IMAX - Q4 2022

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the IMAX Corporation's Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, today's call is being recorded. I would now like to turn the conference over to Jennifer Horsley, Senior Vice President of Investor Relations. Please go ahead.

Jennifer Horsley (SVP of Investor Relations)

Thank you. Good afternoon, everybody. Thank you for joining us on today's Fourth Quarter and Full Year 2022 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. Megan Colligan, President, IMAX Entertainment, and Rob Lister, Chief Legal Officer, are 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 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.

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 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 reconciliation to non-GAAP financial measures, including Adjusted Net Loss, Adjusted EPS, and Adjusted EBITDA as defined by our credit facility, are contained in this press release and our earnings materials, which are available on the investor relations page of our website at imax.com. Let me turn the call over to Mr. Richard Gelfond. Rich.

Richard Gelfond (CEO)

Thanks, Jennifer, thank you everyone for joining us today. Since we last met on this call, there have been two terrific developments in our business, the massive global success of Avatar: The Way of Water, and the rapid recovery of moviegoing in China. With these dual tailwinds propelling IMAX into 2023, it's clear that we're back to business. There's strong evidence that our global operation, including China, is set to resume pre-pandemic levels of box office as well as strong network growth. I've spoken often about what we call the Avatar effect.

After James Cameron's watershed 2009 release, IMAX saw a two-year period of outside growth across virtually all KPIs, signings, installs, PSAs, followed by a structural rebasing of our network business. As Avatar: The Way of Water delivers on our highest expectations, we're beginning to see history repeat itself with a surge of positive momentum and trends at hand. Avatar: The Way of Water is the number one highest grossing first-run IMAX release of all time worldwide, and also in nearly 50 individual international markets.

Many of these countries and territories overlap with our top priority growth markets around the world, regions where we are under-penetrated in terms of theaters. We are seeing strong potential for local language growth, and moviegoing is thriving, yielding potential for box office growth. As a result, we're seeing encouraging signs of increasing demand for new and upgraded IMAX systems around the world, including recent multi-system agreements in Japan and Indonesia.

The sequel is helping lead the dramatic resurgence of our business in China, which has taken a complete positive 180-degree turn in the span of just a few months. IMAX delivered its best Chinese New Year holiday ever for local language films, with $61.3 million in total box office receipts, well over our budgeted projection of $42 million. Our lead title, The Wandering Earth 2, is now our highest grossing local language film of all time.

Furthermore, key Hollywood tentpoles are again securing day-and-date releases in China, including the Marvel franchise, which returned to cinemas this past weekend for the first time since 2019. Overall, we're very optimistic about 2023. We expect to drive significant growth in IMAX system signings, installations, global box office, and Adjusted EBITDA this year, including global box office back to our record-breaking 2019 of $1.1 billion, between 110 and 130 IMAX system installations worldwide, and Adjusted EBITDA in the mid-30% margin range.

Today, I'd like to discuss our year-end results in global box office growth and network growth, our results for Avatar: The Way of Water, particularly internationally, our strong momentum in China, our strategic focus for sales in 2023, an update on our IMAX 3.0 strategy, and finally, a look ahead at the slate for 2023. Then I'll turn it over to Natasha to review our financial performance before taking your questions.

For the second year in a row, IMAX captured its largest share ever of both the global and domestic box office in 2022. This includes 3.3% of the global box office and 4.8% of the North American total, both up about 9% over the previous record in 2021. These are impressive results given our network of 1,700 locations globally account for less than 1% of the hundreds of thousands of screens worldwide. Excluding China, our box office results were largely in line with our record-breaking 2019. Our domestic box office in 2022 trailed 2019 by only $5 million. We delivered $850 million in global box office for the year, up 33% over 2021.

We also drove our largest network growth since 2019, installing 92 IMAX systems worldwide in 2022. Our strong capital position allowed us to be very opportunistic in repurchasing shares in the weaker market environment in 2022, shrinking our market capitalization by nearly 8% in only one year. For context, we had 61 million shares outstanding at the end of 2019. Today, we have only 54 million shares outstanding. As I mentioned, Avatar: The Way of Water put an exclamation point on our 2022 results and a strong tailwind for the years ahead. IMAX has delivered 11% of the film's global total, again, on only a fraction of overall screens.

With this franchise and its revolutionary visual effects, James Cameron has created an experience that transcends cinema, and yet another example of IMAX's ability to create an event and drive outside market share with the most ambitious blockbuster films in terms of scale and scope. With this past weekend's debut of Ant-Man and the Wasp: Quantumania, we drove 10% of the North American box office, a better-than-average result certainly helped by the Avatar effect. Our $24 million global opening weekend for Ant-Man was more than the previous two Ant-Man films combined.

We also saw it with our indexing on Dune and our record-breaking global box office for Top Gun: Maverick, which included more than 14% share of its North American debut. We're seeing it right now with Avatar, we expect to see it again this year with Christopher Nolan's Oppenheimer, as well as Dune: Part Two. The world's best filmmakers continue to raise the bar, audiences almost invariably know they'll need to experience these films in IMAX. Back to China. Among the most encouraging results we've seen with Avatar 2 is in China, where the film essentially reopened the market for moviegoing overnight.

With more than $50 million in Chinese box office to date, the film is our second highest grossing release ever in China. IMAX delivered an impressive 22% of the film's overall Chinese gross to date. It served as a perfect setup for Chinese New Year holiday, where IMAX delivered record-breaking results with its local language slate. Our box office of $61.3 million was up 72% over 2022, thanks to a strong diversified slate, including The Wandering Earth 2, Full River Red, Hidden Blade, and Deep Sea.

Our $61 million result was significantly ahead of the $42 million which we budgeted for box office during the Chinese New Year period. The speed with which the Chinese box office has recovered has been stunning. In January, the Chinese box office more than doubled the North American box office overall. January marked the first time ever that we had both a local language and Hollywood title in IMAX at the same time in China, delivering more than $25 million in box office. The Avatar sequel has cleared the way for key Hollywood tentpoles to gain entry into the market.

February saw the long-awaited return of the Marvel franchise to China with Black Panther: Wakanda Forever and the latest Ant-Man. IMAX China has delivered 21% of the Ant-Man debut on less than 1% of the screens. DC's Shazam! Fury of the Gods will also receive a day-and-date release in China net-next month. Just last week, Paramount's forthcoming Dungeons & Dragons film was also given a day-and-date China release for March 31st. Beyond the IMAX network, Hollywood films including Universal's M3GAN and Sony's The Son have also secured Chinese release dates. As a result of these trends, we have a very bullish outlook on the Chinese box office for 2023.

IMAX box office in China for the full year 2022 was $152.5 million, and we are already at more than $86 million, or over half of last year, through less than two months of 2022. Our market share gains and record-breaking performance with Avatar have strengthened our standing with exhibitors around the world. As a result, we're seeing very encouraging signs of demand for IMAX systems and technology. We already have 22 signings through the first two months of the year. For comparison, we had 23 signings for the entirety of the first quarter of 2019 pre-pandemic.

This includes a deal expanding our partnerships with Japan's largest exhibitor, AEON, a rare sign-and-install deal that will see seven new locations open in this red-hot market by the end of the year. This comes less than a year after striking a two-system deal with AEON. With our $1.8 million per screen average in Japan in 2022, we see even more opportunity in that market. We also announced a deal with Cinema 21 that will double our commercial footprint in Indonesia to 20 locations.

This is very encouraging given how under-penetrated we are in Indonesia relative to the company's enormous population. We built great momentum in the market recently with our first Indonesian local language release in 2022, Avatar: The Way of Water, which is now our highest-grossing Indonesian release of all time. The spike in sales we saw following the first Avatar was driven largely by China, where our eye-popping results on just 24 screens led to sweeping agreements like the 75-theater deal we signed with Wanda less than a year later.

Given how much our network has grown and evolved since then, we expect the impact of Avatar 2 to play out differently, driving sales in pockets of our opportunity across the regions we are most under-penetrated, Southeast Asia, India, Latin America, and Continental Europe. Indeed, many of our highest-priority markets for growth, including Germany, France, India, and South Korea, are among the many where Avatar 2 is the highest-grossing IMAX release of all time.

We're particularly optimistic about the outlook for growth in Asia, where I and many of our sales leaders have visited in recent months and been impressed by the enthusiasm for IMAX among exhibitors. Furthermore, our successful local language strategy continues to build our brand and profile in the markets where we see the strongest network growth potential.

Last month was our highest-grossing month of January ever for local language films, with a great mix of releases from China, India, and Japan. In India, we delivered our biggest global box office ever for Indian local language titles in 2022, with nearly $12 million, up from less than $1 million in 2019. Our first local language film of 2023, Pathaan, is already our second highest-grossing Indian release ever, with $3.6 million in global box office to date. We expect to program 6-10 local Indian titles this year, up from four last year, and ramp up to 10-15 annually in the coming years.

We believe that level will give us a consistent enough market presence to drive significant network growth, introduce new audiences to IMAX, and potentially bolster our indexing on Hollywood titles as well. Given our box office and content progress in high-growth international markets, the calculus is clearly changing in terms of our global growth strategy and target markets.

As we saw a decade ago, the Avatar effect is not something that will fully play out in only a few months or even a year, but rather over a sustained period, especially when considering there are multiple more Avatar installments on the horizon. Even as we capitalize on near-term opportunities to grow our network, we continue to advance our long-term IMAX 3.0 strategy to grow beyond blockbusters and deliver unique events and experiences globally across platforms.

We concluded 2022 by hitting our goal of 250 connected theaters worldwide. Our global connected network now features more than 75,000 seats across 27 countries and territories in North America, Europe, and Asia. As we map out our content strategy for the year ahead, we're being very selective about what we book on our network, given that our Hollywood blockbuster pipeline is as full, strong, and consistent as we've seen since before the pandemic.

We'll complement those tentpole offerings with live interactive fan events in collaboration with our studio partners, including our upcoming event for the world premiere of MGM's Creed III, the first film for IMAX sports movie. Since our acquisition of SSIMWAVE last September, we've completed new agreements for all of its clients who were up for renewal at last year's end while adding blue-chip global content and technology partners.

As I said, we're even more excited about the long-term application of SSIMWAVE technology, and the team is currently working on potentially transformative solutions for compressing video and images while preserving quality and saving costs. We're clearly in an environment where streaming platforms are under cost pressure, and we're focused on technology solutions that will help them cut costs materially while protecting filmmaker intent beyond theatrical.

Furthermore, we continue to unlock synergies between SSIMWAVE and our IMAX Enhanced initiative and expect to more closely align those efforts with our Go-to strategy. Now I wanna turn to the 2023 slate. We're very optimistic about what the slate looks like. As I mentioned earlier, it's as complete, balanced, as consistent as we've seen since 2019.

Our film for IMAX slate features seven highly anticipated releases, including Christopher Nolan's Oppenheimer and Denis Villeneuve's Dune: Part Two, highly IMAX-created events from two of our biggest collaborators and advocates in the filmmaking community. IMAX drove indexing of more than 20% with both Nolan's Dunkirk and Dune: Part One during their runs on the network. Multiple Marvel films with May's Guardians of the Galaxy Vol. 3 in May. Multiple DC films, including the new Aquaman.

We also have Tom Cruise's Mission: Impossible – Dead Reckoning Part One coming on the heels of an incredible IMAX run for Maverick. The new Fast & Furious, a new installment of Transformers, an Indiana Jones and the Dial of Destiny, which we're very excited about. With our local language portfolio, we expect to program between 30 and 40 titles this year from across China, India, South Korea, and Japan.

In conclusion, we're as optimistic as we've been for years about the year ahead, given the rapid turnaround in China and the strong performance of the Avatar sequel. We feel good about our opportunity to drive further global growth in our theatrical network and box office as we carry our strong momentum through the year. At the same time, we will further our three-point-oh strategy, evolving beyond blockbusters.

Our unique privileged position at the center of the entertainment ecosystem gives us a great perspective on the landscape, which is very valuable in navigating times of change like these. We've had a pretty good track record lately in calling how things shake out. We correctly predicted that the studios would abandon day-and-date releases and the PVOD experiment come back to exclusive theatrical windows for blockbuster movies. We saw a correction coming to the economic model for streaming services.

It's easy to forget now, there are a lot of folks who doubted Top Gun and Avatar before their releases this year. We were bullish on those blockbusters from the beginning, and we were right. We leaned into local language and the increase in globalization of content long before RRR and Japanese anime took the world by storm.

We called last fall that China would begin to roll back Zero-COVID following the party Congress, and it did, and that Avatar would get data in China and help reopen the gates for Hollywood releases. In our own business, we hit our targets for installs and connected theaters for the year, and we're seeing the Avatar effect we've long predicted beginning to play out. We're driving record-breaking numbers in our business, and we know that our box office has historically thrived in economic downturns.

Our optimism for the year is well-founded, and our credibility and track record well-earned. We look forward to updating you as the year progresses and to creating value for our business, our shareholders, and the millions of people around the world who invest their time and money in the IMAX experience. I'd like to thank you all, and I'll turn it over to Natasha.

Natasha Fernandes (CFO)

Thanks, Rich. Good afternoon, everyone. As Rich highlighted, we are excited about 2023. We are returning to a pre-pandemic environment with a robust blockbuster slate. We are experiencing a notable positive turnaround in China. As we look forward, we expect to benefit from a combination of the profit that will flow from a recovering box office, growth in our technology system sales and installs propelled by the record-breaking performance of Avatar and our overall global momentum, and the efficiency actions and cost discipline we implemented over the past few years.

With that in mind, we are establishing guidance for 2023, including IMAX gross box office back to the 2019 pre-pandemic level of $1.1 billion as compared to $850 million in 2022. With the return of box office in China and a 2023 slate that was made for IMAX screens, we envision it will be a year of market share gains. Total installations of 110-130, which compares to 92 systems in 2022, reflecting growth of over 20%. Our contractual backlog, as well as the elevated rest-of-world deal activity, will enable us to reach this target.

We foresee a similar sale and upgrade mix of 2022 with installation timing heavily weighted to Q4, and we expect to realize Adjusted EBITDA attributable margin in the mid-30s%, driven by our box office flow-through coupled with our operating efficiency gains. Turning to Q4 and full-year results. Fourth quarter results were in line with our expectations, capped off by Avatar.

Remarkably, Avatar delivered $140 million in box office in the last two weeks of December, with 11% market share, making up more than half of Q4's total IMAX gross box office. Revenue in Q4 was $98 million, compared to $109 million in Q4 2021, and Adjusted EBITDA attributable to IMAX was $28 million, compared to $44 million in the prior year. These year-over-year variances were primarily driven by China, as that market did not begin to normalize until late December, and a one-time release of deferred maintenance revenue in Q4 2021.

Adjusted EPS in Q4 was $0.19 versus $0.31 in the year ago period, and included a tax valuation allowance resulting in a negative impact on earnings of $2.1 million or $0.04 in Q4 2022. Looking at the full year, our 2022 results were significantly above 2021, reflecting the continued recovery in box office, our unique position in the entertainment industry, the strength of our business model, and execution. Rich shared our business highlights, and to build on that, I will share some financial highlights.

Revenue of $301 million was up 18% despite the fact that China did not begin to normalize until late in 2022. Driving revenue was gross box office from the IMAX network, which was up 33%, which compared to 22% for the exhibition industry. Overall, domestic box office from IMAX locations were on par with 2019, and rest of world, excluding China, was not far behind, leading to the strong full-year performance. Moving on to installations. System installs were 52 in Q4 and 92 installs for the year, up 23% year-over-year from 75 systems and above the midpoint of our guidance of 80-100 systems.

For 2022, we earned gross margin of $156 million, which was up 16% over the prior year of $134 million and was 52% of revenue. Full year Adjusted EBITDA attributable to IMAX was $84.5 million, or $1.47 on a per-share basis, which reflects an increase of 23% over 2021 of $68.6 million. We recognized an Adjusted EBITDA margin of 30%, reflecting flow-through on incremental box office and benefits from cost discipline efforts. Adjusted EPS was $0.06 in 2022, up from a loss of $0.14 in 2021.

The pandemic contributed to the recognition of tax valuation allowances, preventing the realization of any tax asset benefits. This had a negative impact on EPS of $0.29 for full year 2022 and $0.25 in 2021. Once profits are realized in jurisdictions related to these tax assets, the reversal of the cumulative valuation allowance of $63 million will have a favorable impact on our EPS in future periods. We turn to our balance sheet and cash flows, operating cash flow was positive in Q4 and propelled us to $17 million for the full year, which is up significantly from operating cash flow of $6 million in 2021.

Our cash flow generation continues to improve as revenue increases and as our exhibitor customers recover from the pandemic. We expect this trend to continue into 2023. We ended the quarter with $97 million in cash and $270.7 million of debt, excluding deferred financing costs. As of December 31st, our available liquidity was $416 million, including cash and cash equivalents of $97 million and $319 million in available borrowing capacity under the company's revolving facilities.

Our strong balance sheet in 2022 enabled us to execute on both the SSIMWAVE acquisition and a significant level of share repurchases. In Q4, we repurchased 1.9 million shares at an average price of approximately $14 per share for $27 million. For the full year, we repurchased 5.4 million shares at an average price of approximately $15 per share or 9.2% of our beginning share count, spending $82 million.

We continue to capitalize on what we view as an undervalued stock price and the opportunity to return capital to shareholders. As of December 31st, $193.4 million remains available under our share repurchase authorization. To conclude, we finished 2022 on a strong note with Avatar, and that momentum has only accelerated into 2023 with the remarkable continued run of Avatar, the reopening of China leading to our record Chinese New Year results, and the strong demand for IMAX technology we are seeing from our partners in markets around the world.

We believe 2023 will be a year where the combination of our unique position in the entertainment industry and our high margin, asset-light, technology-focused business model will shine through. This will enable us to realize gross box office similar to pre-pandemic levels to deliver growth in installations and higher Adjusted EBITDA margins.

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

Operator (participant)

Thank you. If you'd like to ask a question, please press star one one. If your question has been answered and you'd like to remove yourself from the queue, please press star one one again. One moment while we compile the Q&A roster.

Our first question comes from Eric Wold with B. Riley. Your line is open.

Eric Wold (Managing Director and Senior Equity Analyst)

Thank you. Good afternoon. Two questions, if I may. I guess first off, thinking about the guidance for Adjusted EBITDA margin in the mid-30% range for this year, which is, if I look back at to 2019, you know, is within, you know, a couple percentage points of what you reported, you know, back then. I'm not looking for guidance beyond 2023, maybe what would you view as the puts and takes in your business? What's changed structurally, such that margins can go higher from here in the future? Is it still entirely dependent on box office, or do you view that something else has changed as well?

Natasha Fernandes (CFO)

Hi, Eric. Definitely it's box office completely. Like, there's a significant opportunity given the incremental box office that we can earn, that could create over 30% growth. As you said, it's proven by the historical years. All of that flows right through. As well, you know, there's opportunity with SSIMWAVE and other businesses that we're exploring right now too. We do think that there's opportunity. Right now, as you look at SSIMWAVE and Live, that's sort of where our margin is now. There's only upside there as you start to explore and expand the business models.

Eric Wold (Managing Director and Senior Equity Analyst)

Thank you. Just the second question. You mentioned Rich, obviously on IMAX 3.0, you're gonna be careful this year in terms of what you plan, given how robust the Hollywood slate is. How far in advance do you feel you need to contract those live events to drive enough awareness and time to purchase tickets? Where do those marketing costs fall for those events between you and the content provider?

Richard Gelfond (CEO)

Well, on the second part of the question, Eric, it depends on the specific deal. In some deals, the content provider would do more of it. In some, we would do more of it, and in others, it would be a shared and/or allocated. In terms of the first part of your question, how far in advance do you need to book it? I mean, from our point of view, the farther out, the more optimal. Now that we have the network in place, I think it gives us the opportunity to program content farther out. you know, you just never know. It's the nature of the business.

It's different than the movie business, where it's a fixed timetable and, you know, 18 months or two years after you start shooting, you have a release date way in advance, you can really put it together. The live business is still very much in its infancy, and I think we're still gonna test and do different things, you know, whether it's music or whether it's sports or, you know, whether it's Q&As around releases. I think it really depends on the kind of event. I wish we had, you know, a fixed model on that, but it really is gonna be event-specific.

Eric Wold (Managing Director and Senior Equity Analyst)

Understood. Thank you both.

Richard Gelfond (CEO)

Thanks, Eric.

Operator (participant)

Thank you. Our next question comes from Eric Handler with ROTH Capital. Your line is open.

Eric Handler (Managing Director and Senior Research Analyst)

Good afternoon. Thanks for the question. Rich, two questions for you. First, as you look at your sort of outlook of $1.1 billion of gross box office this year, how are you thinking about growth, you know, in China relative to North America and international rest of the world?

Richard Gelfond (CEO)

I think in China, we think it'll be a move towards normalcy, and normalcy means sort of, 2019 pre-pandemic levels. I'm not gonna get into the elements right now, but I think, you know, we see that moving towards normalcy. I think in North America and the rest of the world, we feel incredibly good about the slate, as we said during our prepared remarks. You know, if you look at just very early in the year, as we said during those remarks, we had budgeted about $42 million for Chinese New Year, and it came in over $60 million.

I could tell you that Ant-Man this past weekend did close to our total budget in just one weekend. Early in the year, I think we're doing, you know, very well on all fronts. Avatar was obviously extremely strong. I think it'll come from both places, Eric. I think a return to normalcy in China and opportunity around this year's slate. I also should highlight the local language films that we do. You know, I don't think investors historically have paid enough attention to that, and there's a pretty good reason, ’cause they didn't contribute that much.

Last year, I think it was 17% of our box office was foreign language films, and I think this year it'll be there'll be more films than that. I think, you know, those kind of get overlooked when people look at the company. They sort of say, "Well, I see this blockbuster coming, or this Marvel movie or this DC movie," but they forget there's a lot of money there in those slots. I think it'll be all of the above.

Eric Handler (Managing Director and Senior Research Analyst)

Okay, great. That's helpful. Next question. You know, it was good to see you updating the addressable market of systems for the world. I think it's been several years since you've done that. I've not been able to find the last time you did this. I'm curious, you know, how big is, you know, 3,300 addressable markets? What was that last time you did a review? I don't know if you could point that out.

Richard Gelfond (CEO)

It was 3,300 the last time. We didn't revise it, Eric. We specifically, we do it every three years. We did it in 2019. We didn't revise it because of the pandemic. I'm sure we'll do it in the next year or two, but that's the guidance we've given before.

Eric Handler (Managing Director and Senior Research Analyst)

Got it. Okay. Very helpful. Thanks.

Operator (participant)

Thank you. Our next question comes from Steven Frankel with Rosenblatt Securities. Your line is open.

Steven Frankel (Director of Research and Digital Media Analyst)

Good afternoon, Rich. Could you start with maybe an update on the camera program? Where are you in creating a pipeline of equipment that could materially expand the number of films that are created with IMAX cameras?

Richard Gelfond (CEO)

Steve, I think we've already materially expanded the kind of cameras when we did our Filmed for IMAX program and our digital cameras. I don't remember, Megan, this year, how many films are in.

Megan Colligan (President of IMAX Entertainment)

We have 10 films that are certified through our digital program, and we're in the process of developing new film cameras. Will be ready in probably 18 months or so, maybe two years. Those cameras for our film program, but we still have a steady stream of films that are shot with our film cameras, which Oppenheimer was shot with our film cameras. There's a movie that we haven't announced that is shooting in the next couple of weeks. We'll begin shooting. That's shooting with our film cameras. Those are two different programs.

Filmed For IMAX program has been extremely successful, I think, at raising our indexing and signaling to audiences the intentionality of filmmakers to design movies for the IMAX screen and for IMAX sound and to design for everything that our systems offer.

Richard Gelfond (CEO)

Yeah. Again, circling back, there are lots of cameras because the digital program, there are add-ons to the digital cameras that most filmmakers use. You know, we're doing the new film cameras just 'cause we can expand the number of IMAX releases. There's no shortage of cameras to film, the Filmed for IMAX program. As you know, we're doing a lot of that globally.

Steven Frankel (Director of Research and Digital Media Analyst)

Great. Yeah, that was kinda where I was going. We're gonna start to see more of that with the local language content like we have in China over the last year or so.

Richard Gelfond (CEO)

Well, actually in the last three years, in each year, the biggest movie in China was one filmed with an IMAX camera and the Filmed for IMAX program. We've been hugely successful there. I think you will see it in other territories as well.

Steven Frankel (Director of Research and Digital Media Analyst)

One more question. I heard you describe Creed III as a, you know, IMAX sports movie. Is that a hint of maybe some different content we might see coming in the future?

Richard Gelfond (CEO)

Well, I mean, it's a boxing movie, and, you know, people who have seen it say it's kind of incredible. You know, it feels like you've never seen a boxing movie that way in terms of, the way the punches are portrayed, maybe even more the way they're received on the other end. You know, sure. I mean, we're always looking at new opportunities. We haven't announced anything else, but there are different sports movies we're in the middle of talking about. Yes.

Steven Frankel (Director of Research and Digital Media Analyst)

Okay, great. Thank you.

Operator (participant)

Thank you. Our next question comes from Chad Beynon with Macquarie. Your line is open.

Chad Beynon (Managing Director and Senior Analyst)

Hi. Good afternoon. Thanks for taking my question. Thanks for giving all the guidance. Wanted to ask about the system backlog. You talked about this year, 110-130. You have a backlog of 450, so great to see that this is increasing year-over-year. In terms of what's left beyond this year, can you kinda help us, you know, think about kinda what the gating factors are? Is this a good number to think of, you know, going forward, just given the backlog is this big and now you have local language to help with that? Or are there other reasons why, you know, that's not a good way to think about it beyond 2023? Thanks.

Richard Gelfond (CEO)

Well, I mean, the way to think about it is the world is coming back to normal. You know, as we mentioned during the call, in the first quarter, we signed a seven-theater deal in Japan, a 10-theater deal in Indonesia. There've been other deals that we signed that we haven't yet disclosed. You know, the quarter so far is one of the best first quarters we've ever had, and we're roughly halfway through it. People are coming back. The Avatar effect and the opening of China mean there's demand for IMAX theaters on a global basis. The number we gave for install guidance between 110 and 130, some of that will come from backlog, and some of that will come from new signings.

You know, it's too early in the year to say how much will come from backlog and how much will come from new signings. As the year progresses, we'll have a better feel for that. You know, Your question is about backlog. I'm answering you a little bit about signings. I'm just saying that if you go back even six months, you know, our company from a box office point of view, was doing extremely well. You know, outside China, we finished close to 2019 levels. Now we're seeing a normalization in other areas of our business, including installs and signings, and I think we'll continue to see that.

Chad Beynon (Managing Director and Senior Analyst)

That's great. Thanks, Rich. Then on the balance sheet, on slide 27, you talk about net debt to EBITDA of two times. Obviously, given your guidance, that'll come down. How should we think about the right leverage on this business given the return to stability? Then maybe a balance of how you're thinking about share repos versus opportunistic M&A that remains. Thanks.

Natasha Fernandes (CFO)

Sure. I mean, we have liquidity of over $450 million. I think we're well equipped to be able to make selected decisions that would further our business like we did with buybacks this year in giving in reducing our share count and bringing value back to shareholders, but also the acquisition of SSIMWAVE. You know, our operating cash flow was $17 million in Q4, which, you know, the cash flow dynamics improve as the industry improves.

Personally, cash flow is a huge focus for me, as you know, Chad, because of just my background from coming from treasury and being focused on that. I think we are equipped to be able to move forward, and we can lever up if needed. I, you know, we've made a good acquisition with SSIMWAVE this year and with buybacks. We're in a really good position. If you think about our convertible notes, they, with the capped call in there, they're at $37, and we're making buybacks at, you know, 15 on average. It's a, it's a great deal that we're sitting at right now.

Chad Beynon (Managing Director and Senior Analyst)

That's great. Appreciate it. Thank you very much.

Operator (participant)

Thank you. Our next question comes from Omar with Wells Fargo. Your line is open.

Omar Mejias (VP and Equity Research Analyst)

Good afternoon, guys, and thank you for taking my question. Rich, maybe first on going back to system signings, you talked about momentum in Q1 being strong and guidance seems to be ahead of expectations. Can you maybe give us some color on how the tone of those conversations with the other partners are changing? What's the opportunity of some of the international markets that IMAX is underrepresented? Then I have a follow-up. Thanks.

Richard Gelfond (CEO)

Yeah. Great question, Omar. First of all, we set, as I said in my script, records in 50 different markets for Avatar. Coincidentally, many of those markets are markets that we're very under penetrated in. In January, I went to India with our head of sales, and Mark Welton went to a bunch of countries in Southeast Asia, also with our head of sales. The attitude was so different than it was even six months ago. People were ecstatic. I mean, 50 countries had records, just putting it simply. They were all saying, you know, "How fast could I get more IMAXs?" It's parallel after the first Avatar. People are excited.

Again, you know, as I said in response to the last question, I mean, we have, as many signings as we've had, since 2019 in this period of time. You know, the tone is just extremely positive, and we feel really good about the number of discussions underway. You know, it's even places that you wouldn't necessarily think of. So for example, in France, we did almost $500,000 a screen for Avatar, and that's a vastly under-screened market, and there's been a lot of demand coming out of there. You know, in Japan, where we signed, the deal with AEON, there's a lot of other interest in Japan that we're working through.

I think you're seeing, you know, a global rebound now where people really wanna sign and install IMAXs, you know, much more rapidly than in the last couple of years. While I think, you know, China's probably behind that curve because they just opened, I expect, you know, within six months to see China moving towards that kind of position. you know, feel very good about that.

Omar Mejias (VP and Equity Research Analyst)

That's very helpful. Maybe on the 2023 content slate, it looks very strong as you alluded to. Just wondering, how do you manage slotting, screen sharing, and schedules to maximize the 2023 box office? I know there's periods that's very concentrated with lots of films, and then there's also periods like the back half of the year with lull. Just can you give us some color on how you manage the slotting and screen sharing for your box office? Thank you.

Richard Gelfond (CEO)

Well, the good news for us is that almost every major studio and every major filmmaker wants their film released in IMAX. That's pretty much where it starts, is they come to us in advance and they say, "I want the July date or the May date," or whatever it is. If they've used our cameras, we give them two weeks. If they haven't, we give them one week or more, depending on the nature of the movie. That's how we sort of start to form our slate. As the year goes on, people will say, "Well, I wanna do my movie that date." We'll either say we can do it or we can't do it based on what our commitments were up to that time.

We like to say, we can, but unfortunately, we have to turn down movies because people have booked that date in advance. It's good when the dates are competitive because you can help, you know, facilitate an IMAX release by encouraging them to move to another time. I call it an art rather than a science, and you try and do your best in terms of balancing the box office potential for a particular film, with your expectation of the gross of that film and with your expectation of the gross and how it'll fit into the IMAX. You know, unfortunately, this is the good news, bad news story.

There are so many good things going on in 2023, as far as we could tell, in 2024, that, you know, most of the way you can program blockbusters sequentially and fit them all in. Unfortunately, there's just too many. As a result, there are some you can't play. You know, that's the price of being a content curator like we are. You know, we're in a good place to make it work the best it can for IMAX, but it's not always gonna work perfectly.

Megan Colligan (President of IMAX Entertainment)

If I can just jump in and say one quick thing. I think in a post-COVID world, exhibitors have gotten Both on the exhibition side and on the studio side, there's been much more openness to program to ensure that the IMAX screens are as utilized as they can possibly be. There's been much more flexibility to do one night only special events, to program two movies on a weekend, and to be smart about a movie that will program very well during the day and have another movie playing in the evening. There are times where we are programming multiple movies in a week, and we did that very effectively in the back half of 2022.

We were very effective, I think, in making sure that we were utilizing our screens, I think, to the best of our ability. You'll continue to see that. I think there's a growing sense that that's that we need to be as effective as we can possibly be.

Omar Mejias (VP and Equity Research Analyst)

Great. Thanks, guys.

Richard Gelfond (CEO)

Thanks a lot.

Operator (participant)

Thank you. We have time for one last question. Our last question is from James Goss with Barrington Research. Your line is open.

James Goss (Managing Director and Senior Equity Analyst)

All right. thank you. I was curious, with, say, Top Gun last year offering an opportunity for a reprise and, when slots might have been made available, does Avatar: The Way of Water and possibly The Wandering Earth 2 in China offer some similar opportunity for coming back to the screen?

Richard Gelfond (CEO)

Yes, I think they do, James. You know, especially, seeing what happens at the Academy Awards and what wins and what doesn't. You know, you probably know, that we brought back Titanic for its 25th year anniversary this year. I think films that do especially well in IMAX and are suited to the IMAX screens, the demand runs a very long time. You know, I think you will see, some of the big films come back again.

James Goss (Managing Director and Senior Equity Analyst)

Okay. Maybe one other since it's getting late. In China, I think the platform is bigger than it was in 2019, but your PSAs have come back as well. I'm wondering if you look at the mix of platform growth and PSA, how you're looking at that opportunity in China to move beyond what it might have been in 2019, and what do you think would be the more important source of incremental revenues?

Richard Gelfond (CEO)

Well, James, especially because we've increased local language film as a percentage of our slate, and those films do particularly well in lower-tier cities, there's definitely an opportunity for higher PSAs, not just in China, but in all the markets in the world where we're playing local language films. Again, you know, you look at Japan, our PSAs are $1.8 million or, you know, double North America. That's definitely an area of huge opportunity. As you say, we've had platform growth there also. I think it's a matter of time before we could set records in China again.

You know, I don't wanna predict it for 2023, 'cause six weeks ago, people were locked in their homes with drones flying over their heads and boxes of chicken thrown at their front doors because of the quarantine. You know, given how fast they've come to a record Chinese New Year, you know, I think we're encouraged, but I think we're also wanna be a little bit measured about, you know, changing the world in another six weeks.

James Goss (Managing Director and Senior Equity Analyst)

All right. Well, thanks much. I'll leave it go at that.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to turn the call back over to Rich Gelfond for closing remarks.

Richard Gelfond (CEO)

You know, I think hopefully it comes through in our presentation and to our answers to our questions. You know, on kind of every KPI on IMAX from an investor point of view, you know, whether it's box office, whether it's signings, whether it's installs, whether it's margins, you know, we're feeling really good about our business and extremely confident. It's not like we only manage our business from afar.

You know, many of us are on the road, and I happen to be in L.A. right now, meeting with studios and filmmakers and whatever our constituencies are, whether they're exhibitors, they're filmmakers, you know, could be the studios, audiences, you look at the box office numbers. It just feels like a very good time to be at IMAX. You know, we feel that, as you saw in our guidance, that that will be reflected in this year's financial results. Thank you all for joining us, and we look forward to the first quarter call.

Operator (participant)

Thank you for your participation. You may now disconnect. Everyone, have a great day.