker 4

Good afternoon, Rich. Thank you for letting me ask a question. Can you talk a little bit about alternative content, given the Potential risk of a protracted strike. What have you thought about the types of events you could do With IMAX Live and an alternative content that could really have some traction.

Speaker 2

So we've spent a lot of time, obviously, Steve assessing how long the strike is going to last, What kind of content could we play? What's out there? And pretty much for the rest of the year, No matter what happens, the content is finished or about to be finished. So none of this is really Likely to be a 2023 issue. In terms of 2024, if a strike lasts a long time, It likely wouldn't affect a lot of content in the first half of twenty twenty four.

Speaker 2

It would more likely affect content in the second half of twenty twenty four. And we have, as your question addresses, so we're looking at what local language films we can lock in early, Particularly ones like anime or Indian films that would be exportable to other places. We're looking at things like bringing back. So obviously, not only Oppenheimer is going to be a great Bring back after runs, but Mission Impossible's run was truncated. I think that's something we can bring back I do very well on documentaries.

Speaker 2

As I mentioned in my prepared remarks, we have one coming out this October And another one which we sold to Amazon is coming out in 24th at Blue Angels. I'm really excited about it. It's very much Like an action kind of documentary, as you mentioned in your question, live in different events and We've green lit a number of events and we're looking forward to putting that together. But to be clear, The strike is not likely to have a short term impact and it's only if it goes on a long time that it has an impact. And we'll do our best in the ways that I enumerated to you to make sure that we have as much content as possible.

Speaker 2

When I think of a strike last A long time, there are going to be content shortfalls, but I don't believe that's the most likely event.

Speaker 4

Great. Thank

Speaker 2

you. Thank you.

Operator

Our next question comes from the line of Omar Mejias of Wells Fargo.

Speaker 5

Good afternoon, guys. Thank you for taking my questions. Maybe first on signings. Talk about, so you guys only have 19 screens domestically and 30 worldwide capable of playing 70 millimeter films. With the recent success of Oppenheimer, could this spark a new wave of demand for IMAX systems or upgrades in North America and globally?

Speaker 5

Just wanted to get your thoughts on what are you hearing from exhibitors and studios on this type of format? And just overall in general, Could this be sort of like an avatar effect, the Oppenheimer effect and how you guys thinking about the potential impact of it? Thanks.

Speaker 2

Yes. So, Omar, we are analyzing that data and looking at it. As you probably remember, we've already said That was going to build several more film cameras, so that way filmmakers will have the ability to do it. The projectors Yes, our old, they're dated. It's not like a new generation, but we are exploring, are there more of them that we could possibly Refurbish and bring into service.

Speaker 2

And remember, it's hard to believe given all the publicity around Barbenheimer That's only been there for 4 or 5 days. But we are thinking of other opportunities in building new 70 millimeter projectors, Are there opportunities in branding other 70 millimeter projectors with IMAX? Certainly, We'll have an outreach to filmmakers because the numbers are so spectacular about them shooting with 70 millimeter film. So we're aggressively examining the possibility of how we can lever off this kind of amazing cultural event. And I think you will see us

Speaker 5

That's very helpful. And maybe, I think you alluded to this on your prepared remarks, But there were recent media reports talking about that Warner Bros. Was strongly considering moving the release date for Dune. I'm just wondering your thoughts on what gives you confidence that, that won't be the case or just your thoughts in general, what's the likelihood of this happening? And if so, What other options are you considering as for the replacement for the DUNE slot, and just in there on the back half of the year?

Speaker 5

Right.

Speaker 2

Dune specifically, I mean, there's another great movie coming out around the same time, Which is the Marvels from Marvel, and we can't play it because we have committed to Dune. So if Dune moves, we'll just go over to the Marvels. And Having a Marvel movie as a backup is not the worst position to be in the world. But in terms of doom, my own opinion It's that it's highly unlikely, to move and it's an educated opinion, meaning I spent a lot of time on the facts. So Dune is already in the midst of a marketing campaign.

Speaker 2

There are trailers out. There's lots of materials out. They had a big presentation, a lot of the Conferences, as a matter of fact, the Denis Villeneuve presented at the IMAX CEO Forum. So it's kind of out of the gate. So if you put it back in the gate, you've got to duplicate those expenses at some time in the future of putting it out of the gate.

Speaker 2

In addition, Dune has a very long run time And IMAX up to 5 or 6 weeks and it just was fortuitous that there were no other conflicting projects. But if they were to move that To next year at some time, it's highly unlikely that they would have that amount of run time. And just to remind you, IMAX was about 20% Of the gross on June 1, and I know there's a lot of marketing plan on June 2. If they move June 2, there's a carrying cost, Call it 10% or whatever it is. So, how are they going to make up But that cost plus the other incremental cost, the IMAX release is a really important element to their release pattern.

Speaker 2

And as I said, just a minute ago, I don't think it's replicable for them to have that kind of Run time again. So when I look at it from their point of view, from a dollars and cents numbers perspective, It just doesn't make any sense to me that they would move it because and again, the only reason they would move it is they'd say the after strike is going on And they want to get a premier and put it on The Tonight Show or wherever they put the actors. But with no disrespect To Timothy Chalamet, are you going to be able to make up for losing the 6 week IMAX release? Are you going to be make up The cost of capital carrying it for a year, are you going to move it to an uncertain year when you have no idea what's going to be put against you When they have virtually no competition right now in the marketplace, it doesn't really make any sense. And when you look at the other movies, I think that's one of the most compelling not to move.

Speaker 2

But you could go through all of them and The same logic kind of applies. So I think, I've talked to the distributor of that film Warner Brothers They don't know where that article came from in the press. And I don't they've certainly told me that that article is not true. So all I can do is give you my logical perspective on it, but I feel quite strongly that it's not going to move.

Speaker 5

I appreciate that. Thanks.

Operator

Thank you.

Speaker 2

Operator, before I go on, I have a major Indian titles in Q3. To the last question, Jalan and Salir, one reason we have fewer Indian titles in Q1 and Q2 It was because of the Hollywood schedule, there wasn't really room to play them. And big Japanese titles in Q4 Our Godzilla at -one, the Spy X Family and The Boy and The Herring, which is the Miyazaki film, which will play for a very long period of time. If you could go back to the next question.

Operator

Thank you. Our next question comes from the line of Michael Hickey of The Benchmark Company.

Speaker 6

Hey, Rich, Natasha, Rob, Jennifer, congratulations guys on a great quarter. Thanks for taking my questions. Rich, obviously, phenomenal success here with Oppenheimer. I love it that the IMAX brand has never been so hot. I think that obviously Gives you a lot of leverage to build the business and you've been running it now almost 30 years.

Speaker 6

So you have an incredible perspective. I'm just curious How you think about sort of the next 3 to 5 years here? Obviously, we've always got near term turbulence, labor strikes. Some films are great, some films are not, some regions are great, some regions are not. But just curious how you think sort of medium to longer term, how excited you are Today and the growth of your business, given your perspective and I guess how material Maybe some of these new avenues of revenue like Sendwave can be for you guys.

Speaker 2

Well, I would say this week, I've never found IMAX a happier place. And it's not just because Oppenheimer did so well in the Hollywood headlines. But Oppenheimer, you kind of got to get into the math. So I'm not going to tell you what our ultimate was for the movie, meaning What our projection was, but I will tell you that where that movie ends up is very far in excess of where our Projections were coming into it. So not only is it the positioning and what it means for our brand and Doing like 1 third of the box office in the United States, 1 5th of it in the world on 8 tenths of 1% of the screens.

Speaker 2

I mean, Just ruminate on those numbers for a second. But the strategic side, what it could do to signings and kind of the avatar effect again, But what it means for our financial position, for the 3rd quarter where we just had our best July, while July is not over, We've already had our best July. And the film theaters are sold out pretty much everywhere for the next 3 weeks and our presales Fantastic. So at every level in the short run, I'll say, it's been hard to feel better about IMAX than I feel Right now, when you go out and you look at our 5 year plan, it shows very favorable growth patterns and It's driven by our increased market share, which in North America is up like 50% from where it was pre pandemic. And as you know, we've guided to pre pandemic levels.

Speaker 2

And then, you look at the growing network, we have 80 5 ish signings this year already and 80% of the new signings are new theaters, which means they're not upgrades. They're places We're going to get royalties not only from the exhibitors, but from the studios as well. So model out that growth paradigm. And then you add business like SimWave and Enhanced and Live and we're tremendously optimistic About them particularly simply where we think we're really on to a product that streamers who are in On the mode of saving costs, can save costs on a very advantageous basis. So our 5 year plan is Very optimistic.

Speaker 2

And as I said, without overstating the point, it's hard to have been at IMAX at a more optimistic time Right now.

Speaker 6

Rich, can you give more, I know when you look at sort of your Your penetration globally, there's big buckets of opportunity. And I know you've Rest of world has been significant for you guys what's happening in Japan and India and China has also been a significant Mark, it will go. But curious just on the domestic, how you look at The opportunity, I know you signed a deal in Canada that was incremental, but just it seems like Certainly, certain urban areas that you could have more screens and others, some zoning restrictions and so forth. But I'm just curious if there's any flexibility there, you think, In the future, so you can get more screens with the same operator in the specific zone. And if you think now that IMAX It's hot.

Speaker 6

I mean, does it make any sense at all in highly populated areas to have 2 screens per complex? Thanks, guys.

Speaker 2

So I'll start by saying, we're pretty ambivalent about whether it's the U. S. Or Overseas, the theaters generally do the same, except if it's in Japan, where our PSAs per screen averages are double North America, and just as an anecdote, I mentioned it briefly on the call, but I'll dig a little deeper. We signed a 7 theater deal with Aon Early this year, all 7 are open and all 7 are on track to do between $1,000,000 $2,000,000 PSA a year, which is the U. S.

Speaker 2

PSA is 900,000. So I mean, there's enormous leverage And global growth, that's why I don't necessarily say, oh, what am I going to do in North America because it's worth Twice as much to me if I do it in Japan. But in North America, we still were much more penetrated than other places in the world. But we still could do a lot more. I'm trying to remember if someone in the room will tell me, but I think Something like 25% approximately of our signings are in North America Over this year, so I think we did a 5 theater deal with a company called EVA and they could do a lot more, it was an 8 theater deals with EVO and they could do a lot more.

Speaker 2

I don't want to get ahead of myself or promise this, But we're starting to look at areas of exclusivity where we could even fill. So, if AMC owns a particular market, We can't put additional theaters in that market because it's analogous to like a franchise kind of thing. What we're starting to think about, can we put additional theaters in exclusivity zones to drive North American Box office even higher, and we are in some early conversations about things like that.

Speaker 6

Thank you, Rich. Natasha, a quick one for you. I realize, I don't know if you touched on the guidance. I'm sorry if you did. I'm guessing you don't want to Change at global box office estimate given how much stress we have on potential shifts in the slate given This is Rice.

Speaker 6

We're curious on installations. It looks like you're tracking really well there. I just can you update your Are you reiterating your guidance or you sort of on the high end, do you think just any sort of color wise you could have would be great? Thanks Natasha.

Speaker 3

Yes. I think we feel really good about our guidance. We haven't we obviously haven't come out and changed it. We feel like we're $541,000,000 in box office, we're halfway there to the level that we guided to. And with respect to installations, it's been Exactly as we talked about on our call a few quarters ago where we think it will be back end loaded, very similar to our And we had a really good quarter with 2020 installations and We're getting there.

Speaker 3

We had a great quarter from our tech products and services segment as well with really strong margins and performance there. And I just think our guidance is exactly where it's supposed to be. Same with EBITDA as well. We closed out the quarter at 35 And so, we're just we're tracking exactly what we got at the beginning of the year.

Speaker 6

Thanks, guys. Good

Operator

luck. Thank you. Our next question comes from the line of Chad Beynon of Macquarie.

Speaker 7

Hi, good afternoon. Thanks for taking my question. Rich, I know in the past, we were always focused on kind of the ramping period For new installations and when you mentioned some of these PSAs close to $1,000,000 that kind of jogged my memory. So with The increased local language product and just the strength overall, has there been any change in terms of the ramp period? And I guess what I'm getting at, I'm assuming maybe some of these locations are ramping a little faster.

Speaker 7

Obviously, every region is different, but just wondered if you could opine on that. Thanks.

Speaker 2

Yes. So as I said, in Japan, We signed a 7 theater deal and within 6 months opened all 7. I don't ever remember seeing that before. We used to say that it was 2 to 3 years to work through our backlog. I would say, We haven't done that calculation, so I don't know.

Speaker 2

But I would say our signings this year, The number that are turning into installs this year feels to me a little higher than it's been in the past, but I can't give you a thoughtful on current clients.

Speaker 7

Okay, great. And then on IMAX Enhanced, I guess, we're 4 or 5 months From holiday shopping season, should we expect to see more home consumer products kind of out there in the stores? I know you've kind of hinted at some of this with some bigger companies working with you guys. I know it's not a huge initiative, but certainly that would Something that would continue to help the brand and help the P and L? Thanks.

Speaker 2

There are active discussions going on, but The results are binary. You either sign them or you don't. So I can't predict until it's signed Whether we're going to sign them or not, but there are some interesting discussions going on. And if we sign them, I'm hopeful that the additional ones that you can't predict.

Speaker 7

Great. Thank you very much. Nice quarter.

Operator

Thank you. Our next question Comes from the line of James Goss of Barrington Research.

Speaker 8

All right. Thank you. Earlier on, as you rolled out China, Rich, there was a big difference in the PSAs as you moved into the Smaller markets, which are still relatively large. I'm wondering if that variance has continued or as you've Gotten people more used to seeing local language product in IMAX, if that gap has narrowed somewhat.

Speaker 2

Jim, it's still a recovery here in China, because remember, I know it seems like a long time ago, But in December, they still had quarantines and shutdowns. So I think it's really too early to detect a trend. It's just coming Back to a normal state, it's not even there yet. So I think it's too early to tell.

Speaker 8

Okay. Another thing is, I'm wondering if there's anything contractual in your film release Windows, either in your favor or the other favor or is it just a point of honor? With Dune, for example, If you have a 5 or 6 week window, and you do have Marvel as an opportunity, does that give you some ability to consider Negotiating with sharing that window?

Speaker 2

Yes. I mean, of course, Typically, we committed on not going to go into the specifics, but to a 2 week window in the film Primax program. So we could play the minimum or we could offer more time. So if your question is, do we have flexibility, We do. So, if they want to move the movie, There would be consequences to them of doing it.

Speaker 2

As I said, they would lose the law of the window. In my mind, it will be very hard So replicate that in the future years.

Speaker 8

But you would have the same flexibility. So can you force the issue as well? Does it work that way or is it a matter of creating

Speaker 2

this

Speaker 8

honor system so that you do spread things out over the course of the year?

Speaker 2

Jim, as you probably read in the media with Top Gun with, not Top Gun, with Mission Impossible 7 and with Oppenheimer, we make commitments and when we commit to somebody And we stick with it. And I would say, thanks to the quality of Oppenheimer and its brand association With IMAX, and by the way, I love Mission, I thought it was a great movie, being a company of principle and standing by Our commitments pays off for us. So we don't really play games like that.

Speaker 8

Okay, understood. Lastly, you've touched a little bit on the rollout in terms of number of sites. And I wonder if given how you do feel IMAX is hot right now, if there's any consideration toward In general, accelerating that rollout in terms of numbers, so it maintains some same sort of percentage. I know it's It's not itemized in terms of certain dollars or earned sites or percents, but Do you think an acceleration is warranted, given the number of markets you have and the reception to your

Speaker 3

Hi, Jim. This is Hasha. We have our guidance out there for $110,000,000 to $130,000,000 for the year. Of There will be ebbs and flows of the timing of the rollout, but that depends on many factors. It depends on Timing of the our exhibition customers and whether their cash flow exists at the time to do a rollout, the timing of Other types of factors as well.

Speaker 3

And so, of course, if we have the opportunity to roll it to install theaters sooner, we will. But Right now and based on our cadence of historical year, we'll continue to reiterate that it will be Q4 loaded.

Speaker 2

Yes. All sides, this may sound obnoxious and I don't want to be this way, but I want to put it in a perspective. People should take out of 10, a look at the Oppenheimer numbers, a look at the predictions and whether 5 more installs or less Or 10 is going to really make a difference in IMAX's year. I just think when you look at the big picture, pun intended, With IMAX, the signings, the installs, I mean the way that we're firing on all cylinders, I think looking at this year from where we sit now, there's a few more installs, I don't think It's part of an important investment thesis to have items.

Speaker 8

Okay. No, I meant actually not just this year, but in a broader sense

Speaker 2

Well, in the future, Jim, if you're asking about future years, I mean, there was an avatar effect. You see it this year. I think it's still continuing. And I think when you look at the we didn't really break this out, But some individual IMAX theaters are going to do $1,000,000 on Oppenite. Many of them have been to $300,000 So if you model from the theater side, what it means to them and their If they're logical, it should lead to what you're asking about.

Speaker 8

All right. Well, thanks a lot.

Speaker 2

Thank you.

Operator

Thank you. Our final question comes from the line of David Karnovsky of JPMorgan.

Speaker 9

Hey, thanks. Rich, thought it was interesting to see Napoleon on the calendar for IMAX. Maybe, I don't know if you can give any background to this. I think it's your first content deal with Apple. And what potential do you kind of see for More releases here, have they given you any indication of their fleet?

Speaker 2

Well, not only Flowers, the Scorsese movie, But the Napoleon, which is Ridley Scott, it's also another Apple movie, Which is interesting, David, because there are 2 different studios that are distributing them. 1 is Paramount and the other is Sony. So, Yes, we are discussing other projects with Apple and Apple is committed to a theatrical exclusive window. And I think they see us part of on this one specific one in mind that we haven't agreed to, but we have a verbal understanding The next couple of years, it's not in the near term. So, yes, I do think we'll get more and more content from Apple and probably Amazon as well, as they are committed to a theatrical window.

Speaker 9

Thank you.

Speaker 2

Thank you, David.

Operator

Thank you. I would now like to turn the conference back to Richard Gilfon for closing remarks.

Speaker 2

Thanks so much, operator. Thank you all for joining us today. We just announced on this call a very attractive successful 2nd quarter, which followed a very successful attractive Q1 and now we're in the 1st month of our Q3 And we just had our best July ever in terms of box office. As we look into August And the presales and the potential for Oppenheimer and then we look at the other movies coming on down the I think IMAX has moved in a way from people considering a story stock 2 elements of being a value stock. And I think people should probably, as I said before, take out a pen and put numbers to some of these things.

Speaker 2

And look at we've been shrinking our capitalization, our shares outstanding have gone down, Our EBITDA has gone up and people I don't think it has to be believing the story, I think, Samana, taking out 10 And doing some math. And I really don't remember being in a more attractive position at IMAX in a very long time. So, thank you all for joining us and I hope to update you with more good news on the next call.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
AVITA Medical Q2 2023
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