Presse

IMAX Corporation Reports Third Quarter 2018 Results
Oct 25, 2018

NEW YORKOct. 25, 2018 /PRNewswire/ -- 

HIGHLIGHTS

  • Delivered Q3 2018 earnings per share of $0.08, compared to a loss per share of $0.01 last year. Adjusted net income per share was $0.14, compared to $0.08 in Q3 2017.
  • Strong box office, continued cost discipline and focus on the core business helped drive a 670-basis point increase in operating margins, the Company's third consecutive quarter of margin expansion.
  • Greater China box office increased 30.5% in the third quarter, compared to last year, driven by compelling slate of Hollywood and Chinese local language blockbusters.
  • Since launching its best-in-class IMAX with Laser product in April, the Company has signed agreements for more than 200 systems from exhibitors around the world.

IMAX Corporation (NYSE: IMAX) today reported third quarter 2018 revenues of $82.1 million, gross profit of $42.2 millionand net income attributable to common shareholders of $5.0 million, or $0.08 per diluted share. Adjusted net income attributable to common shareholders for the third quarter was $9.0 million, or $0.14 per diluted share. Adjusted EBITDA was $25.8 million. For reconciliations of reported results to non-GAAP financial results, and for the definition and reconciliation of Adjusted EBITDA, please see the end of this press release.

"Our momentum from the first half of 2018 continued into the third quarter. Compelling blockbuster content from Hollywood and China, coupled with our ongoing focus on controlling costs helped drive our third consecutive quarter of operating margin expansion," said IMAX CEO Richard L. Gelfond. "Looking ahead, we expect many of the factors contributing to our strong performance this year to benefit the Company into 2019 and beyond including the rapidly evolving media landscape. The convergence of streaming and traditional media platforms creates interesting opportunities for IMAX.

We are increasingly seeing content creators seeking to attract top filmmakers, eventize the launch of new content and broaden the consumer reach of that content. Our 1,400-plus theatre network across nearly 80 countries affords filmmakers the opportunity to launch their content in a highly-differentiated, premium format. We are in active discussions across these converging platforms and believe IMAX has a unique opportunity to influence the emerging trends in our industry and be a direct beneficiary of the evolving landscape."

Third Quarter 2018 Results

Network Update 
During the quarter, the Company installed 37 theater systems, 36 of which were for new theater locations. The total IMAX® theater network consisted of 1,443 systems as of September 30, 2018, of which 1,346 were in commercial multiplexes. There were 635 theaters in backlog as of September 30, 2018, compared to the 545 in backlog as of September 30, 2017.

IMAX also signed contracts for 25 new theaters and 12 upgrades in the third quarter of 2018.  For a breakdown of theater system signings, installations, network and backlog by type for the third quarter of 2018, please see the end of this press release.

Box Office Update 
Gross box office from IMAX DMR® films was $206.5 million in the third quarter of 2018 compared to $218.8 million in the third quarter of 2017. Gross box office was generated primarily by the exhibition of 29 films (24 new and 5 carryovers), as compared to 24 films (17 new and 7 carryovers) exhibited in the third quarter of 2017.

Third Quarter Consolidated Results
The gross margin across all segments in the third quarter of 2018 was $42.2 million, or 51.4% of total revenues, compared to $39.9 million, or 40.4% of total revenues, in the third quarter of 2017. Operating expenses (which includes SG&A, excluding stock-based compensation, plus R&D) were $26.0 million in the quarter.

Third Quarter Segment Results

Network Business

  • Network business revenues were $36.7 million in the quarter, compared with $42.6 million in the prior-year period. Gross margin for the network business were 61.4% in the most recent quarter, compared to 67.0% in the prior-year period.
  • IMAX DMR revenues were $22.4 million in the third quarter of 2018, compared to $26.0 million in the third quarter of 2017. Gross margin for the IMAX DMR segment was 64.6%, compared to 69.7% in the prior-year comparative period.
  • Revenue from joint revenue-sharing arrangements were $14.3 million in the quarter, compared with $15.6 million in the prior-year period.  Gross margin for joint revenue-sharing arrangements was 56.4%, compared to 60.1% in the prior-year comparative period.

Theater Business

  • Theater business segment revenues were $40.7 million in the quarter, compared with $43.5 million in the prior-year period, primarily reflecting the installation of four fewer sales-type theaters.
  • Gross margin on sales and sales-type leases was 49.6% compared with 60.7% in the year-ago period. The decrease in the recent period is primarily the result of four fewer system installations compared to the prior year period.

In addition to the Company's core revenue segments, new business revenue was $1.3 million in the quarter, compared to $8.9 million in the same period last year. New business revenues in 2017 were driven primarily by the launch of Marvel's Inhumans.  The company recognized a gross loss of $0.3 million in the quarter, compared to a gross loss of $11.9 millionin the third quarter of 2017.

First Nine Months Results
Through the first nine months of 2018, the Company generated $265.4 million of total revenue, a 4.0% increase compared to the same period last year. Gross profit of $153.3 million resulted in a 57.7% gross margin, which compares to 49.0% in 2017. Net income of $29.8 million compares to the $3.8 million generated in 2017, while adjusted net income to common shareholders increased 121.4% to $41.4 million. The Company's financial performance through the first nine months is driven by its strong box office performance, focus on the core business and continued cost discipline.

Supplemental Materials
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 press releases, SEC filings and public conference calls and webcasts.

Conference Call
The Company will host a conference call today at 8:30AM ET to discuss its third quarter 2018 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 (877) 260-1479 approximately 5 to 10 minutes before the call begins. Other international callers should dial (334) 323-0522. The conference ID for the call is 9002042. 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 9002042.

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 YorkToronto and Los Angeles, with additional offices in LondonDublinTokyo, and Shanghai. As of September 30, 2018, there were 1,443 IMAX theater systems (1,346 commercial multiplexes, 13 commercial destinations, 84 institutional) operating in 79 countries as of September 30, 2018. On Oct. 8, 2015, shares of IMAX China, a subsidiary of IMAX Corp., 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).

This press 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; 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 the Company's restructuring initiative; 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.

For additional information please contact:

Investors:

IMAX Corporation, New York

Michael K. Mougias

212-821-0187

mmougias@imax.com

Media:

IMAX Corporation, New York

Amanda Collins

212-821-0155

abcollins@imax.com

Additional Information

Signings and Installations

     

September 30, 2018

     
  

Three Months

Ended September 30,

  
 

Theater Signings:

2018

 

2017

  
 

Full new sales and sales-type lease arrangements

22

 

17

  
 

New traditional joint revenue sharing arrangements

1

 

-

  
 

New hybrid joint revenue sharing lease arrangements

2

 

-

  
 

Total new theaters

25

 

17

  
 

Upgrades of IMAX theater systems

12

 

-

  
 

Total Theater Signings

37

 

17

  
       
       
  

Three Months

Ended September 30,

  
 

Theater Installations:

2018

 

2017

  
 

Full new sales and sales-type lease arrangements

15

 

19

  
 

New traditional joint revenue sharing arrangements

15

 

25

  
 

New hybrid joint revenue sharing lease arrangements

6

 

5

  
 

Total new theaters

36

 

49

  
 

Upgrades of IMAX theater systems

1

 

2

  
 

Total Theater Installations

37

 

51

  
       
  

Three Months

Ended September 30,

  
    
 

Theater Backlogs:

2018

 

2017

  
 

New sales and sales-type lease arrangements

189

(1)

170

  
 

New joint revenue sharing arrangements

     
 

Hybrid lease arrangements

119

 

130

  
 

Traditional arrangements

327

 

245

  
 

Total Theater Backlog

635

(2)

545

(3)

 
       
  

Three Months

Ended September 30,

  
    
 

Theater Network:

2018

 

2017

  
 

Commercial Multiplex Theaters:

     
 

Sales and sales-type lease arrangements

589

 

501

  
 

Traditional joint revenue sharing arrangements

641

 

575

  
 

Hybrid joint revenue sharing lease arrangements

116

 

127

  
 

Total Commercial Multiplex Theaters

1,346

 

1,203

  
       
 

Commercial Destination Theaters

13

 

13

  
 

Institutional Theaters

84

 

86

  
 

Total Theater Network

1,443

 

1,302

  
 

(1)

Includes 22 hybrid sales theater systems which were previously classified under joint revenue sharing arrangements – hybrid sales arrangements.

(2)

Includes 93 new laser projection system configurations, including 112 upgrades of existing locations to laser projection system configurations (110 of these 112 are for the new next generation laser projection system configurations).

(3)

Includes 25 new laser projection system configurations and three upgrades of existing locations to laser projection system configurations.

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)

              
   

Three Months Ended

 

Nine Months Ended

   

September 30,

 

September 30,

   

2018

 

2017

 

2018

 

2017

Revenues

            

Equipment and product sales

 

$

25,301

 

$

30,714

 

$

60,182

 

$

63,593

Services

  

39,440

  

49,817

  

138,971

  

133,264

Rentals

  

14,479

  

15,849

  

57,805

  

51,143

Finance income

  

2,888

  

2,420

  

8,479

  

7,214

    

82,108

  

98,800

  

265,437

  

255,214

Costs and expenses applicable to revenues

            

Equipment and product sales

  

14,099

  

14,270

  

29,620

  

32,352

Services

  

18,824

  

37,763

  

62,808

  

79,678

Rentals

  

6,994

  

6,899

  

19,722

  

18,086

    

39,917

  

58,932

  

112,150

  

130,116

Gross margin

  

42,191

  

39,868

  

153,287

  

125,098

Selling, general and administrative expenses

  

26,780

  

25,540

  

87,471

  

85,071

 

(including share-based compensation expense of $4.8 million and $15.5 million 
for the three and nine months ended September 30, 2018 (2017 — $5.2 million 
and $16.2 million, respectively))

            

Research and development

  

4,028

  

4,626

  

11,542

  

14,638

Asset impairments

  

-

  

-

  

-

  

1,225

Amortization of intangibles

  

1,039

  

802

  

2,896

  

2,182

Receivable provisions, net of recoveries

  

861

  

963

  

1,667

  

2,088

Legal arbitration award

  

-

  

-

  

7,500

  

-

Exit costs, restructuring charges and associated impairments

  

-

  

3,437

  

1,158

  

13,695

Income from operations

  

9,483

  

4,500

  

41,053

  

6,199

Interest income

  

631

  

253

  

1,121

  

761

Interest expense

  

(958)

  

(528)

  

(2,303)

  

(1,418)

Income from operations before income taxes

  

9,156

  

4,225

  

39,871

  

5,542

Provision for income taxes

  

(1,452)

  

(1,009)

  

(9,540)

  

(885)

Loss from equity-accounted investments, net of tax

  

(202)

  

(318)

  

(507)

  

(837)

Net income

  

7,502

  

2,898

  

29,824

  

3,820

Less: net income attributable to non-controlling interests

  

(2,482)

  

(3,748)

  

(8,674)

  

(6,307)

Net income (loss) attributable to common shareholders

 

$

5,020

 

$

(850)

 

$

21,150

 

$

(2,487)

              

Net income (loss) per share attributable to common shareholders - basic and diluted:

            

Net income (loss) per share — basic and diluted

 

$

0.08

  

(0.01)

 

$

0.33

 

$

(0.04)

              

Weighted average number of shares outstanding (000's):

            
 

Basic

  

62,551

  

64,736

  

63,466

  

65,624

 

Fully Diluted

  

62,793

  

64,803

  

63,580

  

65,834

              

Additional Disclosure:

            

Depreciation and amortization(1)

 

$

13,950

 

$

14,413

 

$

41,984

 

$

39,767

              

(1) Includes $0.4 million and $1.0 million of amortization of deferred financing costs charged to interest expense for the three and nine months 
ended September 30, 2018, respectively (2017 - $0.2 million and $0.4 million, respectively).

IMAX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)

      
      
    
 

September 30,

 

December 31,

 

2018

 

2017

Assets

     

Cash and cash equivalents

$

133,615

 

$

158,725

Accounts receivable, net of allowance for doubtful accounts of $3,192 (December 31, 2017 — $1,613)

 

106,117

  

130,546

Financing receivables

 

126,318

  

129,494

Inventories

 

52,614

  

30,788

Prepaid expenses

 

10,442

  

7,549

Film assets

 

16,220

  

5,026

Property, plant and equipment

 

276,090

  

276,781

Other assets

 

55,173

  

26,757

Deferred income taxes

 

27,326

  

30,708

Other intangible assets

 

30,688

  

31,211

Goodwill

 

39,027

  

39,027

Total assets

$

873,630

 

$

866,612

      

Liabilities

     

Bank indebtedness

$

17,625

 

$

25,357

Accounts payable

 

15,445

  

24,235

Accrued and other liabilities

 

104,983

  

100,140

Deferred revenue

 

114,075

  

113,270

Total liabilities

 

252,128

  

263,002

      

Commitments and contingencies

     
      

Non-controlling interests

 

8,029

  

1,353

      

Shareholders' equity

     

Capital stock common shares — no par value. Authorized — unlimited number.

     

62,760,262 issued and 62,585,192 outstanding (December 31, 2017 — 64,902,201 issued and 
64,695,550 outstanding)

 

431,290

  

445,797

Less: Treasury stock, 175,070 shares at cost (December 31, 2017 — 206,651)

 

(3,597)

  

(5,133)

Other equity

 

184,133

  

175,300

Accumulated deficit

 

(70,888)

  

(87,592)

Accumulated other comprehensive loss

 

(4,185)

  

(626)

Total shareholders' equity attributable to common shareholders

 

536,753

  

527,746

Non-controlling interests

 

76,720

  

74,511

Total shareholders' equity

 

613,473

  

602,257

Total liabilities and shareholders' equity

$

873,630

 

$

866,612

IMAX CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In thousands of U.S. dollars)

 

(Unaudited)

 
  

Nine Months Ended September 30,

 
  

2018

 

2017

 

Cash provided by (used in):

      

Operating Activities

       

Net income

 

$

29,824

 

$

3,820

 

Adjustments to reconcile net income to cash from operations:

       

Depreciation and amortization

  

41,984

  

39,767

 

Write-downs, net of recoveries

  

2,541

  

25,620

 

Change in deferred income taxes

  

(2,849)

  

(5,145)

 

Stock and other non-cash compensation

  

18,240

  

18,916

 

Unrealized foreign currency exchange loss (gain)

  

406

  

(863)

 

Loss from equity-accounted investments

  

209

  

539

 

Loss on non-cash contribution to equity-accounted investees

  

298

  

298

 

Investment in film assets

  

(22,240)

  

(30,686)

 

Changes in other non-cash operating assets and liabilities

  

(343)

  

11,153

 

Net cash provided by operating activities

  

68,070

  

63,419

 
        

Investing Activities

       

Purchase of property, plant and equipment

  

(7,367)

  

(16,356)

 

Investment in joint revenue sharing equipment

  

(22,710)

  

(35,538)

 

Acquisition of other intangible assets

  

(3,198)

  

(3,939)

 

Investment in new business ventures

  

-

  

(1,500)

 

Net cash used in investing activities

  

(33,275)

  

(57,333)

 
        

Financing Activities

       

Increase in bank indebtedness

  

35,000

  

-

 

Repayment of bank indebtedness

  

(40,667)

  

(1,500)

 

Repurchase of common shares

  

(46,452)

  

(46,138)

 

Treasury stock purchased for future settlement of restricted share units

  

(3,597)

  

(4,386)

 

Taxes withheld and paid on employee stock awards vested

  

(1,437)

  

(218)

 

Settlement of restricted share units and options

  

(2,567)

  

(15,366)

 

Issuance of subsidiary shares to a non-controlling interest

  

7,546

  

-

 

Common shares issued - stock options exercised

  

1,017

  

14,419

 

Dividend paid to non-controlling shareholders

  

(6,934)

  

-

 

Credit facility amendment fees paid

  

(1,909)

  

-

 

Net cash used in financing activities

  

(60,000)

  

(53,189)

 
        

Effects of exchange rate changes on cash

  

95

  

52

 
        

Decrease in cash and cash equivalents during period

  

(25,110)

  

(47,051)

 
        

Cash and cash equivalents, beginning of period

  

158,725

  

204,759

 
        

Cash and cash equivalents, end of period

 

$

133,615

 

$

157,708

 
         

IMAX CORPORATION

SELECTED FINANCIAL DATA

In accordance with United States Generally Accepted Accounting Principles

(in thousands of U.S. dollars)

 

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 content licensing and distribution fees associated with our original content investments, virtual reality initiatives, IMAX Home Entertainment, and other business initiatives that are in the development and/or start-up phase, 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.

 
   

Three Months Ended

 

Nine Months Ended

   

September 30,

 

September 30,

    

2018

  

2017

 

2018

 

2017

Revenue

             

Network Business

             

IMAX DMR

  

$

22,372

 

$

25,971

 

$

85,586

 

$

77,136

Joint revenue sharing arrangements – contingent rent

   

14,327

  

15,572

  

56,919

  

49,702

IMAX systems – contingent rent

   

-

  

1,094

  

-

  

2,573

    

36,699

  

42,637

  

142,505

  

129,411

Theater Business

             

IMAX systems

             

Sales and sales-type leases

   

20,427

  

25,111

  

50,545

  

48,178

Ongoing fees and finance income

   

2,971

  

2,646

  

8,982

  

7,844

Joint revenue sharing arrangements – fixed fees

   

2,798

  

2,658

  

3,821

  

4,536

Theater system maintenance

   

12,415

  

11,511

  

37,462

  

33,459

Other theater

   

2,076

  

1,586

  

5,707

  

5,449

    

40,687

  

43,512

  

106,517

  

99,466

              

New Business

   

1,275

  

8,917

  

4,999

  

11,508

              

Other

             

Film distribution and post-production

   

3,062

  

2,698

  

9,156

  

11,369

Other

   

385

  

1,036

  

2,260

  

3,460

    

3,447

  

3,734

  

11,416

  

14,829

Total

  

$

82,108

 

$

98,800

 

$

265,437

 

$

255,214

              

Gross margin

             

Network Business

             

IMAX DMR(1)

  

$

14,461

 

$

18,114

 

$

57,523

 

$

52,578

Joint revenue sharing arrangements – contingent rent(1)

   

8,081

  

9,351

  

39,441

  

33,271

IMAX systems – contingent rent

   

-

  

1,094

  

-

  

2,573

    

22,542

  

28,559

  

96,964

  

88,422

Theater Business

             

IMAX systems

             

Sales and sales-type leases

   

10,141

  

15,246

  

28,648

  

28,190

Ongoing fees and finance income

   

2,923

  

2,522

  

8,839

  

7,582

Joint revenue sharing arrangements – fixed fees(1)

   

529

  

624

  

776

  

887

Theater system maintenance

   

5,996

  

4,624

  

17,289

  

13,306

Other theater

   

581

  

247

  

1,099

  

1,082

    

20,170

  

23,263

  

56,651

  

51,047

              

New Business

   

(298)

  

(11,912)

  

139

  

(13,432)

              

Other

             

Film distribution and post-production(1)

   

260

  

402

  

320

  

(262)

Other

   

(483)

  

(444)

  

(787)

  

(677)

    

(223)

  

(42)

  

(467)

  

(939)

Total

  

$

42,191

 

$

39,868

 

$

153,287

 

$

125,098

                

(1)

IMAX DMR segment margins include marketing costs of $3.1 million and $13.7 million for the three and nine months ended September 30, 2018, respectively 
(2017 - $2.5 million and $9.8 million, respectively). Joint revenue sharing arrangements segment margins include advertising, marketing and commission costs 
of $1.0 million and $2.2 million for the three and nine months ended September 30, 2018, respectively (2017 - $1.3 million and $2.5, respectively). IMAX 
system sales and sales-type lease segment margins include marketing and commission costs of $0.8 million and $2.0 million for the three and nine months 
ended September 30, 2018, respectively (2017 - $1.1 million and $2.2 million). Film distribution and post production segment margins include marketing 
expense of less than $0.1 million and $2.0 million for the three and nine months ended September 30, 2018 (2017 - an expense of less than $0.1 million and 
recovery of $0.7 million, respectively).

IMAX CORPORATION

OTHER INFORMATION

(in thousands of U.S. dollars)

 

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 and adjusted EBITDA 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) 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) 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.

 

Management uses  "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). 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 Adjusted EBITDA per Credit Facility is relevant and useful information widely used by analysts, investors and other interested parties in the Company's industry.

     
 

For the

 

For the

 
 

3 Months Ended

 

12 Months Ended

 
 

September 30, 2018

 

September 30, 2018

(1)

(In thousands of U.S. Dollars)

      

Net income

$

7,502

 

$

38,522

 

Add (subtract):

      

Provision for income taxes

 

1,452

  

25,445

 

Interest expense, net of interest income

 

327

  

1,440

 

Depreciation and amortization, including film asset amortization

 

13,950

  

69,025

 

EBITDA

$

23,231

 

$

134,432

 

Stock and other non-cash compensation

 

6,320

  

23,042

 

Write-downs, net of recoveries including asset impairments and

      

receivable provisions

 

855

  

6,489

 

Exit costs, restructuring charges and associated impairments

 

-

  

3,637

 

Legal arbitration award

 

-

  

7,500

 

Loss from equity accounted investments

 

202

  

373

 

Adjusted EBITDA before non-controlling interests(2)

$

30,608

 

$

175,473

 

Adjusted EBITDA attributable to non-controlling interests

 

(4,789)

  

(22,682)

 

Adjusted EBITDA per Credit Facility

$

25,819

*

$

152,791

*

Adjusted EBITDA per Credit Facility, excluding impact from "Marvel's Inhumans"

$

25,819

*

$

128,922

*

Adjusted revenues attributable to common shareholders (3)

$

72,333

 

$

352,434

 

Adjusted EBITDA margin, excluding impact from "Marvel's Inhumans"

 

35.7

%

 

36.6

%

       

Adjusted EBITDA per Credit Facility of $25.8 million and $152.8 million for the three and twelve months ended September 30, 2018 respectively, includes the impact of the Company's investment in "Marvel's Inhumans", which resulted in a $nil and $1.1 million loss, respectively. However, as permitted by the Credit Facility, this loss was offset by addbacks of $nil and $13.3 million for amortization and by addbacks of $nil and $11.7 million for impairment charges relating to the investment, in each case for the three and twelve months ended September 30, 2018, respectively. The net effect of these addbacks was to increase Adjusted EBITDA per Credit Facility by $nil and $23.9 million for the three and twelve months ended September 30, 2018, respectively. This investment represents the Company's first foray into a commercial television property, and therefore the Adjusted EBITDA per Credit Facility metric presented above may not be reflective of the Company's typical operational activity. Further, the Company does not expect to make meaningful direct investments in original content going forward. As a result, the Company is also presenting Adjusted EBITDA per Credit Facility excluding the impact of "Marvel's Inhumans" to better facilitate comparisons to prior and future periods.

  

(1)

Senior Secured Net Leverage Ratio calculated using twelve months ended Adjusted EBITDA per Credit Facility.

(2)

The Adjusted EBITDA per Credit Facility calculation specified for purpose of the minimum Adjusted EBITDA covenant excludes the reduction in Adjusted 
EBITDA from the Company's non-controlling interests.

(3)

  

3 months ended September 30, 2018

 

12 months ended September 30, 2018

 

Total revenues

   

$

82,108

   

$

390,989

 

Greater China revenues

 

$

 

30,480

   

$

 

120,306

  
 

Non-controlling interest ownership percentage(4)

  

32.07%

     

32.05%

   
 

Deduction for non-controlling interest share of revenues

    

(9,775)

    

(38,555)

 

Adjusted revenues attributable to common shareholders

   

$

72,333

   

$

352,434

(4)

Weighted average ownership percentage for change in non-controlling interest share

IMAX CORPORATION

OTHER INFORMATION

(in thousands of U.S. dollars)

 

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Quarter Ended September 30, 2018 vs. 2017:

 

The Company reported net income of $7.5 million, which calculates to $0.12 per basic and diluted share, for the third quarter of 2018 as compared to a net income of $2.9 million, $0.04 per basic and diluted share for the third quarter of 2017.

 

Net income for the third quarter of 2018 includes a $5.6 million charge, or $0.08 per diluted share (2017 — $5.7 million or $0.09 per diluted share), for stock-based compensation. In the third quarter of 2018, the Company did not have any additional expenses for exit costs, restructuring charges and associated impairments (2017 - $3.4 million or $0.05 per diluted share).

 

Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, and the related tax impact of these adjustments, was $11.6 million, or $0.18 per diluted share, for the third quarter of 2018 as compared to adjusted net income of $9.2 million, or $0.14 per diluted share, for the third quarter of 2017.

 

The Company reported net income attributable to common shareholders of $5.0 million, or $0.08 per basic and diluted share for the third quarter of 2018 (2017 — net loss of $0.9 million, or a loss of $0.01 per basic and diluted share).

 

Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, and the related tax impact of these adjustments, was $9.0 million, or $0.14 per diluted share, for the third quarter of 2018 as compared to adjusted net income attributable to common shareholders of $5.2 million, or $0.08 per diluted share, for the third quarter of 2017.

 

A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to 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 is presented in the table below:

 

(In thousands of U.S. dollars, except per share amounts)

Quarter Ended September 30,

2018

  

2017

  

Net Income

 

Diluted EPS

  

Net Income

 

Diluted EPS

Reported net income

$

7,502

 

$

0.12

  

$

2,898

 

$

0.04

Adjustments:

            
 

Stock-based compensation

 

5,562

  

0.08

   

5,739

  

0.09

 

Exit costs, restructuring charges and associated impairments

 

-

  

-

   

3,437

  

0.05

 

Tax impact on items listed above

 

(1,500)

  

(0.02)

   

(2,855)

  

(0.04)

Adjusted net income

 

11,564

  

0.18

   

9,219

  

0.14

 

Net income attributable to non-controlling interests

 

(2,482)

  

(0.04)

   

(3,748)

  

(0.06)

Stock-based compensation (net of tax of less than

            
 

$0.1 million and $0.1 million, respectively) 

 

(75)

  

-

   

(263)

  

-

Exit costs, restructuring charges and associated

            
 

  impairments (net of tax of $nil and less than $0.1 million, 
respectively)

 

-

  

-

   

(11)

  

-

Adjusted net income attributable to common shareholders

$

9,007

 

$

0.14

  

$

5,197

 

$

0.08

              

Weighted average diluted shares outstanding

    

62,793

      

64,803

              

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Nine Months Ended September 30, 2018 vs. 2017:

 

The Company reported net income of $29.8 million, or $0.47 per basic and diluted share, for the nine months ended September 30, 2018 as compared to net income of $3.8 million, or $0.06 per basic and diluted share for the nine months ended September 30, 2017.

 

Net income for the nine months ended September 30, 2018 includes a $17.2 million charge, or $0.26 per diluted share (2017 — $17.8 million or $0.27 per diluted share) for stock-based compensation, and a $1.2 million charge, or $0.02 per diluted share for exit costs, restructuring charges and associated impairments (2017 — $13.7 million, or $0.20 per diluted share), and a $7.5 million charge, or $0.12 per diluted share for a legal arbitration award related to one of the Company's litigation matters from 2006 (2017 - $nil, or $nil per diluted share).

 

Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award and the related tax impact, was $50.4 million, or $0.79 per diluted share, for the nine months ended September 30, 2018 as compared to adjusted net income of $25.7 million, or $0.38 per diluted share, for the nine months ended September 30, 2017.

 

The Company reported a net income attributable to common shareholders of $21.2 million, or $0.33 per basic and diluted share for the nine months ended September 30, 2018 (2017 — net loss of $2.5 million, or a loss of $0.04 per basic and diluted share).

 

Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award and the related tax impact, was $41.4 million, or $0.65 per diluted share, for the nine months ended September 30, 2018 as compared to adjusted net income attributable to common shareholders of $18.7 million, or $0.28 per diluted share, for the nine months ended September 30, 2017.

 

A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to 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 is presented in the table below:

 

(In thousands of U.S. dollars, except per share amounts)

Nine Months Ended September 30,

2018

 

2017

  

Net Income

 

Diluted EPS

 

Net Income

 

Diluted EPS

Reported net income

$

29,824

 

$

0.47

 

$

3,820

 

$

0.06

Adjustments:

           
 

Stock-based compensation

 

17,165

  

0.26

  

17,796

  

0.27

 

Exit costs, restructuring charges and associated impairments

 

1,158

  

0.02

  

13,695

  

0.20

 

Legal arbitration award

 

7,500

  

0.12

  

-

  

-

 

Tax impact on items listed above

 

(5,287)

  

(0.08)

  

(9,578)

  

(0.15)

Adjusted net income

 

50,360

  

0.79

  

25,733

  

0.38

 

Net income attributable to non-controlling interests

 

(8,674)

  

(0.14)

  

(6,307)

  

(0.10)

 

Stock-based compensation (net of tax of $0.1 million and

           
 

$0.2 million, respectively)

 

(279)

  

-

  

(544)

  

-

 

Exit costs, restructuring charges and associated impairments

           
 

(net of tax of $nil and $0.1 million, respectively)

 

-

  

-

  

(179)

  

-

Adjusted net income attributable to common shareholders

$

41,407

 

$

0.65

 

$

18,703

 

$

0.28

             

Weighted average diluted shares outstanding

    

63,580

     

65,834

             

Free Cash Flow:

 

Free cash flow is defined as cash provided by operating activities minus cash used in investing activities (from the 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 the table below:

 
   

For the

 

For the

   

Three months ended

 

Nine months ended

  

September 30, 2018

 

September 30, 2018

(In thousands of U.S. Dollars)

      

Net cash provided by operating activities

 

$

21,416

 

$

68,070

Net cash used in investing activities

  

(14,483)

  

(33,275)

 

Net cash flow

 

$

6,933

 

$

34,795