IMAX - Earnings Call - Q2 2019

Transcript

Operator (participant)

Welcome to the IMAX second quarter 2019 earnings conference call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stephen Davidson, Head of Investor Relations. Please go ahead.

Stephen Davidson (Head of Investor Relations)

Thank you, Manish. Good day, and thank you for joining us on today's second quarter 2019 earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer, and Patrick McClymont, Chief Financial Officer. Megan Colligan, President of IMAX Entertainment, and Rob Lister, Chief Legal Officer, are also with us in the room 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. In addition, the full text of our second quarter release and the slide presentation accompanying today's call have been posted on the Investor Relations section of our website. At the conclusion of this call, our historical Excel model will be posted to the website as well. I would like to remind you of the following information regarding forward-looking statements.

Our comments and answers to your questions on this call, as well as the accompanying slide deck, may include statements that are forward-looking and that they pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. During today's call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. Discussion of the management's use of these measures and the definition of these measures, as well as reconciliations to adjusted net income, adjusted EPS, and adjusted EBITDA as defined by our credit facility, are contained in today's press release. With that, let me now turn the call over to Mr. Rich Gelfond. Rich.

Richard Gelfond (CEO)

Thanks, Steve, and good afternoon, everyone. Our second quarter results make it clear that our strategy of focusing on our core business by enhancing our end-to-end technology solution that drives the differentiated IMAX experience, more effectively marketing our brand, and improving the performance of our China business, continues to deliver, as illustrated on slide four of the earnings presentation. Our strong execution around our core business is reflected in the strength of key indicators we recorded this quarter, including a 7% increase in revenue, a 7% increase in IMAX Global box office to a quarterly record of $364.9 million, and a 5% increase year to date. Our commercial network has grown 10% to 1,445 commercial theaters, with an increasing presence outside of our primary markets, enhancing our geographic diversification.

Our impressive performance in China, where we recorded a 29% increase year-over-year in Greater China box office to $130 million, up 41% in rent and fee terms versus declines for the industry. This is the eighth consecutive quarter of year-over-year box office growth. Same-store sales growth of 9% in Greater China year to date, up 17% in rent and backend terms, and we have significant momentum heading into what we believe will be a very strong second half. Spider-Man and Lion King have both generated strong global box office results. Spider-Man was Sony's biggest opening weekend ever, the second biggest Sony IMAX result ever, and passed the billion-dollar mark this past weekend, behind Skyfall. Furthermore, it was the biggest Spider-Man IMAX box office ever in China and internationally, reflecting continued demand for powerful franchises like these.

And The Lion King is also now expected to cross the billion-dollar mark in just a few weeks after opening. As of this past Sunday, Spider-Man and The Lion King have generated $110 million in box office for IMAX, kicking off a strong start to the third quarter. And remember, $11 million in Spider-Man was captured in quarter two. These films will be followed by what we believe is a powerful slate of movies ahead, including Hobbs & Shaw, It Chapter Two, Joker, Terminator: Dark Fate, Frozen II, Jumanji: The Next Level, and Star Wars: Episode IX.

In summary, we believe that we are very well positioned for growth in the coming quarters and years ahead because of our unique position in the entertainment ecosystem, the superior end-to-end solution, which we leverage to event-sized content and create the IMAX experience we offer to consumers and partners, the significant growth opportunities to event-sized alternative content, our China businesses delivering significantly improved performance, our expanding global network, and of course, our dedicated employees all around the world who make all this happen. These are the key attributes of our model and drivers of growth, so let me update you on where we stand with each. First, let's talk about our unique position in the ecosystem, as illustrated on slide five. IMAX's powerful position in the entertainment industry is driven by our ability to deliver unique value throughout the ecosystem to consumers, studios, filmmakers, exhibitors, and more recently, streaming services.

Consumers continue to show increasing demand for the IMAX experience as they seek out big, communal experiences and opportunities to share in cultural moments, which I will discuss in more detail later. Those opportunities to come together are often blockbuster films, and Avengers, now the highest-grossing film of all time, is a perfect example of consumers seeing IMAX as the go-to place for event films. For studios, we are a first-choice partner. We are the mark of a must-see film, and studios rely on us to event-size their releases. Consolidation among content providers will only fuel this trend as the focus on franchise tentpoles and IP intensifies, benefiting the IMAX model. Remember, our core market is not the overall box office.

Our core market is the market for blockbusters, which is approximately 65% of the market in the U.S., up from 54% in 2010, and we expect this market to continue to grow based on how Hollywood is structured. With filmmakers, our deep creative relationships fuel our business with an increasing number of the world's best filmmakers choosing IMAX cameras to bring their creative visions to life. From Anthony and Joe Russo with the most recent Avengers to Christopher Nolan, who is currently filming his hotly anticipated epic Tenet entirely with IMAX cameras. Next year's James Bond and Wonder Woman are currently shooting with IMAX film cameras. Our consistent, unique value proposition is reflected in the higher indexing on films shot with IMAX DNA, so we're very pleased our cameras are being used in many of the biggest releases scheduled for 2020.

Top Gun: Maverick is also slated for 2020 and expected to be filmed using IMAX-certified digital cameras. Marvel recently announced that they will be releasing Black Widow and Eternals in 2020, and we'll also have the carryover benefit of Star Wars into the first few months of 2020. Exhibitors recognize the value we add, which translates into healthy ticket premiums they charge. The premium is supported by our ability to punch far above our weight class. With Avengers in China, for instance, IMAX theaters were only 1% of the available screens, but we delivered 13% of the overall box office. We're also experimenting with alternative content through our exhibitor partners to increase theater utilization, particularly at off-peak and non-blockbuster periods. For example, we recently partnered with Netflix to debut Anima by director Paul Thomas Anderson and Radiohead frontman Thom Yorke.

We also collaborated with Live from the Artists Den to screen a theatrical experience capturing Soundgarden's famed 2013 performance at the Wiltern in Los Angeles, and we recently announced that visionary filmmaker Spike Jonze as our first-ever Artist-in-Residence for IMAX Entertainment, a role in which he'll help us identify and shape new experiences across our network. We are continuing to explore different avenues, but we see these events as a clear indicator of the potential from alternative content and the increasing demand for out-of-home film experiences that meet our customers' increasing desire to enjoy communal experiences at IMAX. Finally, we believe the emergence of streaming services will ultimately reinforce the importance of theaters as premium spaces for big communal experiences, where people can enjoy content engineered for the IMAX screen.

Continuing on slide five, let's turn to how we leverage technology to create the IMAX experience we offer consumers and partners. Our end-to-end technology solution empowers creators and drives the commercial prospects for their work. As previously mentioned, we are seeing growing demand from filmmakers to use IMAX cameras. To meet this growing demand from the creative community, we are developing a new initiative to enable even more filmmakers to shoot IMAX-expanded aspect ratio scenes in conjunction with our proprietary post-production technology, and to support our drive for more IMAX DNA in films, we are continuing to build on our award-winning Films to the Fullest brand campaign we launched last year. The response from studios, exhibitors, and fans around the world to the IMAX campaign and design system has been fantastic.

We are developing even more custom campaigns with our partners that further differentiate the IMAX brand to a broader moviegoing audience and extend our leadership position in the market. On slide six, as referenced earlier, we're seeing increased demand for out-of-home experiences that meet our customers' increasing desire to enjoy communal experiences in IMAX. A proof point for this trend is the fact that the experience economy is expanding, with global spending on experience set to rise to $18 trillion-$8 trillion by 2030. Four out of five millennials say attending live events makes them feel more connected to other people, the community, and the world, and three out of four millennials would rather spend money on a desirable experience rather than a tangible thing. This is why we believe our consumers are seeking out big communal experiences and opportunities to share in cultural moments.

Next, I would like to update you on our China business on slide seven, where we have seen significantly increased performance. The strategic actions we took in 2017 are continuing to pay off, as you can see on this slide. We are very pleased with the record performance in China, where we are the premium offering and the destination for blockbusters, which have grown to 54% of the market for 2018, up from just 32% of the market in 2016. China opening weekend indexing is averaging 12% year to date on Hollywood films, up from 10% in 2018 and from 9% in 2017. Our integration into the Chinese entertainment ecosystem has only been enhanced by our strategic relationship with Maoyan, China's largest internet-based entertainment platform. Now, Maoyan has deepened their strategic alliance with Tencent, one of the three internet giants in China.

We expect that this alliance will only further enhance our growth in the entertainment industry in China. Ne Zha, our first local-language animated film based on the iconic Chinese legend, generated $8 million during its opening weekend this past weekend, setting a new IMAX record for the best opening weekend of all animated films released in China, surpassing Despicable Me 3. We indexed at approximately 8%, surpassing previous animated films, and we view this as another proof point in our further penetration of the local market. Our goal has been to achieve a leadership position in China while maximizing revenue and doing it in the most capital-efficient way. Based on the trailing 12 months, the ROIC on JV screens in China was in excess of 20%.

Most companies will be happy to print this level of returns all day long for investors, which is why the long-term story for China is so compelling. Lastly, with regard to trade issues with China, we believe that the Chinese government has no desire to hurt foot traffic to malls where Chinese IMAX theaters are primarily located, so we are optimistic that there will not be an impact on Hollywood content at this time. In fact, Hollywood content has been receiving more optimal release dates, as shown by the release of Avengers, Spider-Man, and Lion King in China before other worldwide territories. The core of our multi-year growth story is our expanding global network, as shown on slide eight.

We had a number of significant signings in the last month, including a 40-theater deal with CGV in China and a 15-theater deal with Cineworld for regional locations throughout the United States. Our deal with CGV is our largest deal in China since 2017, and as a reminder, CGV is our third-largest exhibitor partner globally by number of systems and our second-largest client in China. We have structured these deals to ensure we are driving profitable growth for the company. The CGV deal, for example, is primarily focused on tier one and tier two markets under a joint venture revenue-sharing model, and tier three to five markets are under a hybrid model requiring no capital commitment from IMAX, which significantly de-risked the theaters in those markets.

Lastly, the deal is a significant endorsement of IMAX with Laser in China, which we believe will spur other players in China to upgrade to Laser and should help the box office as well. The Cineworld deal will significantly grow our footprint of IMAX with Laser systems in the most successful Regal theaters in the United States. The demand for IMAX systems by exhibitors outside of our primary markets represented 20% of our commercial network growth year-over-year, reflecting our ongoing geographic diversification. We also signed several deals in Japan and the Middle East, both attractive markets with strong growth prospects. Furthermore, we are very pleased that exhibitors are voting with their wallets and installing IMAX with Laser, as was the case with 14 installations this quarter. On slide nine, we highlight the cost discipline that we have exercised since we initiated our restructuring program two years ago.

We've been able to achieve a reduction in operating expenses of 8% since then, while investing in information technology systems and marketing to build our brand, differentiate the IMAX experience, and drive box office growth, all the while growing our commercial network 25% to 1,445 commercial theaters. Lastly, on slide ten, we highlight the key attributes of our business, which will drive our future growth, and we look forward to updating you on our progress in each area. The momentum that we established last year has continued to build, and we delivered a very solid first half of the year. We are moving strength from strength to strength with a strong slate of films for the remainder of the summer and the rest of the year.

The slate for 2020 is still developing, but based on the movies expected, we believe it will be a solid slate with at least three films shot with IMAX cameras. We are driving a greater demand for the IMAX experience throughout the entertainment ecosystem with a powerful technology and brand that are uniquely positioned to deliver value for creators and consumers, studios, and distributors. We are a global company, and we believe that the trends that we are seeing in the industry as it transforms are tailwinds for us. We believe that the foundation has been set for continued strong financial performance reflected in our improving revenue generation, margin profile, and return metrics. With that, I'd like to now pass the call to Patrick for a review of our financial results. Patrick.

Patrick McClymont (CFO)

Thank you, Rich, and good afternoon, everyone.

I'm pleased to share our second quarter and first half results with you today, which continue to reflect the benefit of the strategic actions taken over the last two years, designed to unlock the earnings power of the franchise. For today, I'll begin with comments on, first, our IMAX global box office and the positive momentum moving into our expectations of a strong back half of the year. Second, our continued network expansion with increasing growth outside of our primary markets. Third, our financial results for the quarter and our strong balance sheet. And finally, I'll close with guidance for the full year of 2019. Before I begin, as part of our ongoing drive to increase transparency and provide incremental insights into the power of our model, we expanded disclosures in our earnings call deck. We welcome your feedback on this new approach.

With that, let's start with our IMAX global box office, detailed on slide 12 of our earnings presentation. In the quarter, we delivered $365 million in IMAX global box office, $22 million, or 7% above a strong film slate in 2Q last year. Avengers generated $208 million of the $365 million in the quarter. Year-to-date second quarter, IMAX global box office of $621 million is 5% above the prior year. Box office growth continues into July, kicked off by the strong performance of Spider-Man and Lion King. Now let's turn to our network expansion, detailed on slide 13. We exited second quarter 2019 with backlog of 612 systems, reflecting our ability to replenish our systems pipeline with new signings after a robust year of installs. We average approximately 140-150 new installations annually, a pace that provides excellent visibility into our revenue from installations over the next few years.

Drilling into the second quarter, our sales team delivered 73 signings, including 19 upgrades. We installed 27 new IMAX systems in the second quarter and upgraded eight systems. New installs consisted of nine sales types, 13 JVs, and five hybrids. Now let's turn to our financial results on slide 14. Total revenue in the second quarter is $105 million, an increase of $6 million, or 7% compared to the prior year, driven principally by strong top-line growth in our network and theater businesses, as well as higher revenue in the other category, partially offset by lower new business revenue. We generated $60 million of gross profit, a decrease of $1 million, which resulted in a gross margin of 57%, down from 61% in the prior year period. I will address the slight decline in gross profit in a moment as I review segment performance.

Operating expenses, which we define as SG&A, excluding stock compensation, plus R&D, were $27 million versus $30 million last year, a decrease of $3 million, or 11%, driven principally by lower R&D expense. Net income attributable to common shareholders for the quarter was $11 million, or $0.19 per share, compared to $8 million, or $0.12 per share, while adjusted net income was $20 million, or $0.32 per share, up slightly from prior year levels. Adjusted EBITDA for the quarter came in at $41 million, up 5% compared to the prior year, producing adjusted EBITDA margins of 44% compared to 43% in the prior year. Now drilling into our segment performance.

In our network business, revenue growth of 6% was driven by a 7% increase in box office, including a 29% increase in China, a 10% increase in our commercial network, and an additional five new films released this quarter. This growth was mostly offset by higher cost of revenues, principally due to higher contractual partner marketing costs driven by the strong performance of Avengers and the increase in the number of films released. We believe that the higher contractual marketing costs relative to the incremental revenue generated by the success of Avengers and the deepening of our relationships with our studio clients are dollars well spent. Revenue growth of 13% in our theater business resulted from the benefit of three additional hybrids in the current quarter, as well as an ST upgrade to IMAX with Laser, and higher maintenance revenue on an expanded global network.

Cost of revenues in the theater business increased due to the mix of systems installed in the quarter compared to last year, as well as higher engineering support costs to ensure the successful rollout of IMAX with Laser. Average revenue per new theater system was $1.3 million compared to $1.2 million in Q2 of 2018. New business margin decreased year-over-year due to 2018, including the receipt of a one-time payment of $2.6 million related to our discontinued virtual reality initiative. Now let's turn to capital and liquidity on slide 15. We ended the quarter with $106 million in cash, of which $65 million is in the PRC. In terms of capital in China, we received approximately $5 million in cash dividends from China for the six months ended June 30, 2019.

IMAX China repurchased seven million shares year-to-date for a total of $17 million, which increases our share of earnings. We are always examining ways to enhance capital efficiency between Corp and IMAX China. We have $25 million in debt outstanding from our revolver compared to $60 million at the end of the first quarter, so we have total available liquidity of $382 million, providing financial flexibility. In the quarter, we opportunistically repurchased 88,000 shares at an average price of $19.45 for a total of approximately $2 million spent. $81 million of capacity remains on the outstanding repurchase authorization. Lastly, on slide 16, we have our full year guidance for 2019. At the box office, we are off to a fast start to the second half of the year, and through yesterday, our July performance is up approximately 50% versus last year.

For the third quarter, we expect 13 sales-type installations, four hybrids, and 13 JVs. Our annualized first half operating expenses are a little light relative to our full year guidance, primarily related to the timing of various marketing initiatives moving to the back half of the year. We expect these costs to be evenly split between the third and fourth quarter. In summary, we are pleased with our results for the quarter and encouraged by the momentum moving into our expectations for a strong second half of 2019. The investments we have made in our global brand, our end-to-end technology solution, our positioning within the ecosystem of the entertainment industry, and our network are all beginning to pay dividends, and we believe that they have set the foundation for strong growth in the quarters and years ahead. I would now like to open the call for questions and answers.

Operator (participant)

Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Thank you. And we actually do have our first question from Eric Handler of MKM Partners. Please go ahead, sir.

Eric Handler (Analyst)

Thank you very much. Patrick, a couple of questions for you. So you've done a great job of keeping operating expenses flat this year. They've been down the last couple of years. As we look out over the next two, three years, how well do you think, or to what degree will these costs start rising, or can you keep them flat, or maybe even is there still some more cost cutting to go that could have them go lower?

Patrick McClymont (CFO)

Thanks for the question, Eric. I think the good news is the work that we did in 2017 took hold, and we were able to change the approach and change a little bit of the culture, and that's what's allowed us to hold expenses flat over the last couple of years. The way that we've done is a combination of looking at existing expenses and working them down, and then also reallocation of resources. So we've talked a lot about the fact that we have increased spending meaningfully in marketing.

We've funded that by making sure that we're disciplined in other parts of the business, and also the recognition that we spent the money we needed to on commercial laser, and so we were able to downsize our R&D efforts for a period of time. On a go-forward basis, we'll have the same approach. Our goal is to manage the expenses tightly. There's, of course, cost creep in different parts of the business, but what we do is we look for ways to offset that with efficiencies and savings. So we'll have more clarity at the end of the year once we've been through the budget process, but our approach is to try to keep those expenses under as much control as possible.

Eric Handler (Analyst)

Great. And then just as a follow-up, with more hybrids in the mix, seemingly then JVs, at least on a long-term basis, should there be any meaningful impact on your overall CapEx, meaning the core CapEx plus your own JV investments? How should that be trending over the next few years?

Patrick McClymont (CFO)

Well, we talked about the fact that we're installing something like 140, 150 new systems per year. We're now deep into the upgrade cycle with commercial laser, and some of those deals do come with capital investment. And so I don't expect there'll be a big change in terms of growth of the network CapEx for the next couple of years. Over time, as some of the hybrids that are going into backlog now start to come out of backlog, it'll start to switch over, and we'll see a little bit less CapEx. But when I think about the next couple of years, I think the pace that we've been at is the right way to think about it.

Eric Handler (Analyst)

Okay. And then one last quick one for Rich. Rich, I wonder if you could talk a little bit about, in China, the current environment for locally produced films. Are we starting to see increased production, or is there still some fears about government and tax evasion and some of those issues that have been going on?

Richard Gelfond (CEO)

I've been told, Eric, that those issues are behind the industry there, and I think you'll see that normalize over the next couple of months. And in fact, I think this month we have three or four locally produced films playing in China. So I think that period has passed, and again, hopefully this recent weekend's movie, which opened, and you look at the box office, hopefully a lot of that pent-up demand will be met for the remainder of the year.

Eric Handler (Analyst)

Thank you very much.

Operator (participant)

Thank you. We have our next question from Eric Wold. Please go ahead.

Eric Wold (Analyst)

Thanks. Good afternoon. A couple of questions. I guess one, kind of thinking about China, you kind of think about the terms of the 40-theater deal you did with CGV a couple of weeks ago, and kind of following on Eric's question, obviously a clear trend towards more hybrids, especially looking at those tier three, four, and five cities in China. As that becomes more the trend and the box office generated by those systems is essentially gravy since there's no capital at risk, does that make PSAs kind of less meaningful in that region other than following trend? How should we think about kind of ROI coming out of that shift in strategy?

Richard Gelfond (CEO)

Yeah, absolutely. Eric, we've been saying the last couple of years that PSAs are less meaningful. And remember, you not only get the royalty from CGV or whoever did the hybrid deal, but you also get paid on the other side by the studios. So it's not only kind of gravy, as you put it, because there's no capital investment, but you get a return on that no capital. So when you look at ROI on an overall enterprise basis, it should go up as that percentage goes up.

Eric Wold (Analyst)

I noticed that you reported change in sales year-to-date for China. Should we expect kind of going forward to change in sales for the three main regions to kind of give a better sense of how those trends are going?

Richard Gelfond (CEO)

You know, Eric, predicting movies into the future, and you know this better than anyone because you've been around a long time, is a dangerous business. In China, the reason we pulled it out is because, as you know, same-store sales have been under pressure there for a long time. And I think the turnaround in that for us was more an indicator that the China situation had really changed. Related to your last question, I think we analyze these deals based on return on invested capital rather than same-store sales. But I personally think of all the statistics we had in China about a turnaround that might have been the most significant one.

Eric Wold (Analyst)

Okay. And then with Regal now kind of officially launching its subscription service and confirming kind of the terms of it, with the main difference related to IMAX being Regal will charge an upcharge for IMAX, where AMC did not. From the data you've seen so far, how do you think about consumer behavior under both scenarios? Does someone view the IMAX upcharge as somewhat immaterial given that the base ticket is now covered by the subscription, or do they view it as elevated, something high, given that otherwise the ticket would be free? Why pay for something on top of it?

Richard Gelfond (CEO)

The good news is there's a lot of experience in Europe, and a number of chains, including Odeon, and Cineworld, and Pathé, some of them have been doing this for more than a decade. And it seems to be a positive, and it does not seem to be an impediment. As a matter of fact, in some of my discussions with some of the European operators, they think people already have a sunk cost in the subscription plan, and it's only a small premium. So they go to it. And the same thing seems to have been holding true. This is subject to similar to Cineworld's plan, which runs very much the same way. So I really don't think it'll be an impediment.

And of course, in the long run, the question is not only what creates better attendance for us, but what creates a better return on investment for the exhibitors. And I think they've been very happy with what they've done in Europe for a long time, so we think it's a solid plan.

Eric Wold (Analyst)

Perfect. And just a quick one for Patrick. How many films were included in DMR cost in the quarter?

Patrick McClymont (CFO)

It is, I want to say 15, but hold on one sec. Yes, 15.

Eric Wold (Analyst)

Perfect. Thank you, guys.

Patrick McClymont (CFO)

Thanks, Eric.

Operator (participant)

Thank you. Ladies and gentlemen, if you find that your question has been answered, you can always remove yourself from the queue by pressing star two. And as a reminder, it is star one to ask a question. Our next question comes from Steven Frankel. Please go ahead.

Steven Frankel (Analyst)

Good afternoon. Rich, I wonder if you might give us some insight into what's happening with your ticket prices in China on a year-over-year basis.

Richard Gelfond (CEO)

So I don't have it on a year-over-year basis broken out, but anecdotally, I do know that for the major blockbuster films, it's been higher. And in fact, one of the surprising results of some of the movies like Avengers is that it was almost two times higher and without a significant drop-off in attendance. So it seems somewhat inelastic, which has been really good. I think for a premier experience, they're really willing to pay up. And I think that's partly contributed from the jump in indexing, where we said in 2016 it was like 8%, and this year it's like around 12%, which is a 50% increase in indexing. And I think price has played a part on it.

I'm quite sure that's accurate, but I don't have it broken down specifically for the years, Steve.

Steven Frankel (Analyst)

But with the overall box office in China not growing, that might not necessarily the same price dynamic might not be happening in standard tickets or other non-blockbuster films. Is that what's been happening?

Richard Gelfond (CEO)

Yeah, that's possible. Yeah, I think that's part of it. I think, again, back to a lot of the theme of this call, people are willing to pay a premium for something that's been treated by the IMAX technology and end-to-end solution and the event-sized experience. And that's certainly playing out in China. That's part of the dynamic, and there's no question that the same kind of inelasticity that we're seeing is not a trend across all markets. I mean, we're in a different business than they are. We're in the blockbuster business. We use technology, top-tier things. We're a place for a social experience. We're a status brand. I mean, there's all kinds of things. So I think all of those things have contributed to consumers willing to spend more.

Steven Frankel (Analyst)

Okay. And building on this discussion of hybrids from earlier, if you look to expand further into markets like India and Japan, do you now think about tweaking the model for hybrid-first rather than JV?

Richard Gelfond (CEO)

Well, Japan, I would say definitely not, because the performance of the theaters in Japan is extraordinary. As a matter of fact, we just opened one about a week or two ago, and its first day, it did $53,000. And its first weekend, it did $150,000. So if they wanted to joint venture a theater like that, we'd be open to that all the time. And in fact, the performance of the Japan theaters is among the best in the world. In terms of a place like India, again, it depends on the markets and the locations. If it's comparable to a first-tier city in India, we've been doing very well. Our performance is very strong. We'd be happy to JV it. If it's more in an unproven market, I think a hybrid would be more attractive. So I think the principle is the same, that it depends on the risk-reward curve and which model is better for us.

Steven Frankel (Analyst)

Okay. Thank you.

Richard Gelfond (CEO)

Thanks.

Operator (participant)

Thank you. Our next question comes from Alexia Quadrani. Please go ahead.

Alexia Quadrani (Analyst)

Thank you very much. Just on the IMAX laser product, where it's been rolled out, have you done any sort of fan or consumer research or surveys into the general reaction or the affinity for the IMAX brand that comes with that format? I'm just curious if you have any feedback on that. And then just to follow up on your, I think you touched upon your talks with the streaming service providers using IMAX as part of the exhibition runs. Are you still planning on any comment on that, any further color on that? And are you still planning on sort of screening, I believe, the Amazon film, even though they have, I think, a new release date and possibly shorter theatrical window?

Richard Gelfond (CEO)

So we haven't done scientifically valid surveys on the places we put laser in because it's very early. But we've done exit surveys, and the consumer reactions have been very positive. On your second question about the Amazon film, for those who aren't aware, Amazon has decided to release it on streaming only two weeks after a limited theatrical release. And as we've always said, when a streamer comports with the windowing, we're very interested. But when it doesn't, we're not part of it. So we don't expect to be part of that release.

Alexia Quadrani (Analyst)

All right. Thank you very much.

Richard Gelfond (CEO)

Thanks, Alexia.

Operator (participant)

Thank you. Our next question comes from Chad Beynon. Please go ahead.

Hi. Afternoon. Thanks for taking my question. Rich, you mentioned that in 2020, there will be three films with IMAX DNA. And given the studios and your financial success with these films, how are you thinking about the runtime for these? Is a second week of an IMAX DNA-filmed film still higher PSA than kind of an average one? Thanks.

Richard Gelfond (CEO)

So as I said, there are at least three next year: Bond, Wonder Woman 2, and Tenet, Chris Nolan's movie. Although I think with our new camera program, which I talked a little bit about, which is certifying digital cameras, there's likely to be more film with IMAX cameras.

Megan and the film team have been meeting with all the different studios and going through the benefits of using IMAX DNA and trying to sell it as a whole package. With that package, if someone commits to use the cameras, generally comes a longer running time. Because we index better when the cameras are used, we want to incentivize the filmmakers and studios to do that. One of the incentives is longer playing time. It's still whether it's two weeks or three weeks, depends on the movie, time of year, what else is out there, the economic projections that we put together. I think you should assume it'll be more than a week, but it's going to be situational dependent on how much more.

Okay. Thanks. And then Patrick, on capital allocation, I believe you've talked about your first priority always being investing in the business and new units. You did repurchase $1.5 million or $2 million worth of stock in the quarter, but there's still a lot left on that plan. How should we think about kind of where you are in terms of cash that's earmarked for other items in the back half of 2019 and maybe beyond, or maybe getting a little bit more aggressive with repurchasing stock at these valuation levels? Thanks.

Patrick McClymont (CFO)

Hey, Chad. There's really no change in how we think about this. As you said, the first priority is making sure that we're investing to drive profitable growth in the network where we see opportunities, and we'll continue to do that.

Alongside that, we're investing in making changes to the business, whether it's on the IT side, to make sure that we're evolving and getting to the best possible cost structure. We always want to have liquidity available to the extent some project pops up that we need to take a look at. And then after that, when we conclude that we have excess cash and we see an opportunity in terms of the stock price, then that's when we're opportunistic and step into the market. And so you've seen that approach from us in the past, and that's what you'll continue to see.

Okay. Thank you very much. Nice quarter.

Richard Gelfond (CEO)

Thanks.

Patrick McClymont (CFO)

Thanks.

Operator (participant)

Thank you. Our next question comes from Jim Goss. Please go ahead.

JAMES C. GOSS (Analyst)

Thanks. Aside from the CGV deal and the Cineworld/Regal deal, a lot of the incremental theaters have been fairly scattered among various markets. I'm wondering, Rich, if you're intending to intensify concentration in any particular markets. You've talked about Japan, Latin America, India in the past. And if so, how would you drive that sort of approach?

Richard Gelfond (CEO)

We actually do, Jim, intend to concentrate more on specific markets. So as a policy, we've decided not to break out a lot of single-theater signings. But this year, if my recollection is right, we signed 11 theaters in Japan, which is the largest number we've done in any one year. And that's an example of a market we're targeting because the performance is so strong. Other ones that we're going to spend more time on include the Middle East. It includes India, where the theaters are performing extremely well. Some countries in Europe, like Germany, for example, which is doing extremely well. Korea is a market that has very strong performance that we're focusing on.

There might be some others, Jim, but what we're doing is allocating a little more resource to those places.

JAMES C. GOSS (Analyst)

Okay. One other thing. We've talked over the years about the screen-splitting notion in the U.S., in particular. I know it's been a little easier to do in some of the international markets. I'm wondering with Disney's addition of Fox, which might give it more of a mix of some actual, like live-action movies, in addition to the animated and the Marvel sort of features, if there is any greater opportunity to do screen-splitting with Disney, not being offended that you would move to another studio because they can have a lot of it all within the same studio, if that can maybe break out this notion a little bit more in the U.S.?

Richard Gelfond (CEO)

Jim, I don't completely follow the question. But in general, if it's the same studio, they're more open to screen-splitting. So if Disney or Warner has back-to-back films and you've committed two weeks to one and one week to the other, I think they're more open to sharing that middle week, let's say, because it's the same studio. And we've done that with a number of studios. But I think the idea of sharing with another studio is more difficult, particularly, as you said in your question, in North America. That's more common practice internationally.

JAMES C. GOSS (Analyst)

Okay. No, I guess I was just thinking with Disney having a broader palette now with Fox, in addition to all the other things, if it gave them more of an opportunity to have that sort of thing take place. But it would seem like it's easier to do it within a studio rather than with another studio involved. All right.

Richard Gelfond (CEO)

Thank you. It is. Thank you.

Operator (participant)

Oh, thank you. Our next question comes from Vasily Karasyov. Please go ahead.

Thank you. Good afternoon. I think my question is both for Rich and Patrick. So looking back at the first half of the year, the box office worked, and we see that it's driven by China. And then, Rich, in your prepared remarks, you said that China in local currency is not growing. And I think in dollars, it's barely growing. So your growth is driven by very significant market share gains. And my math is showing that you haven't had this share of the total box office since 2015.

So if we take that and then look at 2020, for you to continue growing, so you either need to see the Chinese market to return to growth or continue these market share gains and grow beyond any historical level. So I wonder how you guys think about that. And I'm not asking for guidance for 2020, but just puts and takes what kind of trends you see building that can carry into the next year.

Richard Gelfond (CEO)

I mean, if you look at our indexing, which went from 8% in 2016 to over 12% this year on a fairly consistent basis. And it's not even from more we do have more screens, but it's still 1% of the screens. So it's been very significant. And you look at price increases, which we talked about recently, I think there are lots of ways you can grow. You can grow on price.

You can grow on market share. As you know, we went to a different programming strategy in the last couple of years where we programmed multiple Chinese films at the same time. There's 2D, 3D strategies. So I think there's a lot of ways you could sustain your growth without necessarily having to predict the external box office. The other thing I would add, that one thing that's pretty special about this year is, as you know, and someone asked, the number of local films in the first half of this year was down, and it's going to return to normalcy. So I think there's a lot of ways that we can do better. Do you want to add anything?

Patrick McClymont (CFO)

Well, I was just going to amplify on the local films. What you see is we're doing much better in terms of our indexing, our market share on local language films. And we think that that's a result of our film selection strategy that gives us optionality and also much better marketing. And so as local films rebound, and they will second half of this year and into next year, we'll continue to focus on that, make sure we keep that market share, and we can grow with a growing local market.

Richard Gelfond (CEO)

Yeah. And I'd also add to that that the Chinese box office overall is approaching the U.S. box office. So there's going to be more production. You look at some of the experience this year, Wandering Earth, their first sci-fi film. And I understand there's another sci-fi film that's going to be released soon. So there's different genres, more genres that play to the IMAX consumer happening. So there's just a lot of opportunity.

JAMES C. GOSS (Analyst)

Thank you very much.

Patrick McClymont (CFO)

Thanks, Vasily. Operators, another question?

Operator (participant)

There are no further questions at this time. I'd just like to remind anyone if they'd like to ask a question, it is star one. Does not appear we have any further questions at this time. I would like to hand the conference back over to Mr. Gelfond for any additional or closing remarks. Thank you.

Richard Gelfond (CEO)

Thanks. As you can see from our results, we're firing on all cylinders, and that has translated into solid second quarter and first half results. The environment in which we operate is transforming, but we believe that all the trends emerging from various disruptive forces, from seeking to work with streamers with more content to eventize their offerings to consolidation among content generators, there are a lot of tailwinds for our business.

The human need for communal experiences where people can connect with others is not going away, and I would argue with all the offerings in the home is intensifying. Lastly, as you can see on slide 17, the key drivers of our business model are the expansion of our valuable network, growth in box office, and disciplined cost management, which we believe will drive significant shareholder valuation over the long run. Thank you so much for your time and interest, and we look forward to updating you again next quarter on our progress. Good evening.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.