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IMAX Corporation (NYSE:IMAX) Third Quarter 2023 Earnings Call Transcript, October 25, 2023
Operator: Good morning, gentlemen. Thank you for being here. Welcome to IMAX Corporation’s third quarter 2023 earnings conference call. Right now, all participants are in listen-only mode. [Operator’s Instructions] Please note that today’s convention is being taped lately. Now I move on to Hand It Over to Your Host, Jennifer Horsley, Head of Investor Relations. Please come in.
Jennifer Horsley: Good morning and thank you for joining us today for the third quarter 2023 earnings call. On today’s earnings call: Rich Gelfond, President and Chief Executive Officer; and Natasha Fernandes, our Chief Financial Officer. Rob Lister, General Counsel, is also joining us today. Today’s conference call is streamed in its entirety on our website. There will be a replay of the webcast shortly after the conference call. In addition, the full text of our earnings press release and slideshow were posted on Investor. Relationships segment of our website. Our old Excel template is also displayed on the website. I would like to remind you of all of the following regarding forward-looking statements.
Today’s call and accompanying slide presentation may include forward-looking statements and statements regarding long-term results or effects. These forward-looking statements are subject to risks and uncertainties that may prevent our actual long-term effects from occurring or prevent events from occurring. Please refer to our SEC filings for a more detailed discussion of some of the points that may also affect our effects and long-term effects. Any forward-looking statements we make in connection with this call are based on assumptions as of today, and we undertake no legal responsibility to update such statements as a result of new information, long-term events or otherwise. During today’s call, references may be made to certain non-GAAP monetary measures. Discussion of management’s use and definition of those measures and their reconciliation to non-GAAP monetary measures is in this morning’s press release and in our earnings materials, found on the Relationships page with Investors from our online page at imax. com.
With that, let me turn to Mr. Richard Gelfond. Rich?
Richard Gelfond: Thank you, Jennifer, and thank you all for joining us this morning. In fact, this is the most productive time in IMAX. The company delivered record functionality in the third quarter. We’ve had many smart rooms, however, few have exceeded our expectations like this one. Adjusted EBITDA of $45 million, up 174% year-over-year; and an EBITDA margin of 47%, an IMAX record for the third quarter; significant year-over-year expansion in revenue, gross margin and adjusted EPS; A global box office of $347 million, our second-highest grossing quarter ever. We’re still on track to earn our highest global box office percentage in 2023, and to date we’ve generated 120 signings for new and advanced IMAX systems worldwide. , adding our largest deal in 4 years.
Almaximum every day brings new evidence of our dominant logo, our market power, and our call to the IMAX experience. Fans traveled hours and hundreds of miles to see Oppenheimer in an IMAX movie. Dune filmmaker Denis Villeneuve proclaimed IMAX “the long career of cinema. ” Our functionality with Taylor Swift and Killers of the Flower Moon proves that we are expanding our logo to new audiences and genres. And the summer of 2023 was the biggest summer in our history in 54 countries around the world, from Argentina to Vietnam, from the United States to China, underscoring the geographic breadth of our success. Our effects and market share have skyrocketed as IMAX has the favorite way to revel in events around the world. We’ve created the most powerful and varied content portfolio. in our history, achieving new audiences with Hollywood blockbusters, local-language films, featured theatrical premieres through online streams, concert films, documentaries, and live events.
And virtually all of this works on our network, reducing the volatility of the IMAX box office workplace. In a very dynamic environment for media and entertainment, the only thing consistent is IMAX’s superior performance. We remain on track to generate significant expansion in formula, services and adjusted EBITDA firms for the full year. And we’ve already surpassed our 2022 total box office. Today, I’d like to talk about how we’re building our logo and our influence on the market through our box office effects and how that momentum translates into overall results. Network expansion. I will then give the floor to Natasha to provide you with our monetary effects before answering your questions. This quarter is our second highest-grossing quarter at the global box office.
We’ve grossed over $184 million with Oppenheimer to date, just about 20% of the film’s total international box office during our tour. While Oppenheimer is the cornerstone of our performance, it is not the only construction. block. In China, the local release Creation of the Gods Part 1 grossed more than $32 million in IMAX. Lost in the Stars and No More Bets in China also generated strong returns and local releases in Japan and India also made a significant contribution. 2023 is already our most productive year for the local language box office with over $200 million to date and there are still almost three months to go. In the third quarter, 22% of our global box office in 2023 came from local-language films. up from just 12% in 2019.
This year, we will program more than 50 local-language films in our network, as we expand our strategy into new markets, most recently Malaysia. In addition, we continue to promote IMAX as a music curation destination, such as concert movies. grow in popularity in multiplexes around the world. Talking Heads’ Stop Making Sense was our highest-grossing live IMAX event to date with its first run at the Toronto International Film Festival. Film Helped Set the Table for TAYLOR SWIFT | THE ERAS TOUR will offer very good functionality in IMAX, with a opening weekend of more than $13 million worldwide, adding up to 12% of the film’s domestic debut. Our pre-sales for Beyoncé’s upcoming Renaissance concert film have also been pretty solid. In the fall, we’ll be releasing two prestigious Apple Films films, Killers of the Flower Moon and Napoleon.
With Killers of the Flower Moon, we earned 14% of the domestic box office from the opening weekend. We’re especially pleased with our indexing to Killers, given that this is our first release with Apple, which plans to spend $1 billion a year in theaters. launches, with the momentous scope and scale you’d expect from such a visionary company. From our recent local language to music pickets and Apple Movies, all those videos have one thing in common: they weren’t in our catalog at first. of the year. This is a testament to our ability to strategically manage our real-time programming and the growing diversity of our portfolio. We anticipate that there will be some movement on the 2024 release dates due to the effect of the moves. Given the strength of our functionality this year, we believe there are positive prospects for IMAX in Dune: Part Two, which will be postponed until March 24, anchoring our first-quarter box office.
The highly anticipated sequel was shot 100 percent with IMAX cameras compared to 40 percent for Dune 1. We also know that the movement on the 2024 roster can create a space for us to release films that we currently can’t, in the same way. The way the action of Dune allows us to play the movie. The prequel to Marvels and the Hunger Games in the current quarter. These additions show how nimble and quick we can be to find new sources of content and box office profits. And the features of 2024. new installments of IMAX-compatible franchises, from Dune to Godzilla vs. Kong, Captain America, Joker, and more. Looking ahead, IMAX has reinstated the boxed workplace calculation we can do in any given year. In 2023, 90 films will be released. Before the pandemic, we averaged around 61 launches per year. 2019 was our most productive year at the global box office.
It’s also the highest-grossing year in box office history, with nine total releases topping $1 billion, from Endgame to The Rise of Skywalker. This year, we’ve only noticed two films that grossed $1 billion, and one of our biggest releases. , Dune 2, has been completely removed from the year. And yet, IMAX is achieving box office levels similar to 2019. More than ever, our effects and market share clearly show that we are a very different company from our operating partners. In the same way that the Avatar sequel revived our systems sales business last year, our collaboration with Oppenheimer has given us even more momentum. We now have 120 firms this year for new and advanced IMAX systems around the world. In PSA’s high-potential markets this year, we generated strong advertising activity in the APAC region, including Malaysia, where we just closed a six-system deal with Golden Screen Cinemas.
Despite a relatively small IMAX footprint, Malaysia has been among our top 25 smartest global markets. Since the beginning of the year, we have signed more in Malaysia than in any other global market outside of the United States and China. In Japan, we finished installing the seven formulas we authorized to AEON earlier this year, which have already generated more than $2 million in box office earnings since the first site opened in May. IMAX is also returning to a very productive box office this month with IMAX. Sydney. Before its closure in 2016, IMAX Sydney was one of our most successful cinemas on the planet. The new formula and the newly opened Darling Harbour shopping, hotel and entertainment complex includes laser IMAX and one of our largest screens in the world.
Given the normal functionality of our site in Melbourne this year, where we expect to exceed $4 million in box office revenue, we are confident that Sydney will make a significant contribution to our box office results. In its first week of operation, the new IMAX Sydney was our most successful venue in the U. S. global overseas. Finally, this month, we revived our expansion in China with a 20-screen deal with Hengdian Films, our biggest deal for new IMAX sites in 4 years. With respect to IMAX China, we announced earlier this month that our privatization proposal did not obtain the required 90% vote of independent shareholders for approval. While we are disappointed, we are far from a deterrent when it comes to our business in China.
From our transfer momentum to our impressive box office recovery this year, it’s clear that China remains a huge opportunity for IMAX. We will look for other tactics to capture some transactional synergies as we advance our position in the Chinese entertainment ecosystem. In conclusion, our record effects for the third quarter offer compelling evidence of the paradigm shift towards IMAX in the global market. We agree with Denis Villeneuve that IMAX is the long-term of cinema. We are leading the transition to premium cinema, the world’s only high-end cinema platform. The emergence of concert films, a genre specifically tailored to the visual, sound, and live capabilities of IMAX, is just our position. Finally, we continue to grow our logo and our generation across the ecosystem, having recently merged our IMAX Enhanced and SSIMWAVE licensing businesses under the unified IMAX Streaming logo.
We’re on track to deliver strong full-year expansion, build momentum through 2024, and drive long-term global expansion across the IMAX network. There’s never been a better time for IMAX and we’re thrilled that it continues. Merci. Et with that, I’m going to hand it over to Natasha.
Natasha Fernandes: Thank you Rich and hi everyone. Our third-quarter results reflect the growing demand for the IMAX experience and the expansion of our content portfolio across our global footprint. More than ever, we’re able to optimize our programming and maximize annualized revenue to ever-higher levels. This, in turn, is driving more powerful global demand for IMAX formulas, creating a very positive long-term expansion momentum. During the quarter, we set a new third-quarter box office record of $347 million and a record adjusted EBITDA margin of 47% in the third quarter. Signings are now 2. 5 times larger than we did during all of 2022 and the speed of installations is increasing as we close out the year. In addition, we achieved record adjusted EPS of $0. 35 in the third quarter, up more than 50% from 2019, reflecting our increased earnings strength due to the combination of higher earnings and a reduction in shares outstanding.
We are on track to meet or exceed all of our full-year forecasts. We expect an IMAX box office of at least $1. 1 billion, installs of 110 to 130 IMAX systems, and an adjusted EBITDA margin that will tend to be higher than the initial half. -1930 expectations are expected for the whole year. Now, let’s take a closer look at the third quarter. The $347 million box office is up 96% year-over-year, bringing us to $889 million year-to-date. As he pointed out, we see an excessive percentage of opening weekends in Hollywood and in local languages, above our old norm. Looking ahead to 2024, there are many stocks shown for which we expect over-indexing, with Dune: Part Two being the biggest of the first part of the year. With Dune: Part One, IMAX generated $55 million at the global box office and indexed more than 17% globally throughout the run, despite the film being released during the pandemic and will be held simultaneously on HBO Max.
We can’t wait to see what Dune: Part II can do, especially since it was shot 100 percent in IMAX compared to 40 percent for the first film. Total cash in the third quarter was $104 million, up 51% from $69 million in the third quarter of 2022. Given the constant nature of our costs, this expansion is reflected in a strong profit stream with a gross margin of $63 millions. , an increase of 98% year over year. Array and overall led to a gross margin of 60% in the third quarter. Both segments contributed to the year-over-year accumulation of cash and gross profit. Content Answers’ cash revenue of $44 million represented 43% of total cash revenue and grew 101% year over year, driven by strong workplace performance from IMAX theaters. Gross profit of $26 million increased 189% year over year and achieved a 60% margin, illustrating the significant operating leverage of our style, which is amplified by cashier workplace levels. higher workplace.
Technology products and cash inflows of $56 million accounted for 54% of total cash inflows and were up 23% year-over-year. Gross profit of $34 million increased 55% year-over-year. This clever result can be explained through the expansion of IMAX ticket sales and formula installations in the context of hybrid sales or deals. In total, we completed 30 installations in the quarter, compared to 17 last year. Of the facilities, 16 were sales or hybrids and 14 were joint rentals with cash sharing. As exhibitors’ balance sheets recover, they are obviously making a premium investment, which accelerates our installation speed, positioning us overall for a strong 2023. This is also reflected in the dynamics of our firms. We are at 120 signatures today, more than double the 47 for all of 2022.
Our signings statistics to date highlight the widespread demand for the IMAX experience. 101 of the firms, or more than 84%, were new systems, up from 30 in all of 2022. 20% were in the United States and Canada and 13% in Europe, 38% in Japan and Southeast Asia. And we’re seeing firms start to pile up in China, up to 24 so far, with the Hengdian deal that Rich discussed earlier. In terms of operating expenses, we are making an investment for long-term expansion and leveraging our differentiation and strong brand. Expenditure on R&D
As a percentage of revenue, general and administrative expenses, share-based reimbursement was 30% compared to 41% in the third quarter of 2022, an improvement of approximately 1,100 basis points, reflecting the leverage of our business style, coupled with continued concentration. about the field efforts in charge. Adjusted EBITDA attributable to IMAX was $45 million, a cumulative $29 million or 174% year-over-year. Growth across all of our segments and the strong operating leverage of our business style led to this perfect result. From a margin perspective, adjusted EBITDA attributable to IMAX was 47%, one of the highest quarters in our history. On a net income basis, adjusted EPS of $0. 35 in the third quarter particularly outpaced the prior year’s loss of $0. 05, reflecting an expansion. in Adjusted EBITDA.
Nine-month cash investment was $55 million, or $0. 99 per share, a significant increase from $480,000 in the first nine months of 2022. The year-over-year improvement reflects our increase in earnings and the accelerated recovery of our exposure. customers’ businesses after COVID. For context, on a consolidated basis, the constant cash outflow for the full year 2022 was $17 million. Therefore, the constant cash outflow since the beginning of the year in September is more than 3 times higher than it was for the 2022 total. Our capital position remains very strong as we ended the quarter with $109 million in cash and $258 million in debt excluding deferred financing costs. $230 million of our debt comes from our senior convertible notes due 2026, bringing in an interest rate of 0. 5% per annum with a limited call option of $37 per share.
Our existing liquidity is approximately $439 million, totaling $109 million in cash and cash equivalents and $330 million of available borrowing capacity under the Company’s various revolving facilities. From a capital allocation perspective, the bottom line of the IMAX China transaction allows for more capital to be available. Our percentages are particularly undervalued and therefore we will continue to prioritize percentage buybacks as a use of money, just as we did in 2022. To date, in the fourth quarter, we have repurchased approximately $4 million. value of the percentages and we are left with 187 million percentages. which will be included as a component of our percentage buyback authorization. In conclusion, the third quarter is the most emphatic demonstration yet that this is a make-or-break year for IMAX.
We provide a stable flow of IMAX box office, market square percentage, and monetary records. We manage our content portfolio well to maximize results. The situation restarted after the pandemic and we emerged stronger in annualized terms. The opportunities ahead of us in 2024 and beyond are even greater. Demand for the IMAX experience is at an all-time high. We consistently set percentage records in the market across all film genres, broadening the demographics of our fan base. Studios, filmmakers, and exhibitors realize that IMAX is the largest premium entertainment generation company in our space, with unmatched global reach. This drives our formula sales and drives us into new market segments such as streaming and customer generation.
Most importantly, as our expansion accelerates, our highly progressive, asset-based style of business is resulting in higher margins, net profit expansion, and physically powerful money generation. In short, our ability to optimize our effects across a portfolio of content, combined with the growing demand for our generation solutions positions us well against our full-year guidance and sets us up for long-term success. With that, I’ll pass the call on to the operator for questions and answers.
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