IMAX Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 23, 2025

There are 9 speakers on the call.

Operator

Thank you for standing by and welcome to IMAX First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again.

Operator

I would now like to hand the call over to Jennifer Horsley, Head of Investor Relations for IMAX. Please go ahead.

Speaker 1

Good afternoon, and thank you for joining us for IMAX's first quarter twenty twenty five 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 to the Investor Relations section of our site. Our historical Excel model is 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 a reconciliation 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

Speaker 2

call over to Mr. Richard Gelfond. Rich? Thanks, Jennifer, and thank you, everyone, for joining today. IMAX got off to an excellent start in the first quarter.

Speaker 2

We banked nearly $300,000,000 in global box office, our best first quarter ever. We've signed agreements for more than 100 new and upgraded systems year to date compared to 130 in all 2024. And we kicked off a great summer slate with a run of eight consecutive film for IMAX releases. The fundamentals of our business have never been stronger. In recent weeks, that fact has been obscured by noise around tariffs, China and speculation about the potential impact on the Hollywood slate.

Speaker 2

We've looked deeply at this issue. We've talked to every studio and our industry partners throughout China, cultivating across our thirty years of doing business in the country. And we're highly confident that the moderate reduction in Hollywood imports announced by China Film Administration will largely target films with limited box office potential in the market, a smaller budget kind of fare, not the kind of films that drive IMAX's business. So we're not letting the noise distract us from the opportunity ahead. We drove double digit growth in revenue and adjusted EBITDA in the first quarter and adjusted EBITDA margin of 43%.

Speaker 2

The Hollywood slate is ramping up, building to the year end crescendo of Avatar, Fire and Ash in December. We've already seen select footage and are very enthusiastic. We've had many promising new locations set to open across high PSA markets in Asia and Australia, North America and The Middle East. And IMAX uniquely benefits from a very positive confluence of trends in global content. The rapid rise of big budget, high production value, local language blockbusters from around the world and two, the continued resurgence of the Hollywood slate with releases from the biggest filmmakers and tentpole franchises lined up through the end of the decade.

Speaker 2

We continue to wield our leverage in the industry to provide a diverse, dynamic, truly global programming slate. On the content side, first, twenty twenty five is shaping up to be a watershed year for our growing successful local language strategy. Chinese New Year exceeded our wildest expectations with $182,000,000 in IMAX box office, triple our previous record. Like Maverick, Oppenheimer and Dune Part two before it, Nezha two became synonymous with IMAX as we've earned more than $164,000,000 to date with the film. We indexed 7.5% with the film in China on less than 1% of the screens, about double our average with local animated releases.

Speaker 2

As a reminder, IMAX collects a higher fee in China with local language releases than it does with Hollywood releases. We see tremendous opportunities ahead with international films. It's quite possible that IMAX delivers its highest grossing local language films of all time in China, Japan and India this year. In Japan, Demon Slayer Infinity Castle, the sequel to the highest grossing Japanese film of all time, arrives in July, followed by a global release in the fall. And in India, War II has the potential to join the ranks of India's biggest blockbusters when it comes out in August.

Speaker 2

These well established markets are building bankable and often exportable franchises to rival Hollywood releases. And we're tapping into fast growing film industries in priority markets like Saudi Arabia, Vietnam, Indonesia and Thailand to expand our content portfolio and drive network growth. In 2019, local language film accounted for 12% of our total global box office. In 2023, that figure rose to 21%. And in the first quarter of twenty twenty five, it was 68% of our box office.

Speaker 2

We've already delivered more local language box office this year than we did in all of 2024. And we remain very bullish on a Hollywood slate that features more IMAX DNA than ever. Every Hollywood release scheduled from now to August was filmed with IMAX cameras. Just this past weekend, we delivered 20% of the domestic opening of Sinners, which was shot in part for IMAX with IMAX 70 millimeter film. And on Monday, Sinners continued its torrid pace in IMAX, dropping off very little from Sunday and delivering $2,000,000 indicating a great hold is likely for this week.

Speaker 2

Yet again, when an author filmmaker like Ryan Kugler leans into IMAX, audiences heed the call and turn out for the platform in a big way. This outperformance is consistent with what we've seen with the big IMAX seventy millimeter releases like Oppenheimer and Dune Part two. Sinners also delivered our biggest domestic opening weekend ever for a horror film. Over the next few months, buzz is building for our film for IMAX slate. The Final Reckoning will make a splashy debut at Cannes in just a few weeks, followed by the London and New York premieres in IMAX.

Speaker 2

Insiders are high on both Marvel's Thunderbolts and Fantastic Four. The trailers for Superman have racked up hundreds of millions of views online. How to Train Your Dragon, Screen to Acclaim at CinemaCon. And early IMAX exclusive F1 presales are strong, and we have many IMAX exclusive elements and events throughout its promotional campaign. This year concludes with Zootopia two and Fire and Ash.

Speaker 2

The first two Avatar films earned more than $250,000,000 apiece in IMAX. 2026 kicks off with the Avatar carryover and features Christopher Nolan's The Odyssey as well as Avengers, Star Wars, Super Mario Brothers, Toy Story, Greta Gerwig's Narnia, and the Dune sequel from Denis Villeneuve. And 02/1927 already boasts another Avengers and Star Wars, as well as Batman two and Frozen three. Once viewed as a competitive threat, streaming services are leaning into IMAX in a big way, whether it's our exclusive window for Greta Gerwig's Narnia for Netflix, the longest theatrical window Netflix has ever granted at twenty eight days, or Apple prioritizing an IMAX release before securing a studio partner for F1, or Amazon purchasing our original documentary Blue Angels and committing tentpoles like Project Hail Mary and Mercy to the Film for IMAX program. And as we open our content aperture, we continue to drive incremental box office with our growing slate of events and experiences, including our record breaking exclusive debut of Becoming Led Zeppelin and this weekend's Pink Floyd, Live at Pompeii.

Speaker 2

Our exclusive rerelease of Studio Ghibli's classic Princess Mononoke, which earned 4,000,000 in its debut, the biggest IMAX domestic opening ever for a local language film, and our sold out live sports test in France with the annual Le Classique football match. Global network and technology. Looking at our global network, our system signings and installations are a strong indicator of anticipation among exhibitors and the prevailing sentiment that IMAX will be the preferred choice for consumers worldwide as the slate rolls out. We installed 21 systems worldwide in the first quarter, our second best first quarter ever for installs. And we've signed agreements year to date for 101 new and upgraded IMAX systems worldwide.

Speaker 2

This includes a major agreement with AMC, which will add 12 new IMAX locations and upgrade virtually its entire IMAX footprint in The U. S. To IMAX with Laser. We also continue to expand our roster of partners in The U. S.

Speaker 2

This year alone, we'll open at least 11 locations with regional partners that we've signed up in the past twelve months. Internationally, Japan continues to be a priority market for us. Year to date, IMAX has now signed agreements for 11 new and upgraded locations in Japan, including a rare location with two auditoriums in Tokyo. We also expanded across Western Europe with our fast growing partners at Canopolis in a multi territory agreement spanning France, Belgium, Spain, The Netherlands as well as The U. S.

Speaker 2

And Canada. To close, it's a very exciting time at IMAX. Our business has proven to be resilient and able to thrive in many different economic cycles. We have no doubt that will remain true. We have visibility to a more promising slate through the end of the decade than we've ever seen in the future and a strong trajectory for continued network growth.

Speaker 2

We look forward to seizing the opportunity to deliver results for all of our shareholders. Thank you. With that, I'll turn it over to Natasha.

Speaker 3

Thanks, Rich, and good afternoon, everyone. In the first quarter, IMAX exceeded its expectations across global box office, system signings, system installations and adjusted EBITDA. Our results in the quarter were driven by record box office and 40% year over year growth in IMAX system installations worldwide. And this outperformance again highlighted the operating leverage in our model with a total adjusted EBITDA margin of 42.7%. We are on track to achieve our guidance for the full year, including a record $1,200,000,000 in global box office.

Speaker 3

Taking a closer look at our Q1 results, we delivered revenues of $87,000,000 up 10% from the prior year first quarter. Content solutions revenues of 34,000,000 grew year over year with gross margin of $24,000,000 up 7%, driven by our record Chinese New Year box office and our overall programming strategy, which featured a mix of content, including Hollywood, local language, re releases, concert films, and sports. Our best ever Q1 box office also led to a high Q1 global market share of 3.5% on less than 1% of screens globally, and a record of 5.4% in China, both of which reflect IMAX's outperformance in the quarter. Technology products and services revenues of $51,000,000 was up 17% year over year, with gross margin of $29,000,000 up 23%, driven in part by growth in global box office. The quarter also saw growth in installations, 21 versus 15 systems in the prior year, which included a higher mix of sales type arrangements.

Speaker 3

The geographic mix of installations was evenly spread with seven systems in each of domestic, rest of world, and China. Exhibitors globally are shifting into investment mode in advance of the strong upcoming IMAX slate. Similarly encouraging was the strength in Q1 signings, which at 95 systems was up 87 from the prior year and included signings in high per screen average markets such as The U. S, Europe and Japan. The strong Q1 signings lift the IMAX backlog to five sixteen systems, up 74 systems or 17% year over year, representing a solid pipeline for future global growth of the IMAX network.

Speaker 3

The gross margin performance in Q1 of 61% increased 200 basis points year over year, reflecting high incremental profit flow through from the stronger box office performance. Operating expenditures defined as research and development and selling, general and administrative expenses, excluding stock based compensation, was $30,000,000 and increased $950,000 year over year, driven primarily by timing of expenses. We continue to take proactive steps to enhance operational efficiency and reduce annual costs, while optimizing IMAX's organizational structure, including eliminating redundant roles and centralizing select functions, which positively impacts both margin and OpEx. Overall, quarter total consolidated adjusted EBITDA of $37,000,000 increased $5,000,000 or 15% year over year, driven by the higher revenues and gross margin. This resulted in an adjusted EBITDA margin of 42.7%, up over 200 basis points year over year.

Speaker 3

First quarter adjusted EPS was $0.13 which includes a higher year over year deduction for non controlling interest associated with the strong IMAX China results. The tax rate was 47% in the quarter, primarily reflective of the geographic mix of profits that led to a higher tax valuation allowance of 3,200,000.0 or negative $06 impact year over year. For the full year, we expect the tax rate to be at a more normalized rate based on the historical trends and our geographic forecast of annualized profit. Turning to cash flow and the balance sheet. Cash flow from operations provided $7,000,000 in Q1, which is an $18,000,000 improvement over the prior year period, a good start to the year given seasonally Q1 is generally a lower cash flow quarter based on the timing of revenues and payments such as annual compensation payouts.

Speaker 3

Similar to total adjusted EBITDA, the dynamics of cash flow are quite positive as box office expands, leading to incrementality, particularly considering the cash flow characteristics of our joint revenue sharing contracts, where the capital expenditure is at the beginning of an average ten year contract term. During Q1, we used our available capital to invest in the business, including $12,000,000 spent on growth CapEx related to partnering with exhibitor customers to grow and upgrade the IMAX network through joint revenue sharing arrangements. Our capital position remains very strong with cash of $97,000,000 Debt excluding deferred financing costs was $282,000,000 As a reminder, $230,000,000 of our debt comes from our convertible senior notes due in April 2026 that bear an interest rate of 0.5% per annum with a capped call leading to a $37 per share conversion price. With our strong liquidity position and available facilities, we have the ability to be opportunistic as we assess the timing of when to address these notes. Our current available liquidity is over $400,000,000 which includes over $300,000,000 in available borrowing capacity under the company's various revolving facilities.

Speaker 3

We are confident about our outlook for 2025 and beyond. While still early in the year, we are ahead of our expectations, and we have started the second quarter off strong with good box office from Minecraft and Sinners, which leads into summer titles with larger potential, including five more film for IMAX titles in Q2 alone. The visibility into IMAX's future slate has never been as good, including a standout 2026, and the significant runway to grow our network further is clear as IMAX location zones are less than 50% penetrated. Longer term, we are confident in our future as the demand for IMAX increases and we achieve greater network scale, deepen our relationships with exhibitors, studios, and filmmakers, and broaden our content aperture to distribute even more content across our global platform. We believe with the strength of the IMAX brand, our strong balance sheet and business model that IMAX is well positioned to deliver sustainable growth, expanding margins and increasing cash flows in 2025 and beyond.

Speaker 3

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

Operator

star, 11 on your telephone. To remove yourself from the queue, you may press 11 again. We ask that you limit yourself to one question and one follow-up to allow everyone the opportunity to participate. Please stand by while we compile the Q and A roster.

Speaker 4

Our first

Operator

question comes from the line of Eric Wode of Texas Capital Securities. Please go ahead, Eric.

Speaker 5

Thank you. Good afternoon, everybody. Couple of questions, I guess. So I guess one question on China and one on, kind of the made for IMAX, outlook. Rich, you mentioned an expectation that, any modest reduction in Hollywood film you know, would be focused on, you know, the smaller budget films that, you know, would not really impact, you know, the IMAX slate.

Speaker 5

So I have to assume then that there's also not been any adverse shift in tone from Chinese exhibitors around kind of, you know, in process signing discussions or the timing of planned installations?

Speaker 2

Hey, Eric, we're coming off our best quarter in China ever, which we just reported today. And that's what affects theater owners and people making movies and things like that. So I would say there's not only not a reduction in activity in the market within China, there's an increase. There's more incoming calls. There's more interest in movies.

Speaker 2

We were just a key member of the Beijing Film Festival this weekend, where a panel talked about the future of film. And there was almost no one in the panel who didn't talk about IMAX and how important it was. Because they're looking at coming off in Nezha, and a record by over three times of any film we've ever done. So the narrative in China is completely positive in a very material way. In terms of the reduction of films, moderate reduction coming in, let's just do a reality check.

Speaker 2

So Thunderbolts opens in a week and a half. That's been approved. It's getting edited. Today, they dated Lilo and Stitch in China. There have been three other films submitted in the last couple of weeks.

Speaker 2

We've talked to almost every Hollywood studio, and they expect all their major films to get in and in discussions with the Chinese government. Our relationships in China have told us that the kind of reductions, if there are any, would be the less financially broad ones than the kinds of films IMAX typically plays. So I think I remain very confident about China in a lot of ways. And I don't think that the moderate film reduction will have a material impact on IMAX.

Speaker 5

That's perfect. And then my follow-up on you kind of made for IMAX with now the big run of made for IMAX films starting, I guess, centers moving through the summer. What is the primary gating factor to having a larger percentage of the film shot with IMAX cameras in the years ahead? Is it purely the number of IMAX cameras that are available to be used? Do you need do you need broader sign off from a greater number of studios and producers?

Speaker 5

And then kind of what is that right number, do you think, without potentially diluting the made for IMAX cachet?

Speaker 2

So Eric, I'd say it has more to do with slots than anything else. So for example, we have eight films in a row coming right now. So there just aren't more films we could have done in this period of time. And plus, we really want to be discriminating about it. So I don't think you should look at our success as how many we're doing in a particular period of time.

Speaker 2

Because I think it needs to be the right kind of film for us to do it. And as a matter of fact, in terms of the film camera, that's a little bit different. There is a limiting factor there in the number of cameras. On the digital side, there isn't. But right now, as you know, the Nolans are shooting Odyssey with a significant number of IMAX cameras, which we're very excited about, obviously, for next summer.

Speaker 2

But we can't really shoot more than two simultaneously with the film cameras. And once they're done shooting, then I think you'll see us film some other IMAX made film cameras once that concludes somewhat later this year. But I'd say that I don't want you to think too much about supply of cameras. It's much more an issue of the right slots and the right content.

Speaker 4

Perfect. Thanks, Rick.

Operator

Thank you. Our next question comes from the line of Chad Beynon of Macquarie. Please go ahead, Chad.

Speaker 6

Hi, good afternoon. Thanks for taking my question. Rich, another one on China, but focusing on the positive outcome for the first quarter. I know, I guess, thinking about the last several quarters, it was your focus to zone in on the Tier one and Tier two in terms of new distribution zones. But we look at the first quarter outperformance in China, can you talk about where that strength came from?

Speaker 6

And if it did come from Tier three to five cities, if that might change kind of the outlook of the aperture of your zones in that market? Thank you.

Speaker 2

I don't have that data at my fingertips, Chad. However, I believe it was uniform across all markets. And I think there

Speaker 4

are

Speaker 2

a couple of factors for it. Obviously, the movie itself was very special. And that drove audiences, as you know, I said in my prepared comments, that our market share was up significantly, especially in the animation area. And the other thing was on the marketing side. We tried a very different marketing approach.

Speaker 2

And we joint ventured with a number of entities, including the studio that made Nezha. And we did combine promotions. And then we've leaned much more into the right social media. So TikTok was a key component of where we placed our marketing. We're trying to reexamine not only in China but throughout the world.

Speaker 2

Historically, films are marketed on billboards and bus stations. It's transitioned somewhat. But we found, for this film in particular, that social marketing and that our investment in that was extremely successful. And I think that had a lot to do with the result.

Speaker 6

Okay, great. Thank you. And then with respect to the signings announced in the quarter and around CinemaCon, has anything changed just in terms of the general terms or how you guys are thinking about JVs versus STLs? Not getting into specific contracts, but just given the weight of the signings in the first quarter, if anything changed generally in terms of how you're talking to future partners? Thank you.

Speaker 2

Thanks. No, not at all. And as a matter of fact, our signings were quite diverse. As I said in my script, we have over 100 now. Just to put it in context, we had 130 for the year last year.

Speaker 2

But demand is very strong. And I think what's fueling that is the film slate for this year in 'twenty six and how far out the backlog of films goes. But in terms of our terms, no. And I'll tell you something you'll find interesting. So given the success of Nejar, we discussed whether we would want to sign a lot more theaters in China.

Speaker 2

Because obviously, the IMAX brand and market share is going in the right direction. And we said, no, we want to be as careful as we always were in terms of who the partner is and what the terms are and what the box office is. So we're looking at the same ROI calculus that we always have. Thanks,

Speaker 6

Rich.

Operator

Thank you. Our next question comes from the line of David Konofsky of JPMorgan. Your question please, David.

Speaker 4

Hey, thank you. Rich, theatrical windows are a big topic with exhibitors and studios right now. And I know it's much less of an issue for IMAX giving you typically carry movies for a week or two, but you have screen films recently with Windows to P VOD. I think it's short of seventeen or twenty four days. And so I'm curious on your view of how you see this issue, whether there's risk now or maybe whether there's any risk to consider down the line.

Speaker 2

Yeah. So we don't really pay attention to what the PVOD windows are, because we don't really view that as competitive. With IMAX, you are right that exhibitors are really focused on that issue. And as you know, at CinemaCon, that was a big subject. And I definitely understand windowing being important to exhibitors.

Speaker 2

But we had a very good quarter because we have global diversification. As you know, the North American exhibitors was a very challenging quarter. Again, I know this is going to be controversial. But I think they should really focus on the kind of content and getting more content, which we're trying to do with foreign language films and alternative things, and less on whether the window is thirty or forty five days. I just don't think that's going to make a material difference to their business at the end of the day.

Speaker 2

And for us, it makes virtually no difference at all. We're sympathetic to not trouncing on their theatrical release. But I think just way too much has been made of it. And I don't think that's going to save the industry. I think more good content and more diversified content is much more important.

Speaker 4

Okay. And then just two for Natasha. I guess, first on the higher end stock activity year over year, how should we interpret this? You highlighted in the deck 40% growth, but maintained the guide. Is it reasonable to assume the higher end at least is more achievable now?

Speaker 4

And then just on the content solutions gross margin really outsized in the quarter, I'm assuming that had to do with China performance, but can you walk through the drivers here? Did any of that marketing shift that Rich mentioned a few minutes ago on the social play a role at all?

Speaker 3

So our guidance for the year, we reiterated is 145 to 160 for installations. It's just simply a timing mix David as to know exhibitors came to the table and wanted to install sooner than we had originally planned, which is a good thing. Mean ahead of the slate that's coming up, it is in everyone's best interest to get installed, but it also comes down to timing of capital allocation from their end and what they're able to do. And so from a mix perspective and timing, we still believe the back end of the year is going to be the heaviest period of time. Normally, installed 50% of our systems in the last quarter, and so I would say it's the same sort of mix as last year with respect to timing and then mix of JV versus sales as well.

Speaker 3

We still reiterate the same guidance we gave, where it would be heavier towards JVs this year, which is good as we look towards capturing the incrementality on the box office, which leads into the answer for your second question with respect to the margin and content solutions. That is a prime example of what we've been talking about on our prior calls with respect to incrementality. When you start to work through the ability of achieving these higher box office levels, it flows mostly to the bottom line without additional costs. You know if you look through, we do have a correlation slide in our investor presentation on the website, But if you look through that, when you start to see box office levels over $250,000,000, you can start to see a higher flow through incrementality of about, you know, 5% of every dollar is flowing right through to from revenue to EBITDA, and I think that's where you're starting to see that come through on that content margin. Also coupled with that, Q1, it was heavily driven by Chinese New Year, and so local language content does cost us less from a IMAX remastering perspective, and also from a marketing perspective.

Speaker 3

Rich touched on it just now, but marketing through social media channels versus print is obviously less expensive as well. So that gave us the opportunity on the margin there too.

Speaker 7

Thanks.

Operator

Thank you. Our next question comes from the line of Eric Handler of ROTH Capital. Please go ahead,

Speaker 5

Thank you very much. Good afternoon. Thanks for the question. Rich, I wonder if you could just give a little insight into how much runway do you have in terms of visibility for what movies are gonna be shown in China in 2Q and maybe talk about some other areas for local language content around the world in 2Q.

Speaker 2

We have an awful lot of visibility, Eric, into China. As a matter of fact, earlier today, we had our IMAX China board meeting. And we went through the slate for the rest of the year. And Natasha, jump in if you want to. But I think there were like six or seven local language movies that have already been announced for this year.

Speaker 2

A number of them film with IMAX cameras. A number of them we've been on set there. We've seen clips. We've interacted with the studios. And we feel pretty good about it.

Speaker 2

And if you look for a trend, Eric, that's gotten more favorable to us over time. It used to be a little bit more of a black box process, but the China film regulators have gotten better at kind of giving us approvals more in advance for what's coming in the film slate and what the films are about. And the studios and the filmmakers have been much more willing to show us footage and put together marketing plans. So again, I know some of the names. I don't know these films well enough to talk about them.

Speaker 2

But I could say that our CEO of IMAX China is quite optimistic about the slate of local language films for this year.

Speaker 3

Eric, if it's helpful, we have added a slide in our deck as well. But there's 10 local languages confirmed in China that we've put on that slide to be a little more helpful to everybody to see visibility into this year, as well as the Hollywood slate as well that we expect to come through.

Speaker 4

Okay. And then just as

Speaker 5

a follow-up, wondering if you could talk about centers a little bit. I mean, percent market share is fantastic. Wonder if there's a few things that maybe you could point to why, how Sinners got to 20% versus other movies that are low to mid double digits. What worked really well there?

Speaker 2

So I'd say a couple of things. Number one, it's a really good movie and really well shot by an auteur filmmaker. And there was close to 100% on Rotten Tomatoes. And as you know, IMAX delivers the best when it's a really great filmmaker. It's a really great film.

Speaker 2

And cinemaphiles really want to see it. So I think that was kind the film was the kind of film. But maybe even more importantly, equally or more, is that Ryan Coogler and Michael B. Jordan really leaned into it, Eric. And I don't know if you saw the piece that Michael, no, that Brian created, where he went through all the film formats and how people should see it and why they should see it in IMAX.

Speaker 2

And he did a lot of he kind of followed some of the Chris Nolan playbook, which is to talk about why it was important to him to make it an IMAX film, why people should see it that way, what the benefits are. And then throughout the opening weekend, he went to a number of IMAX theaters throughout North America and talked about it and showed up. And I understand Michael B. Jordan showed up at the BFI in London over the weekend. And when they did talk shows, and they talked about the movie, IMAX was an integral part of the movie.

Speaker 2

And we've always thought that was a key point, but this is like a clear demonstration of that. And then Eric, also, besides the indexing, a really good thing has happened this week, which is usually for an IMAX release, a Monday is typically 10% of the weekend's gross. But on sinners, this Monday was 20% of the weekend's gross. And then sinners on Tuesday was 20% of the weekend's gross. Now, I'm not talking about the percentage of box office that also held at 20, but I'm talking about the gross proceeds.

Speaker 2

So that it bodes very well for the run. One of the things we were hoping was that because the movie was so good and so well received by fans and critics, that it would broaden out. And that IMAX was a tool for it to broaden out. And again, I'm not saying it's gonna be numbers like Oppenheimer or Dune, but it's the same kind of effect we're seeing in very similar numbers where the IMAX film has enabled this broadening out effect.

Speaker 5

Thanks, Rich. Appreciate it.

Operator

Thank you. In the interest of time, we now ask everyone to limit themselves to one question to allow everyone the opportunity to participate. Our next question comes from the line of David Joyce of Seaport Research Partners. Your question please, David.

Speaker 7

Thank you. I wanted to ask about the health of the consumer. Just wondering if you've had conversations anecdotally with the theater owners related to how well Minecraft and sinners have done and while Captain America overall was soft, think you still did fine there. Just wondering if the theater owners that also have regular screens have any comments about people skewing more to the IMAX show times. You did talk about having higher share of course, so that kind of answers the question.

Speaker 7

But I'm just wondering, are they also like asking for more IMAX show times? Are they trying to fit more in? I'm just wondering if you had any more anecdotes about the consumer. Thanks.

Speaker 2

Yeah, David, as you said, you answered the question. Again, go to Nezha. This is in China where the consumers are not as prosperous as they are here. And it's something we've traditionally indexed in the three ish percent range. And we did 7.5%.

Speaker 2

And at the end of the run, we were at 13%. So I think that's kind of a test lab for consumers. It's an affordable luxury. So although, obviously, there are challenges, as there always are. But going to an IMAX movie is kind of a special thing.

Speaker 2

And since I've been here, there are probably three or four recessionary periods. And every year on the box office is up during those periods that I've been here than it was before. So if it's something more expensive, like vacation, travel, restaurant, I could see it having much more of an impact. But in a way, because this is something special and it doesn't cost that much more, I haven't really seen an effect from that. And I haven't heard about it from our colleagues.

Speaker 7

All right, thank you.

Operator

Thank you. Our next question comes from the line of Omar Mahes of Wells Fargo. Please go ahead,

Speaker 5

Thank you for taking my question. Rich, maybe sticking with China. In The US historically, the box office has been resilient during recessionary periods as movie going remains an affordable form of entertainment. Can you provide any color on how the Chinese box office performs during recessionary periods? And if you have any concerns that a potential economic slowdown could pressure consumers in China and limit attendance?

Speaker 5

Thanks.

Speaker 2

Well, my first comment, Omar, is during the first quarter, it was a pretty slow economic period in China. And we set records by multiples. So we have some fairly recent data that we can draw on. But I just don't think it's going be different in China. Remember, we're in 90 countries.

Speaker 2

So I don't think the Chinese behavior is different than other countries. And I think for a good product and well marketed, that the market will be there. And it's too early to say, obviously. But we haven't seen any evidence of that.

Speaker 8

Thank you.

Speaker 3

And I think the other thing to consider Omar is government support during recessionary periods as well, like Chinese New Year, there was government support through there, and we saw some last year and they've announced that the Beijing festival as well, that there'll be continued support. So I think even from that perspective that there is always support during these recessionary periods. And when you think about it, most discretionary part of moviegoing is concessions, and so they still want to go out and experience something, but there's an opportunity to, If you really need to save money, you're not spending as much on concessions, but you're going to enjoy the experience.

Speaker 2

IMAX does not make any of its money from concession. Very good. Very clear. Thank you, guys. Appreciate it.

Speaker 2

Super helpful.

Operator

Thank you. Our next question comes from the line of Steven Frankel of Rosenblatt Securities. Please go ahead, Steven.

Speaker 4

Thanks. Rich, given the step up in the number of film for IMAX titles and traditionally these were very labor intensive DMR processes. What are you doing to make sure that featuring more film for IMAX doesn't cause some incremental pressure on gross margin?

Speaker 2

Yeah, so first of all, DMR conversion is not labor intensive. And we've made a lot of progress over the years of automating it. Obviously, are some quality control aspects. We have to check it and make sure it's right. Second of all, for a lot of our foreign language titles, especially those in Asia, India, China, we outsource and we partner with local firms there that help with the DMR process.

Speaker 2

And that was facilitated by us putting DMR in the cloud. So our margins have gotten better on the DMR side over the years. And we continue to look at that aspect of our business. So that's a priority for us, continuing to evolve the process and continuing to make it more automated. So I don't really see margins being squeezed.

Speaker 2

Do you want to add anything, Natasha?

Speaker 3

I think the only thing, Steve, is you know the two week windows and I think what I'm hearing from your question is that if you keep doing film for IMAX and they're back to back you're going to lose the opportunity for incrementality of playing it longer. But I don't see that as something necessarily hindering us in that the first weekend and the second weekend are usually your biggest box office recoupment periods. And then we always we have the ability to find time in other spots during the year to bring titles back or to slot things in. Mean you can go back to Maverick, which was a couple years ago, but we brought it back four to five times throughout a year. I think and we've done that with other titles, we brought back re releases, so whenever we see something that plays really well across the IMAX network, we look for opportunities to bring it back.

Speaker 4

Perfect. That's what I was looking for. Thank you.

Operator

Thank you. At this time, we have time for one last question. Our final question comes from the line of Patrick Scholl of Barrington Research. Please go ahead, Patrick.

Speaker 5

Hi, thanks for taking the question. I was just wondering if

Speaker 4

you could drill in a little bit more on like the available dating slots for like the Film and IMAX and just managing like international distribution if that also kind of conflicts with expanding the film for IMAX lineup in international markets.

Speaker 2

Well, we do local language films, as you know. Like in other countries, we use IMAX cameras. But you have to look at the slate and look at what the competition is from Hollywood and see where you have open shows and open times and ways to do it. But we've been able to balance it. I think that's what you were asking, or am I missing the point of your question?

Speaker 4

No, that mostly it. Thank you.

Speaker 2

By the way, operator, we have time for a few more questions, if there are any.

Operator

Excellent, sir. Our next question comes from the line of Mike Hickey of The Benchmark Company. Please go ahead, Mike.

Speaker 8

Hey, Rich, Natasha, Jennifer. Great first quarter, guys. Congratulations. Thanks for squeezing us in, Rich. Appreciate that.

Speaker 8

Obviously, Rich, very unique environment here. We're all sort of operating through, and we definitely appreciate your confidence. Very nice to hear in terms of film product getting into China. I guess, do you think about the risk that Hollywood film studios could delay films until they're 100% confident that the films would be approved for distribution in China? Guess, are you seeing a mirroring in confidence, I guess, from the Hollywood studios, I'm trying to get some product again?

Speaker 8

And then the second question, Rich, do Chinese consumers view IMAX as an American brand? And if so, do you sort encounter or would you expect to encounter any pushback or brand sensitivity as a result? And obviously, realize you guys across the first quarter and have significant market share. But I'm just wondering as this sort of tariff turbulence continues, there could be some pushback on the brand or not? Thanks, guys.

Speaker 2

Mike, because we're buddies, I'm going to be exceptionally blunt, which is I think I answered the question about films getting into China Four different times. And maybe I wasn't clear. The Thunderbolts is opening in a week. There are five other films that have been submitted. We've been told by the studios that they've been told by the Chinese that the films have been getting in.

Speaker 2

And we've been told that by the Chinese. And we're talking to studios about the release patterns of those. So I'm not very concerned about that. Could there be small films that don't get in? There could be.

Speaker 2

But I don't think it's going to have a material impact on our business. Number two, historically, 5% of our profit comes from China. And this year, we've already had a first quarter that blew away any expectation we had from the year. So if China suffered from small films, it's of very little concern to me. And I don't know, operator, maybe I don't know how many more questions we could have so I could answer more about China.

Speaker 2

And the second part, Mike, was the consumer and the brand. So IMAX brand in China is remember, we have 800 theaters. It's like a local prestige brand. And in our brand surveys, people value it more in China than they do anywhere else in the world. And this is probably a minor point.

Speaker 2

But IMAX is a Canadian company, for those of you who don't know that. So I don't know what the Canadian backlash is in China. But Mike, next time you'll buy me a drink to apologize for too many micromanaging of the China questions.

Speaker 8

All right, Rich.

Speaker 2

Thanks for time. I'm not even being ambiguous or covering myself. I just couldn't be clearer about

Speaker 5

Thanks, Rich.

Operator

Thank you. I would now like to turn the conference back to Rich Gelfond for closing remarks. Sir?

Speaker 2

So thank you very much, operator, and thank you all for joining. I mean, the pivot time for IMAX is right now. I mean, we've talked about now for a pretty long time. We've got eight film IMAX movies in a row coming out. Two of them that we started with, Minecraft and Sinners, both beat our budget.

Speaker 2

Minecraft has, and Sinners is on a path to beat our budget. After that, we have mission, Train Your Dragon, Formula One, Superman, Fantastic Four. I mean, there's never been a period of time where that kind of lineup film for IMAX has existed in front of us. And this is it. We've talked about it for a long time.

Speaker 2

Now it's the time to happen. And it's all happening in the aftermath, where I have to say we partly got lucky in the first quarter. I mean, we had a Chinese film which beat our previous record by over three times, and we have that in the bank. So I just feel very good about our business and very confident about the course we're on. And now it's our turn to execute.

Speaker 2

We believe we will. And I thank you all for joining and for your questions.

Operator

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

Powered by Quartr
Earnings Conference Call
IMAX Q1 2025
00:00 / 00:00