NEW YORK – October 31, 2019 – IMAX Corporation (NYSE: IMAX), a global leader in entertainment technology, today reported financial results for the three months ended September 30, 2019.
Highlights for Third Quarter 2019
(Note: Percentage and other changes refer to third quarter 2018 unless otherwise noted.)
- Strong execution and cost discipline driving solid financial performance and increased operating leverage.
- 5.2% increase in revenue.
- 19.1% growth in global box office.
- 11.7% increase in gross profit and approximately 310 basis point increase in gross profit margin to 54.5%.
- 79.9% increase in GAAP net income attributable to common shareholders to $9.0 million, or $0.15 per share; 50.0% increase in adj. net income per share to $0.21.
- 45.2% increase in GAAP net income to $10.9 million; 25.6% increase in adj. EBITDA and approximately 570 basis point increase in adj. EBITDA margin.
Note: For the definition and reconciliations of reported results to non-GAAP financial results, please refer to Tables 8-10 and the discussion of non-GAAP financial measures at the end of this earnings release.
The Company delivered impressive third quarter results as it continues to grow its core business while developing new strategic initiatives. Results for the quarter were driven by a 19.1% increase in global box office, including 23.3% growth in domestic box office, and a 9.4% increase in its global commercial network to 1,473 theatres in 81 countries and territories. The Company’s continued momentum is complemented by potential levers around new strategic initiatives including IMAX Enhanced and non-traditional content.
“IMAX again delivered strong results for the quarter with 5% revenue growth and costs maintained at prior year levels, driving a 26% increase in adjusted EBITDA and 50% increase in adjusted EPS,” said IMAX CEO Richard L. Gelfond. “We are on track for our best year ever at the global box office. In China our box office is up 27% in RMB through early October and we recently grew our box office by more than 160% during the pivotal National Day holiday. And we look forward to the highly anticipated Star Wars: The Rise of Skywalker, final installment of the Star Wars saga, in December.”
“Looking ahead to 2020, we continue to build out a strong slate headlined by a record number of releases filmed in IMAX® and proven franchise properties — demonstrating our longstanding relationships with world-class creators, our ability to create new opportunities to drive IMAX market share on key titles, and growing demand for our end-to-end technology,” Gelfond added.
“Building on the strength of our core business, we are developing new opportunities for future growth while maintaining cost discipline. In partnership with leading manufacturers and streaming platforms, we are leveraging our strong brand and technology to extend our offerings into the home through IMAX Enhanced. Additionally, we continue to partner with innovative artists across genres to create truly unique events that drive increased utilization throughout our global network.”
“We believe that the powerful combination of momentum in our attractive core business and new potential levers of growth under development, position us well for the future.”
Third Quarter 2019 Consolidated Results
Revenues: Total revenues of $86.4 million increased $4.3 million, or 5.2%, compared to $82.1 million for the three months ended September 30, 2018. The $4.3 million increase in revenue was driven principally by a $6.5 million, or 17.8%, increase in Network business revenue on a $39.7 million, or 19.1%, increase in gross box office to $246.1 million (see Table 2). The $39.6 million increase in gross box office was driven by a $26.5 million, or 39.8%, increase in international gross box office, excluding China, and a $14.4 million, or 23.3%, increase in domestic gross box office. Partially offsetting the strong increase in Network revenue was a $3.0 million decline in revenues related to theater installations discussed below in the segment review. Year-to-date, total revenues increased $5.9 million, or 2.2%, to $271.4 million, primarily due to an $11.3 million, or 7.9%, increase in Network revenue on a $71.9 million, or 9.0%, increase in gross box office to $867.3 million.
Network: The IMAX theater network consisted of 1,568 systems as of September 30, 2019, of which 1,473 were in commercial multiplexes, representing a year-over-year increase of 127 theaters, or 9.4%, and 1,065, or 72.3%, were located in international markets.
Signings and Backlog: IMAX signed contracts for 22 new theaters and 8 upgrades in third quarter 2019, reflecting the continuing strong demand for the Company’s technology and systems. There were 607 theaters in backlog, including 125 upgrades, as of September 30, 2019, compared to 635 in backlog, including 112 upgrades, as of September 30, 2018. For a breakdown of theater system signings, installations, backlog and the theater network, please refer to Table 3 at the end of this earnings release.
Operating Expenses: Operating expenses, defined as selling, general and administrative plus R&D, excluding stock-based compensation, were $25.9 million, essentially flat compared to the prior year period. Year-to-date, operating expenses decreased 6.6% to $77.6 million from $83.1 million in the prior year.
Net Income: Net income increased 45.2% to $10.9 million, compared to $7.5 million in the prior year period. Year-to-date, net income increased 24.8% to $37.2 million, compared to $29.8 million in the prior year period.
Adjusted EBITDA: Adjusted EBITDA increased 25.6% to $32.4 million, compared to $25.8 million in the prior year period and the adjusted EBITDA margin, defined as adjusted EBITDA per Credit Facility divided by adjusted revenues attributable to common shareholders (see Table 8), was 41.4% compared to 35.7% in the prior year. Year-to-date, adjusted EBITDA increased 5.9% to $102.4 million, compared to $96.7 million in the prior year period and the adjusted EBITDA margin was 41.8%, compared to 40.4% in the prior year.
Table 1: Third Quarter Segment Results
- Network business segment revenues increased 17.8% to $43.2 million, compared to $36.7 million in the prior-year period. The $6.5 million increase in revenues was driven principally by a $4.3 million, or 19.2%, increase in IMAX DMR revenues and a $2.2 million, or 15.5%, increase in revenues from joint revenue sharing arrangements. The strong increase in revenues was driven by a $39.7 million, or 19.1%, increase in IMAX global box office. Year-to-date, Network business segment revenues increased 7.9% to $153.8 million, compared to $142.5 million in the prior year period on a 9.0% increase in box office.
- The blended take-rate for IMAX DMR and joint revenue sharing arrangements was 17.6% in the quarter, compared to 17.8% in the prior year period. Year-to-date, the blended take-rate was 17.7%, compared to 17.9% in the prior year.
- Gross margin for the Network business was 63.4%, compared to 61.4% in the prior-year period. The increase in gross margin for the business was driven principally by higher box office, partially offset by a $1.7 million, or 11.8%, increase in cost of goods sold. Year-to-date, gross margin for the Network business was 66.5%, compared to 68.0% in the prior year.
- Theater business segment revenues decreased $3.0 million, or 7.5%, to $37.7 million, compared to $40.7 million in the prior year period. The $3.0 million decrease in revenues was driven principally by:
- One fewer new sales and sales-type lease arrangement in the quarter, as well as one used system.
- Two fewer hybrid joint revenue sharing lease arrangements.
- The average revenue per new sales and sales-type theater system installed was $1.2 million, compared to $1.3 million in the prior year period.
- Year-to-date, Theater business segment revenues decreased $3.6 million, or 3.4%, to $102.9 million, compared to $106.5 million in the prior year period. Please refer to Table 3 for detail on our signings, installations and theater network at the end of this earnings release.
- Gross margin for the Theater business was 48.8% in the third quarter, compared to 49.6% in the prior year period and the margin on sales and sale-type theaters was 48.5% in third quarter 2019, compared to 49.6% in the prior year period.
- Year-to-date, gross margin for the Theater business segment was 45.7%, compared to 53.2% in the prior year. The decline in gross margin year-to-date was principally driven by lower margin on sales and sales-type leases due to the Company's decision to allocate additional resources to ensure the successful roll-out and launch of its new IMAX with Laser technology.
Cash Balances and Outstanding Debt (Table 5)
Total cash and cash equivalents as of September 30, 2019 was $102.5 million, which includes $83.4 million held in IMAX China. Total bank indebtedness was $18.1 million as of September 30, 2019 (net of $1.9 million of deferred financing fees) and represented a decrease of $19.7 million from $37.8 million (net of $2.2 million of deferred financing fees) as of December 31, 2018. As of September 30, 2019, $280.0 million was available under the $300.0 million credit facility in place due June 28, 2023.
Share Count and Capital Return
The weighted average diluted shares outstanding in third quarter 2019 declined 2.1% to 61.5 million, compared to 62.8 million in third quarter 2018, due primarily to share repurchase activity. In third quarter 2019, a total of 47 thousand shares were repurchased at an average price of $20.35 for a total value of approximately $950 thousand. A total of $125.9 million is available under the outstanding share repurchase authorization, which expires in June 2020.
Full-Year 2019 Guidance
IMAX’s updated guidance for full-year 2019 is as follows:
- IMAX global box office is expected to experience low double-digit growth compared to the $1,032.1 million recorded in full-year 2018.
- Operating expenses, defined as selling, general and administrative expenses less stock-based compensation plus research and development costs are expected to be in-line with the $110.7 million recorded for full-year 2018.
- The effective tax rate is expected to be approximately 23%.
- Adjusted EBITDA margin is expected to be approximately 41% to 42%.
- Total theater installations are now expected at the high-end of the range of 185 to 190 systems, with new theater installs now expected to be slightly below the low-end of the range of 140 to 145 systems, and upgrades to IMAX with Laser now expected to be slightly above the previous guidance of approximately 45 systems. The resulting shift in mix of installations, therefore, is expected to be revenue neutral in fourth quarter 2019 due to the sales-type structure and margin profile of the additional upgrades.
- Total theaters equipped with IMAX with Laser are now expected to be slightly below the previous guidance of approximately 140 systems.
The Company will host a conference call today at 8:30 AM ET to discuss its third quarter 2019 financial results. This call is being webcast by Nasdaq and can be accessed at investors.imax.com. To access the call via telephone, interested parties in the US and Canada should dial (800) 367-2403 approximately 5 to 10 minutes before the call begins. Other international callers should dial (647) 490-5367. The conference ID for the call is 3701970. A replay of the call will be available via webcast at investors.imax.com or via telephone by dialing (888) 203-1112 (US and Canada), or (647) 436-0148 (international). The Conference ID for the telephone replay is 3701970.
For more information about the Company’s results, please refer to the IMAX Investor Relations website located at investors.imax.com.
Investor Relations Website and Social Media
On a weekly basis, the Company posts quarter-to-date box office results on the IMAX Investor Relations website located at www.imax.com/content/investor-relations. The Company expects to provide such updates on Friday of each week, although the Company may change this timing without notice. Results will be displayed with a one-week lag. In addition, the Company maintains a Twitter account: @IMAX_Investors. The Company intends to use Twitter to disclose the box office information, as well as other information that may be of interest to the Company’s investor community.
The information posted on the Company’s website and/or via its Twitter account may be deemed material to investors. Accordingly, investors, media and others interested in the Company should monitor the Company’s website and its Twitter account in addition to the Company’s earnings releases, SEC filings and public conference calls and webcasts.
About IMAX Corporation
IMAX, an innovator in entertainment technology, combines proprietary software, architecture and equipment to create experiences that take you beyond the edge of your seat to a world you’ve never imagined. Top filmmakers and studios are utilizing IMAX theaters to connect with audiences in extraordinary ways, and, as such, IMAX’s network is among the most important and successful theatrical distribution platforms for major event films around the globe.
IMAX is headquartered in New York, Toronto and Los Angeles, with additional offices in London, Dublin, Tokyo, and Shanghai. As of September 30, 2019, there were 1,568 IMAX theater systems (1,473 commercial multiplexes, 14 commercial destinations, 81 institutional) operating in 81 countries and territories. On October 8, 2015, shares of IMAX China Holding, Inc., a subsidiary of IMAX Corporation, began trading on the Hong Kong Stock Exchange under the stock code “HK.1970.”
IMAX®, IMAX® 3D, IMAX DMR®, Experience It In IMAX®, An IMAX 3D Experience®, The IMAX Experience®, IMAX Is Believing® and IMAX nXos® are trademarks of IMAX Corporation. More information about the Company can be found at www.imax.com. You may also connect with IMAX on Facebook (www.facebook.com/imax), Twitter (www.twitter.com/imax) and YouTube (www.youtube.com/imaxmovies).
For additional information please contact:
IMAX Corporation, New York
IMAX Corporation, New York
This earnings release contains forward looking statements that are based on IMAX management's assumptions and existing information and involve certain risks and uncertainties which could cause actual results to differ materially from future results expressed or implied by such forward looking statements. Important factors that could affect these statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its consolidated subsidiaries (the "Company") and expectations regarding the Company's future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada; risks related to the Company’s growth and operations in China; the performance of IMAX DMR films; the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; risks related to currency fluctuations; the potential impact of increased competition in the markets within which the Company operates; competitive actions by other companies; the failure to respond to change and advancements in digital technology; risks relating to recent consolidation among commercial exhibitors and studios; risks related to new business initiatives; conditions in the in-home and out-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security and data privacy; risks related to the Company’s inability to protect the Company’s intellectual property; general economic, market or business conditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; the failure to fully realize the projected cost savings and benefits from any of the Company’s restructuring initiatives; and other factors, many of which are beyond the control of the Company. These factors, other risks and uncertainties and financial details are discussed in IMAX’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Primary Reporting Groups
The Company has four primary reporting groups identified by nature of product sold or service provided: (1) Network Business, representing variable revenue generated by box-office results and which includes the reportable segments of IMAX DMR and contingent rent from the JRSAs and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments, and also includes fixed hybrid revenues and upfront installation costs from the JRSA segment; (3) New Business, which includes home entertainment, and other new business initiatives that are in the development, start-up and/or wind-up phases, and (4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items.
Non-GAAP Financial Measures
In this release, the Company presents adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share, EBITDA, Adjusted EBITDA per Credit Facility, Adjusted EBITDA margin and free cash flow as supplemental measures of performance of the Company, which are not recognized under U.S. GAAP. The Company presents adjusted net income and adjusted net income per diluted share because it believes that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) and non-recurring charges on net income. In addition, the Company presents adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results and could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable to non-controlling interests and its stock-based compensation (net of any related tax impact) and non-recurring charges in determining net income attributable to common shareholders. Management uses these measures to review operating performance on a comparable basis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share should be considered in addition to, and not as a substitute for, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP.
The Company is required to maintain a minimum level of “EBITDA”, as such term is defined in the Company’s credit agreement (and which is referred to herein as “Adjusted EBITDA per Credit Facility”, as the credit agreement includes additional adjustments beyond interest, taxes, depreciation and amortization). EBITDA and Adjusted EBITDA per Credit Facility (each as defined below) should not be construed as substitutes for net income or as better measures of liquidity as determined in accordance with U.S. GAAP. The Company believes that EBITDA, Adjusted EBITDA per Credit Facility and Adjusted EBITDA margin are relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry. Accordingly, the Company is disclosing this information to permit a more comprehensive analysis of its operating performance and to provide additional information with respect to the Company’s ability to comply with its credit agreement requirements.
Free cash flow is defined as cash provided by operating activities minus cash used in investing activities (from the condensed consolidated statements of cash flows). Cash provided by operating activities consist of net income, plus depreciation and amortization, plus the change in deferred income taxes, plus other non-cash items, plus changes in working capital, less investment in film assets, plus other changes in operating assets and liabilities. Cash used in investing activities includes capital expenditures, acquisitions and other cash used in investing activities. Management views free cash flow, a non-GAAP measure, as a measure of the Company’s after-tax cash flow available to reduce debt, add to cash balances, and fund other financing activities. Free cash flow does not represent residual cash flow available for discretionary expenditures. A reconciliation of cash provided by operating activities to free cash flow is presented in Table 10.
IMAX Global Box Office & Selected Data
Signings, Installations and Backlog
SELECTED FINANCIAL DATA
(In thousands of U.S. dollars)
Adjusted EBITDA per Credit Facility
(In thousands of U.S. dollars)
Adjusted Net Income and Adjusted Diluted Per Share Calculations
(In thousands of U.S. dollars)
Free Cash Flow Calculation
(In thousands of U.S. dollars)