Yahoo Finance IMAX Corporation (NYSE:IMAX) Q1 2024 Earnings Call Transcript
IMAX Corporation (NYSE:IMAX) Q1 2024 Earnings Call Transcript April 25, 2024
IMAX Corporation beats earnings expectations. Reported EPS is $0.15, expectations were $0.1. IMAX Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 IMAX Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker Jennifer Horsley, Head of Investor Relations. Please go ahead.
Jennifer Horsley: Good afternoon, and thank you for joining us for IMAX's first quarter 2024 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. Rob Lister, Chief Legal Officer is also joining us today. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our earnings press release and the slide presentation have been posted on the Investor Relations section of our site. Our historical Excel model is 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 not occur or occurrences to differ. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today. And we undertake no obligation to update these statements as a result of new information future events or otherwise. During today's call references may be made to certain non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures as well as a reconciliation to non-GAAP financial measures are contained in this morning’s press release and our earnings materials, which are available on the Investor Relations page of our website at imax.com.
With that, let me now turn the call over to Mr. Richard Gelfond. Rich?
Rich Gelfond: Thanks, Jennifer, and thanks everyone for joining us today. IMAX powers awe-inspiring experiences for audiences around the world. We partner end-to-end with the greatest filmmakers and creators working today to help them realize their visions to the fullest. Deployed at scale globally, we deliver Hollywood and international blockbusters, original documentaries, and immersive events across about 90 countries and territories worldwide. Our technology, our deep relationships with filmmakers, our global footprint, all of it combines to make IMAX a wholly differentiated platform, which is why we are a consistent winner in the media and global entertainment landscape. The company delivered solid results in the first quarter, thanks to a record breaking surge in March that bodes well for another strong year ahead.
Year-to-date, we delivered another 17 signings globally, including agreements in growth markets like India, Thailand and Turkey that further diversify our footprint. Our first quarter global box office of $261 million marks our third highest grossing Q1 ever, capped off by our best March ever, despite limited content owing to the strikes last year. Domestically, we delivered a remarkable 5.9% of the overall box office, our highest quarterly market share ever in North America, despite accounting for only 1% of the screens. I'm going to repeat that again. Almost 6% of the domestic box office on only 1% of the screens, it's an incredible number. And we drove strong profitability, including gross profit margin of 59% and total adjusted EBITDA margin of 40%.
Our Q1 results are consistent with the full year guidance we issued earlier this year. From the beginning, we've said that 2024 will be better at the box office than many pundits predicted. In the wake of Dune 2 and Godzilla Kong, the world is coming around to our point of view. And as we said before, we expect 2025 to be a strong growth year. Our momentum is fueled by a virtuous cycle in our business. Global moviegoing is shifting rapidly to IMAX as a result of global box office market share and indexing are all at near time highs, and this is fueling sales activity, particularly in the rest of the world, high PSA markets where we're prioritizing our network growth. Studios and filmmakers see this and lean into IMAX, filming with IMAX cameras, leading with IMAX exclusive events and partnerships, and making the IMAX platform a centerpiece of their marketing.
This was evident at the recent CinemaCon Movie Conference, where IMAX was heavily featured in studio presentations, trailers, and filmmaker remarks. As Marvel Chief, Kevin Feige said from the stage at the Disney presentation, what IMAX does to get people out of their homes and into your theaters is second to none. Creators, content owners and brands beyond Hollywood and across the spectrum see this and want to work with IMAX, yielding opportunities to open our content aperture across music, gaming, sports, live events and more. Local language films and music experiences have been a strong contributor to our results year-to-date, and this diversifying content portfolio across awe-inspiring experiences from gaming franchises to sports leagues to live global events further strengthens our differentiated offering for consumers.
The wheel continues to turn and accelerate, which is why we're very confident in our ability to drive future growth for the company. Today, I'd like to offer updates on number one, our global network and number two, our content slate. I'll then hand it over to Natasha to go through our financial results before taking your questions. First, 2023 was a strong year for IMAX network growth in which we levered off our box office momentum to achieve significant gains in sales activity and network growth. We also further diversified our footprint of the 128 system installs we completed in '23 and IMAX records 61 were in international markets outside of North America and China. The rest of the world opportunity for IMAX is very strong. The IMAX network is only 33% penetrated in these markets.
Despite a slower start for the global box office this year, we've kept up the momentum delivering a flurry of system signings in key markets year-to-date. We completed agreements for new systems in a diverse collection of markets, including India, Thailand, Turkey and China this year. And we have further significant agreements in the immediate horizon. With the slate strengthening in the second half of '24 and an extremely promising outlook in '25 and '26, we expect sales activity and installations to accelerate. Turning to the outlook for our content portfolio, it is indeed very promising. Dune Part 2 and Godzilla Kong, both film for IMAX titles, provided a jolt to the global box office and demonstrated also 2 very positive trends. First, demand for movie going in the marketplace is strong and the '24 slate holds more promise than many have predicted.
And second, quite simply, consumers recognize that IMAX is a superior experience. The stories people want to see and hear are in IMAX, and we are fast becoming appointment viewing for the biggest cinematic events. Oppenheimer, a film Christopher Nolan conceived and film very specifically for IMAX, won 8 Academy Awards and crossed $190 million in IMAX box office, entering our top five releases of all time. Dune Part 2 is now a top 10 release of all time with more than $143 million in global box office to date. We generated a stunning 21% of the film's total gross. In the wake of Oppenheimer, we released a limited number of 70 millimeter prints of Dune Part 2 which earned sellouts for weeks on end. IMAX 70 millimeter film, the absolute gold standard of cinema with up to 18K resolution is surging in popularity, and we will continue to capitalize on this, next with film prints for the highly anticipated Joker sequel coming out this October.
Godzilla Kong has also performed very well for IMAX. We delivered 11% of the film's domestic opening, even though our entire film network, including top tier locations in New York and Los Angeles, continued to play and perform very well with Dune, which we're still playing that weekend. Film for IMAX releases offer the best possible cinematic experience, and as a result, Film for IMAX is a coveted point of distinction for filmmakers and a significant driver of box office and indexing. More than ever, the IMAX experience is as much about content creation as it is about content delivery. We currently have more films in production shooting with IMAX cameras than at any point in our history. Next year, we have an unprecedented run in which every IMAX release from May through September will be filmed with IMAX cameras.
That includes Mission Impossible 8, 2 Marvel films, the forthcoming Formula 1 film starring Brad Pitt from Top Gun: Maverick director, Joe Kosinski, Superman from DC, How to Train Your Dragon and many more. And earlier in '25, we'll have the new project from Michael B. Jordan and Black Panther Director Ryan Coogler, which is shooting with IMAX film cameras, as well as the J. J. Abrams produced IMAX shot Flowervale Street. As I've said, our slate is significantly committed for most of the year in 2025. And 2026 looks perhaps even stronger with carryover from Avatar 3, as well as new installments of Avengers, Star Wars, Batman, Super Mario Brothers, Toy Story, and Wicked, along with our expanding portfolio of local language, documentaries, and events experiences.
Even for releases not filmed with IMAX cameras, we are seeing filmmakers and studios lean more heavily into the IMAX platform. For instance, Disney has made IMAX a centerpiece of its promotional campaign for Kingdom of the Planet of the Apes, a promising title coming out shortly, including prominent IMAX placement and advertising during major events like the NCAA tournament. And we'll see a similar focus in Warner Brother’s campaign for Furiosa as it rolls out. Our success continues to yield opportunities to open our content aperture and expand further beyond Hollywood blockbusters. On May 17th, we released the first new IMAX original documentary under our revamped strategy, The Blue Angels, produced in partnership with J.J. Abrams and Glen Powell.
This film very much represents our aspiration to create blockbusters. It was shot by the same team behind Top Gun: Maverick, and its aerial footage rivals anything in that mega hit. And it will roll out in a new extremely advantageous model for us with a one week exclusive engagement across our commercial network domestically and in select international markets. Availability thereafter on Amazon Prime Video to which we sold the streaming rights and later in '24 or early '25, a 45 minute version of the film will release in our institutional theaters. We have several more original blockbusters in our pipeline, including the upcoming Stormbound with producer Adam McKay. We also partnered with Amazon to make the launch platform for Jonathan Nolan's new series, Fallout, with a 7 city IMAX exclusive premier screening event.
Fallout is topping the streaming charts and has emerged as one of the Amazon Prime Video's best performing series of all time. We'll have an IMAX exclusive run and live concert event for the forthcoming Disney Plus release, The Beach Boys, a documentary from legendary filmmaker Frank Marshall. The release will continue to build our recent momentum in music with Q1's Queen Rock Montreal and Andre 3000 experiences. Queen alone grossed more than $5.5 million in IMAX and was subsequently licensed by Disney plus as an IMAX Enhanced exclusive in the home. And IMAX was the exclusive premier partner for this month's concert event for BTS's SUGA, which earned $2 million in IMAX box office for 2 showtimes in select theaters. To close, IMAX continued to drive positive momentum in the first quarter, setting the table for a very promising period, which will continue.
Let's be clear, the only premium entertainment platform with our filmmaker relationships, global scale, and patented technology is IMAX. We continue to drive global network growth with an eye towards expansion into underpenetrated markets where moviegoing is strong and increasing. Our diversified content strategy with Hollywood and local language blockbusters, IMAX documentaries, and new events and experiences is delivering great results. Q1 was among our best of all-time at the global box office. Audience demand for IMAX is feeding box office growth, which in turn is yielding network growth. We are in a great position to use our increased market power to accelerate growth and margin expansion with a remarkably good slate in '25 and '26. We look forward to continuing to deliver results in our business and for our shareholders.
Thank you again. And with that, I'll turn it to you, Natasha.
Natasha Fernandes : Thanks, Rich, and good morning, everyone. IMAX's first quarter delivered a solid financial and operating performance and reflects a strong start to 2024. We exceeded market expectations on revenues, earnings per share and total adjusted EBITDA. This includes a gross profit margin of 59% and total adjusted EBITDA margin of 40.5%. And our results are consistent with our full year guidance. These are high quality earnings that reflect the strength of our operating model, our cost discipline and our ability to deliver consistent financial results. We are confident that our momentum will continue to build throughout the year and beyond. We ended the quarter with our highest ever grossing March box office and achieved a record monthly global market share of 6.6% on less than 1% of screens worldwide.
IMAX's Dune Part 2 box office dramatically demonstrated the benefits of filming with IMAX cameras, roughly 1 out of 5 tickets or over 20% of the box office on the planet for Dune 2 came from IMAX, and we currently have more film for IMAX releases in production than ever before. We continue to grow the IMAX global network and we are unmatched in our scale and reach, and we continue to strategically grow and diversify our content portfolio across local language, documentaries, and alternative content to drive utilization. Increasing capacity utilization is an opportunity for our business. Just a 1 percentage point improvement in utilization of our global network could drive anywhere from $75 million to $100 million in annual box office depending on geographic mix and other factors, all of which result in high incremental profit.
We believe there is significant runway to increase utilization as we continue to open our aperture to bring in more content in off peak time periods, partner with filmmakers and studios to create a stronger IMAX connection resulting in a higher market share, and use data to refine our programming strategy. Overall, we believe, we can drive accelerating growth for years to come given our continuing network expansion, increasing amount of IMAX DNA in films and growing consumer demand for IMAX. Turning now to our first quarter financial results. We are pleased with Q1 revenue of $79 million driven by very strong end of quarter momentum. Content solutions revenue grew 6% year-over-year driven by incremental revenues from alternative content, including the Queen Rock Montreal concert film, coupled with strong box office from Dune and Godzilla Kong.
Technology product and services revenues declined 16%, driven by a lower level of system renewals as the prior year had a larger one time renewal and a lower mix of sales type installations this year. However, this is purely a mix dynamic as overall system installations grew 67% year-over-year. Gross margin was 59%, up 200 basis points year-over-year, reflecting improvement in the content solutions margin, driven by the mix of titles, including more alternative content and lower film marketing expenses. SG&A excluding stock-based compensation was $27 million and improved $2 million year-over-year, reflecting timing and marketing spend and benefits from our cost actions taken in the prior year. R&D expense was $2 million in the quarter, reflecting our continued investments in both the core business and streaming and consumer technology.
Total consolidated adjusted EBITDA of $32 million was comparable to the prior year propelled by the strong margin performance. From a profitability perspective, total adjusted EBITDA margin was 40.5%, which was up from 37% in the prior year and is above our full year guidance of high 30%. Adjusted EPS in Q1 was $0.15, which compares to the adjusted EPS of $0.16 in the year ago period. EPS continues to be impacted by a tax valuation allowance of approximately $0.02. We expect the tax rate to normalize over the full year. Turning to our global network. System installations and signings remain key drivers of our long-term growth. In Q1 2024, we completed 15 system installations, up 67% over Q1 2023. Of the installations, 80% were in new locations and were weighted to markets with higher per screen averages with 8 of our installations coming in rest of world areas including France, England, Indonesia, Saudi Arabia and 3 in North America.
Signings activity is also ramping up. Since the beginning of the year, we have signed deals for 17 systems with 8 coming in the first quarter and the rest around CinemaCon. Our fast start on installations and signings to date, along with our significant backlog of 442 systems at the end of Q1, gives us confidence in our network growth trajectory. Turning to cash flow and the balance sheet. Operating cash flow in Q1 was a use of $11 million compared to a source of $21 million in the prior year. The lower year-over-year operating cash flow reflects the timing of box office receipts this year as box office strength came in March with Q4, January and February weaker due to strike impacts versus the prior year when Q1 box office strength came in January, driven by Avatar: The Way of Water, whose box office straddle the end of 2022 and beginning of 2023.
We expect the trends in cash flow to improve throughout the year driven by seasonality, the improving box office slate and the related timing of collections. Our capital position remains very strong as we ended the quarter with $81 million in cash, and $302 million in debt, excluding deferred financing costs. As a reminder, $230 million of our debt comes from our convertible senior notes due in 2026 that bear an interest rate of 0.5% per annum with a capped call leading to a $37 per share conversion price. Our current available liquidity is approximately $367 million which includes $286 million in available borrowing capacity under the company's various revolving facilities. From a capital allocation perspective, we opportunistically purchased $16 million of shares in early Q1 at an average price of $13.99 at a time when the share price was impacted by the strike overhang.
We have $151 million available under our share repurchase authorization. To conclude, momentum is building from the growing demand for IMAX among consumers, filmmakers, studios and exhibitors. And as we continue to grow our network and expand our content aperture, we expect our asset light highly incremental business model to deliver accelerating growth, increasing cash flows and margin expansion. With that, I will turn the call over to the operator for Q&A.
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