IMAX - Q2 2023

Transcript

Operator (participant)

Thank you for standing by, and welcome to IMAX Corporation's Q2 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. To ask a question during the session, you will need to press star one on your telephone. I would now like to hand the call over to Jennifer Horsley, Head of Investor Relations. Please go ahead.

Jennifer Horsley (SVP, Investor Relations)

Good afternoon, thank you for joining us on IMAX's Q2 2023 Earnings Conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer, and Natasha Fernandes, our Chief Financial Officer. Robert 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. 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. 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. Richard Gelfond.

Richard Gelfond (CEO)

Thanks, Jennifer, 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 million opening for Oppenheimer, delivering a staggering 20% of the film's global debut on only 740 screens. 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 a China film. We scored 20% of the debut of Mission: Impossible 7 in Japan on just 48 screens.

All this combined to lift IMAX to a $46.4 million weekend, the fourth best in the history of IMAX. There is real heat around our brand and technology in the marketplace right now, 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 million 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 2022. We maintained our record-breaking share of the global box office from 2022, even as more non-IMAX and mid- and low-budget films returned to the theatrical market.

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. 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 in moviegoing that IMAX created is no longer just a post-COVID trend. It's the new normal, the way forward. IMAX is a strong global brand at 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 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 local language. Then I'll turn it over to Natasha to take you through our financial results in detail before opening it up to questions.

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 Julys 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 million or more. The Q2 also saw IMAX continue to expand its impact in animation. We reached our number one and two biggest animated movies of all time with The Super Mario Bros. 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 One and Oppenheimer, and the competition for our screens in the broader summer marketplace. 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. It 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 A.M. 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 million globally for IMAX to date.

The back half of the year has strong titles as well, including Filmed for IMAX releases Dune: Part Two 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 re-release date shifting due to the labor strikes, we believe nearly all our second half slate has wrapped shooting. Given our surging indexing, we believe studios will be reluctant to move films on our slate and potentially sacrifice a already agreed to IMAX window. 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. We now expect to program more than 40 local language films worldwide in 2023, up from the 30-40 we initially projected.

We've had several solid wins in local language in recent months. IMAX delivered more than $10 million 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 $8.6 million this weekend with Creation of the Gods One: Kingdom of Storms, 16.6% indexing and our biggest summer debut ever for a Chinese film. 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.

To date, IMAX has delivered more than $2.8 million with the film. We expect it will 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. We see potential for Oppenheimer to drive further growth, as we've seen with films like Avatar Two, 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, Cinépolis, which in May, signed a deal to double its IMAX footprint. We also more than doubled installations in Q2 over Q1 of 2023, with 20 in the period.

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 built a robust business in China over decades, yielding hundreds of millions of dollars in revenue. 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% 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.

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. As China emerges further from COVID and moviegoing recovers, we believe there's 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 to 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 SSIMWAVE, 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. 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 is 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 in a time when global markets and local content are the most promising drivers of future growth.

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. We are confident in our ability to build on our momentum, deliver a strong second half to 2023, and drive further global growth across the IMAX network. Thank you, and with that, I'll turn it over to Natasha.

Natasha Fernandes (CFO)

Thanks, Rich. 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. 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 $268 million, revenue growth of 32% over the prior year, Adjusted EPS of $0.26, up from $0.07 in the prior year period. Adjusted EBITDA attributable of $33 million, or 35% 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.

This, in turn, is driving greater demand by exhibition customers for IMAX systems, creating a positive growth dynamic. 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 One, 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 million 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 Ten.

Add to that, a China box office that was fueled by a mix of local language and Hollywood titles. The performance in Greater China led to IMAX box office market share in Q2 of 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 million, up 32% from $74 million in Q2 2022. At a 59% growth margin, we recognized gross profit of $58 million, 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 million comprised 32% of total revenue and grew 6% year-over-year, driven by IMAX box office growth.

Gross profit of $20 million, or 64% 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 million comprised 65% of total revenue and grew 49% year-over-year. For this segment, gross profit of $36 million 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 seven which were joint revenue-sharing leases. Of the installations, 14 were in international markets, reflecting the strong momentum we are seeing in those geographies.

Signings momentum also continues, with 46 coming in Q2, which is more than three 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. 25% were in U.S. and Canada, and 13% in Europe. Nearly half were in Japan and Southeast Asia, including the seven AEON signings from January, which are all installed and off to a strong start. 3 signings were in China, all of which signed within the last month, and the vast majority were in high PSA countries. Turning to operating expenses, we are investing for long-term growth and to exploit our differentiation and strong brand.

R&D expense of $2.8 million increased $1.4 million, reflecting our investments in new technology, including streaming optimization software for SSIMWAVE. SG&A, excluding stock-based compensation of $32 million, increased $2.6 million from Q2 2022, driven by the inclusion of SSIMWAVE expenses, which were not in the prior year, given the acquisition closed at the end of Q3 2022. As a percentage of revenue, SG&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 $32.8 million, a growth of 29% over prior year of $25.4 million. The growth across our segments highlighted earlier and the strong incrementality and operating leverage in our business model drove this excellent result.

From a margin perspective, Adjusted EBITDA attributable to IMAX was in the mid-30s at 35.4%, 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 six months was $25.9 million, representing significant growth of $31 million from the use of cash of $5.3 million in the first half of 2022. 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 million in China. For context, on a consolidated basis, operating cash flow for the entire year of 2022 was $17 million.

Our capital position remains strong as we ended the quarter with $95 million in cash and $262 million of debt, excluding deferred financing costs. Of the $262 million of debt, $230 million reflects our convertible senior notes due in 2026 that bear an interest rate of 0.5% per annum, with a capped call taking us to $37 per share. As of June 30th, our available liquidity was $420 million, including cash and cash equivalents of $95 million and $325 million in available borrowing capacity under the company's various revolving facilities. During the quarter, our board approved a three-year extension to our share repurchase program through June 2026. As of the end of Q2, there was $191 million remaining available under our share repurchase authorization.

Our strong liquidity position gives us ample resources to fund the $124 million to acquire full ownership of IMAX China, as announced on July 12th. 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. 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. Second, the success we are having in programming a diverse array of content across our platform, which is supercharging our signings momentum and installations. Third, the emerging potential of our SSIMWAVE 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&A.

Operator (participant)

As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Eric Handler of Roth MKM.

Eric Handler (Managing Director and Senior Research Analyst)

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, you know, a good movie would do like, a local language movie in China would do, like 3% to 5%, maybe 6%. You seem to be consistently getting better from that, and obviously 16% from Creation of Gods, way above average. Is there anything that, you know, you can point to in China, or 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?

Richard Gelfond (CEO)

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 in IMAX. 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. I think once we started that, people got used to it. IMAX wasn't a place that was associated with Hollywood films, it was a place associated with films of all types.

You're right, I don't have the data in front of me, but my memory, and just to be clear, I could be off by a little, 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. That's part of a global trend. I mean, one of the points we're trying to make on the call is this, been this paradigm shift where IMAX was kind of ancillary to the movie. I think what you're seeing now is IMAX is the future of cinema or, like, primary to the movie.

I think what it reflects is, during the pandemic, people kind of got tired of sitting on their couches and especially in China, where it's smaller apartments and, you know, less room. I think they've decided when they go out, they want something really special to go out to. As you said, the market share for this weekend's film was kind of unprecedented. In my introductory remarks, I talked about Japan and even the anime in Japan, which is, you know, homegrown, and IMAX is really outgrossing. I think it's all part of this bigger model, where people are seeking out IMAX as a separate thing.

Instead of just saying, "Oh, you know, Oppenheimer, let's go see it in IMAX," they're saying, "You know, let's look at what's in the IMAX and let's go see that." That's been our long-range plan for a while.

Eric Handler (Managing Director and Senior Research Analyst)

Great. Just as a follow-up, last year, you did very well with local Indian content. You know, 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, but anything you could say about the Indian market?

Richard Gelfond (CEO)

Yeah, I can first of all, I should say that Oppenheimer was the biggest opening in the history of India. 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 have 20 to 30 international films in the second half of the year, there's even a very major one, Eric, which I'm embarrassed to say, I don't remember the title of it. We could fish it out before this call ends. I'll come back to it. There are several Indian ones, and, as you know, strategically, we want to do more of them.

Eric Handler (Managing Director and Senior Research Analyst)

Thank you very much.

Operator (participant)

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

Steve Frankel (Director of Research and Senior Research Analyst)

Good afternoon, Rich. Thank you for letting me ask a question. Can you talk a little bit about alternative content, you know, given the potential risk of a protracted strike, what have you thought about the types of events you could do in with IMAX LIVE and in an alternative content that could really have some traction?

Richard Gelfond (CEO)

So we've, you know, spent a lot of time, obviously, Steve, assessing, you know, how long the strike is going to last, you know, what kind of content could we play, what's out there. Pretty much for the rest of the year, no matter what happens, the content is finished or about to be finished. 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 2024. It would more likely affect content in the second half of 2024.

We have, you know, as your question addresses, we're looking at what local language films we could lock in early, particularly ones like anime or Indian films, that would be exportable to other places. We're looking at things like bring backs. Obviously, you know, 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 and do very well on. Documentaries, you know, as I mentioned in my prepared remarks. We have one coming out this October, another one, which we sold to Amazon, is coming out in 2024. At Blue Angels, I'm really excited about. It's very much like an action kind of documentary.

As you mentioned in your question, you know, live and different events, we've greenlit a number of events, and we're looking forward to putting that together. To be clear, you know, the strike is not likely to have a short-term impact, it's only if it goes on a long time that it has an impact. We'll do our best in the ways that I enumerated to you to make sure that we have as much content as possible. I think if a strike lasts a long time, you know, there are gonna be content shortfalls, but I don't believe that's the most likely event.

Steve Frankel (Director of Research and Senior Research Analyst)

Great. Thank you.

Operator (participant)

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

Omar Mejias (Vice President and Equity Research Analyst)

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 millimeters films. With the recent success of Oppenheimer, could this spark a new wave of demand for IMAX systems or upgrades to North America and globally? 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 are you guys thinking about, the potential impact of it? Thanks.

Richard Gelfond (CEO)

Yes. Omar, we are analyzing that data and looking at it. As you probably remember, we've already said that we're gonna build several more film cameras, so that way filmmakers will have the ability to do it. The projectors, you know, are old, they're dated. It's not like a new generation. We are exploring, are there more of them that we could possibly refurbish and bring into service? You know, remember, it's hard to believe, given all the publicity around Barbenheimer, that it's only been there for four or five days. We are thinking of, you know, other opportunities and building new 70 millimeter projectors. Are there opportunities in branding other 70 millimeter projectors with IMAX? You know, certainly we'll have an outreach to filmmakers because the numbers are so spectacular about them shooting with 70 millimeter film.

We're aggressively examining the possibility of how we could lever off this kind of amazing cultural event. I think you will see us find different ways to do it going forward.

Omar Mejias (Vice President and Equity Research Analyst)

That's very helpful. Maybe, I think you alluded to this on your prepared remarks, but, there was recent media reports, talking about, you know, that Warner Bros. was strongly considering moving the release date for Dune. I just want to get your thoughts on what gives you confidence that won't be the case, or just your thoughts in general, what's the likelihood of this happening? If so, what other options are you considering as for the replacement of for the Dune slot, and just in general on the back half of the year?

Richard Gelfond (CEO)

Right. On 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 are committed to Dune. If Dune moves, you know, we'll just go over to The Marvels, and, you know, having a Marvel movie as a backup is not the worst position to be in the world. In terms of Dune, you know, my own opinion is that it's highly unlikely to move, and it's an educated opinion. Meaning, you know, I spent a lot of time on the facts. Dune is already in the midst of a marketing campaign. There are trailers out, you know, 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. You know, it's kind of out of the gate. If you put it back in the gate, you've got to duplicate those expenses at some time in the future of, you know, putting it out of the gate. In addition, Dune has a very long run time, and IMAX up to five or six weeks, and it just was fortuitous that there were no other conflicting projects. If they were to move that, you know, to next year at some time, it's highly unlikely that they would have that amount of run time. Just to remind you, IMAX was about 20% of the gross on Dune One, I know there's a lot of marketing plan on Dune Two.

If they move Dune Two, there's a carrying cost, you know, call it 10% or whatever it is. you know, how are they gonna make up for that cost plus the other incremental costs? The IMAX release is a really important element to their release pattern. as I said, just a minute ago, you know, I don't think it's replicable for them to have that kind of run time again. 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...

Again, the only reason they would move it is they'd say the actors strike is going on, and they wanna, you know, get a premiere and put it on the, you know, The Tonight Show or wherever they put the actors. You know, with no disrespect to Timothée Chalamet, are you going to be able to make up for losing the six-week IMAX release? Are you going to 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.

When you look at the other movies, I think that's one of the most compelling not to move, but you could go through all of them, and the same logic kind of applies. I think, and, you know, I've talked to the distributor of that film, Warner Bros., and they don't know where that article came from in the press, and, you know, I don't. They've certainly told me that that article is not true. All I can do is give you know, my logical perspective on it, but I feel quite strongly that it's not going to move.

Omar Mejias (Vice President and Equity Research Analyst)

I appreciate that. Thanks.

Operator (participant)

Thank you.

Richard Gelfond (CEO)

Operator, before I go on, I have a major Indian titles in Q3 to the last question, Jawan and Salaar. And one reason we have fewer Indian titles in Q1 and Q2 was because the Hollywood schedule, there wasn't really room to play them. Big Japanese titles in Q4 are Godzilla Minus One, SPY x FAMILY, and The Boy and the Heron, which is the Miyazaki film, which will play for a very long period of time. You could go back to the next question.

Operator (participant)

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

Mike Hickey (Equity Research Analyst)

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, so you have an incredible perspective. I'm just curious how you think about sort of the next three to five 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.

Just curious how you think sort of medium to longer term, how excited you are today in the growth of your business, given your perspective, and I guess how material maybe some of these new avenues of revenue, like SSIMWAVE can be for you guys?

Richard Gelfond (CEO)

I would say, this week, I've never found IMAX a happier place. It's not just because Oppenheimer, you know, did so well in the Hollywood headlines. You know, Oppenheimer, you kind of got to get into the math. I'm not going to tell you know, what our ultimate was for the movie, meaning what our projection was. I will tell you that where that movie ends up is very far in excess of where our projections were coming into it. Not only is it the positioning and what it means for our brand and doing, like, 1/3 of the box office in the United States, 1/5 of it in the world, on 0.8% of the screens. I mean, just ruminate on those numbers for a second.

The strategic side and what it could do to signings and, you know, kind of the Avatar effect again, but what it means for our financial position, you know, for the Q3, where we just had our best July. Well, July's not over, but we've already had our best July. The film theaters are sold out pretty much everywhere for the next three weeks, and our presales are, you know, fantastic. 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 five-year plan, you know, it shows very favorable growth patterns, and it's driven by our increased market share, which, you know, in North America is up, like, 50% from where it was pre-pandemic.

As you know, we've guided to pre-pandemic levels. You look at the growing network. We have 85-ish signings this year already, and 80% of the new signings are new theaters, which means they're not upgrades. They're places where we're going to get royalties, not only from the exhibitors, but from the studios as well, as well. Model out that growth paradigm. You add, you know, business like SSIMWAVE and Enhance and Live, you know, we're tremendously optimistic about them, particularly SSIMWAVE, where we think we're really onto a product that streamers who are in on the mode of saving costs can save costs on a very advantageous basis.

You know, our five-year plan is very optimistic, and as I said, without, you know, overstating the point, it's hard to have been at IMAX at a more optimistic time than right now.

Mike Hickey (Equity Research Analyst)

Rich, can you give more, I know when you look at sort of your pre- penetration globally, there's big buckets of opportunity. I know you've rest of world has been significant for you guys, what's happening in Japan and India, China has also been a significant market of growth. Curious just on the domestic, how you look at the opportunity. I know you signed a deal in Canada that was incremental, just, you know, it seems like certainly, certain urban areas that you could have more screens. I know there's some zoning restrictions and so forth, 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 a specific zone.

If you think now that, you know, IMAX is hot, I mean, you know, does it make any sense at all, in highly, you know, populated areas to have, two screens, per complex? Thanks, guys.

Richard Gelfond (CEO)

I'll start by saying, you know, 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. 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 AEON early this year. All 7 are open, and all 7 are on track to do between $1 million to 2 million PSA a year, which is, the U.S. PSA is $900,000. I mean, there's enormous leverage in global growth. You know, that's why I don't necessarily, you know, say: Oh, what am I gonna do in North America? Because it's worth twice as much to me if I do it in Japan.

In North America, we're much more penetrated than other places in the world. We still could do a lot more. I'm trying to remember, someone in the room will tell me, but I think something like 25%, approximately, of our signings and are in North America over, you know, this year. I think we did a five-theater deal with a company called EVO, and they could do a lot more. Was it eight-theater? eight-theater deals with EVO, and they could do a lot more. You know, I don't wanna get ahead of myself or promise this, we're starting to look at areas of exclusivity where we could even build. 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.

We're starting to think about, could we put additional theaters in exclusivity zones to drive North American box office even higher? We are in some early conversations about things like that.

Mike Hickey (Equity Research Analyst)

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 wanna change your global box office estimate, given how much stress we have on potential shifts in play, given the strikes. We're curious on installations. It looks like you're tracking really well there. Are you reiterating your guidance, or are you sort of on the high end, do you think? Just any sort of thing, color-wise you could add would be great. Thanks, Natasha.

Natasha Fernandes (CFO)

Yeah, I think we feel really good about our guidance. We haven't, we obviously haven't come out and changed it. We feel like, you know, we're at $541 million in box office. We're halfway there to the level that we guided to. With respect to installations, it's been exactly as we talked about on our call a few quarters ago, where we think it'll be back-end loaded, very similar to our historic years. We had a really good quarter with 20 installations, and we're getting there. We had a great quarter from a Tech Products and Services segment as well, with really strong margins and performance there. I just think our guidance is exactly where it's supposed to be. Same with EBITDA as well.

We closed out the quarter with 35% attributable EBITDA margin, too. We're just tracking exactly like we guided at the beginning of the year.

Mike Hickey (Equity Research Analyst)

Nice. Thanks, guys. Goodbye.

Operator (participant)

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

Chad Beynon (Managing Director and Senior Analyst)

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, you know, some of these PSAs close to $1 million, that kind of jogged my memory. With the increased local language product and just the strength overall, has there been any change in terms of the ramp period? I guess what I'm getting at, I'm assuming maybe some of these locations are ramping a little faster. Obviously, every region is different, but just wondered if you could opine on that. Thanks.

Richard Gelfond (CEO)

Yeah. As I said, in Japan, we signed a seven-theater deal, and within six months, opened all seven. I don't ever remember seeing that before. You know, we used to say that it was two to three years to work through our backlog. I would say, you know, we haven't done that calculation, I don't know. I would say of 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, I can't give you a thoughtful and clear glance.

Chad Beynon (Managing Director and Senior Analyst)

Okay, great. Then on IMAX Enhanced, I guess we're four or five months out from holiday shopping season. Should we expect to see more, you know, 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 something that would continue to help the brand and help the P&L. Thanks.

Richard Gelfond (CEO)

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

Chad Beynon (Managing Director and Senior Analyst)

Great. Thank you very much. Nice quarter.

Operator (participant)

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

James Goss (Managing Director)

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 quote, smaller markets, which were still relatively large. I'm wondering if that variance has continued or if as you've gotten people more used to seeing local language product in IMAX, if that gap has narrowed somewhat?

Richard Gelfond (CEO)

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

James Goss (Managing Director)

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 five or six week window, and you do have Marvel as an opportunity, does that give you some ability to consider negotiating with, sharing that window?

Richard Gelfond (CEO)

Yeah, I mean, of course. We, you know, typically we commit, I'm not going to go into the specifics, but to a two-week window, you know, in the Filmed for IMAX program. You know, we could play the minimum or we could offer more time. If your question is, you know, do we have flexibility? We do. You know, if they want to move the movie, you know, there would be consequences to them of doing it. As I said, they would lose a long window. In my mind, it would be very hard to replicate that in future years.

James Goss (Managing Director)

You would have the same flexibility. Can you force the issue as well? Does it work that way, or is it a matter of creating this honor system so that you do spread things out over the course of the year?

Richard Gelfond (CEO)

James, as you probably read in the media, with Top Gun, with, not Top Gun, with Mission: Impossible 7 and with, Oppenheimer, you know, we make commitments, and when we commit to somebody, we stick with it. I would say, you know, 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. You know, being a company of principle and standing by our commitments pays off for us. We don't really play games like that.

James Goss (Managing Director)

Okay, understood. Lastly, you've touched a little bit on the, you know, 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 not, 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 format?

Natasha Fernandes (CFO)

Hi, Jim, it's Natasha. We, you know, we have our guidance out there for 110-130 for the year. Of course, there'll be ebbs and flows of the timing of the rollout, but that depends on many factors. It depends on timing of 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. You know, of course, if we, if we have the opportunity to install theaters sooner, we will. Right now, and based on our cadence of historical years, we, you know, we'll continue to reiterate that it'll be Q4 loaded.

Richard Gelfond (CEO)

Yeah.

James Goss (Managing Director)

All right. Thank you.

Richard Gelfond (CEO)

This may sound obnoxious, and I don't want to be this way, but I want to put it in a perspective. You know, people should take out a pen and look at the Oppenheimer numbers and look at the predictions and whether five more installs or less or 10 is going to really make a difference in IMAX's year. You know, when you look at the big picture, pun intended, with IMAX, the signings, the installs, I mean, the way that we're, you know, firing on all cylinders. You know, I think looking at this year from where we sit now, where there's a few more installs, I don't think is part of an important investment thesis around IMAX.

James Goss (Managing Director)

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

Richard Gelfond (CEO)

Well, in the future, Jim, if you're asking about future years, I mean, there was an Avatar effect. You know, you see it this year, you know, and I think it's still continuing, and I think, you know, when you look at the, you know, we didn't really break this out, but some individual IMAX theaters are gonna do $1 million on Oppenheimer. You know, many of them are gonna do $200,000-$300,000. If you model from the theater side, what it means to them and their IRRs, you know, if they're logical, it should lead to what you're asking about.

James Goss (Managing Director)

All right. Well, thanks a lot.

Richard Gelfond (CEO)

Thank you.

Operator (participant)

Thank you. Our final question comes from the line of David Karnovsky of J.P. Morgan.

David Karnovsky (Senior Research Analyst)

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. You know, what potential do you kinda see for more releases here? Have they given you any indication of their slate?

Richard Gelfond (CEO)

Well, not only Flowers, the Scorsese movie, but Napoleon, which is Ridley Scott, is also another Apple movie, which is interesting, David, 'cause they're two different studios who are distributing them. One is Paramount and the other is Sony. Yeah, we are discussing other projects with Apple, and Apple is committed to a theatrical exclusive window, and I think they see us part of, you know, and there's one specific one in mind that we haven't agreed to, but, you know, we have a verbal understanding the next couple of years. It's not in the near term. Yeah, I do think we'll get more and more content from Apple and probably Amazon as well, 'cause they're committed to a theatrical window.

David Karnovsky (Senior Research Analyst)

Thank you.

Richard Gelfond (CEO)

Thank you, David.

Operator (participant)

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

Richard Gelfond (CEO)

Thanks so much, operator, and thank you all for joining us today. You know, we just announced on this call, you know, a very attractive, successful Q2, which followed a very successful, attractive Q1. Now we're in the first month of our Q3, and we just had our best July ever in terms of box office. As we look into, you know, August and the presales and the potential for Oppenheimer, and then we look at the other movies, you know, coming on down the slate, you know, I think IMAX has moved in a way from people considering a story stock to elements of being a value stock.

I think people should probably, you know, as I said before, take out a pen and put numbers to some of these things and look at. We've been shrinking our capitalization. Our shares outstanding have gone down. Our EBITDA has gone up. People, you know, I don't, I don't think it has to be, you know, believing a story. I think it's a matter of taking out a pen and doing some math. I really, you know, don't remember being in a more attractive position at IMAX in a very long time. Thank you all for joining us, and I hope to update you with more good news on the next call.

Operator (participant)

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