Imax Corporation

21 earnings conference call. We are waiting the arrival of additional participants and should be starting shortly. Thank you for your patience and please continue to hold. Thank you. Good day and welcome to the IMAX Corporation Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. I will now turn the conference over to Mr. Brett Harris. Please go ahead, sir.

Thank you. Good morning, everybody, and thank you for joining us on today's Third Quarter Earnings Conference Call. On the call today to review the financial results are Rich Gelfand, Chief Executive Officer, and Joe Sparacio. our interim chief financial officer. Megan Colligan, present IMAX Entertainment, and Rob Lister, chief legal officer, are also joining us today. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our third quarter earnings press release and the slide presentation have been posted on the investor relations section of our website. At the conclusion of this call, our historical Excel model will be posted to the website as well. I'd 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 in that they pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause actual future results 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, including adjusted net loss, adjusted EPS, and adjusted EBITDA, as defined by our credit facility, are contained in this morning's press release, and in our earnings material, which are available on the investor relations page on our website at imax.com. With that, let me now turn the call over to Mr. Richard Gelfand. Rich?

Thanks, Brett, and good morning, everyone. Thank you for joining us today. It's exciting to be speaking to you on the heels of our record-breaking weekend with Dune, an opening that underscored the differentiation of IMAX. The film is a brilliant showcase for our technology, shot with our cameras, and made for our screens. We scored our biggest October global opening of all time, capturing an outsized 20% of the box office, our best domestic opening since 2019, and our highest domestic indexing since 2017, despite a day-and-date streaming release. And it pushed us to our best month of October ever, with more than $100 million and counting on track to be the eighth highest grossing month in IMAX's 50-year-plus history. It is clear the global film industry has reached a turning point. The movies are back. IMAX is delivering global box office grosses in line with or above pre-pandemic highs as consumers return to theaters around the world. Hollywood studios have recommitted to exclusive theatrical releases for their biggest blockbuster movies. And the slate is kicking into high gear with an unprecedented pipeline of marquee tent poles to close out 2021 and throughout 2022. The movie business has passed an enormous stress test. For more than a year, consumers had easy access to an expanding world of in-home entertainment options and virtually no access to blockbuster entertainment in theaters. Despite that massive disruption, consumer demand for moviegoing remains strong. As we've long believed, more than 100 years of human behavior doesn't change that easily. Cinemas have thrived across the advent of television, the internet, and proliferation of mobile devices because the theatrical experience is the most immersive communal and accessible way to enjoy storytelling. And the secular trends all favor IMAX. From the blockbusterization of the film slate to the globalization of the theatrical experience, the emphasis on premium out-of-home experiences, the 45-day theatrical window, and the rise in local language filmmaking around the world. Today, I'd like to discuss why IMAX is very well positioned to capitalize as the industry recovery accelerates, a strategic overview of the entertainment landscape and positive trends driving box office momentum, and our results for the third quarter, which demonstrate our differentiated business model, strategy, and growing consumer demand. As I said, the evolution of the global film industry is taking shape in ways that uniquely benefit IMAX and our market share. First, IMAX is in the blockbuster business, and blockbusters will grow their dominance as more mid-tier films move to the streaming platforms. 90% of IMAX's annual global box office is driven by the top 30 releases, and 60% is driven by the top 10. We also stand to gain from the compressed forward demand we're seeing with the shorter 45-day windows. Given the even bigger emphasis on opening weekend, an IMAX run will be even more significant for studios and consumers. An IMAX release helps create a global event around a film. Studios recognize that IMAX is a window unto itself. We create value across the entire chain for blockbusters, from launch marketing to downstream windows to ancillary revenue. For instance, Sony moved the domestic release of Venom 2 up two weeks in large part to secure an IMAX release. The film was an enormous success at the box office, with IMAX driving 9% of the film's domestic debut gross on only 1% of the screens. We've also accelerated our strategy to diversify our content portfolio with local language filmmaking, forging deeper partnerships with studios and filmmakers in Japan and China. And the results have been fantastic. I'm very happy to share with you that IMAX has set a new company record for yearly local language box office with $165 million and counting. We are excited to continue down this path given the untapped potential of local film industries in Russia, India, and South Korea, and the return of a full Hollywood slate next year. While we've seen little contraction among our exhibition partners, IMAX is well insulated from this threat and could even benefit from it. Our screens operate in the top performing multiplexes across key box office markets. For example, In North America, 80% to 90% of our annual box office is generated in the top 20% of multiplexes. And as we saw with AMC and Regal's acquisition of prime Los Angeles locations, consolidation can create new opportunities for IMAX theaters in high-value locations. Finally, the strength of our business underscores the value of our global brand. We've continued to grow our IMAX enhanced in-home entertainment licensing business throughout 2021. We've grown our multifaceted partnership with Sony, adding more studio titles and expanding onto Sony Bravia TVs in the UK and Japan. We're in productive conversations with leading global streaming platforms, which are very interested an exclusive IMAX expanded aspect ratio to gain a competitive edge. The expansion of IMAX enhanced to major streaming services could be a strategic turning point as we seek to enter the home. Turning to the state of global movie going, IMAX and the entire industry is in great shape. This month, we've already surpassed our IMAX record for the best month of October ever at the global box office, and we still have a weekend to go, which includes the debut of No Time to Die in China. We're on track to surpass $115 million in global box office in October, making this among our best top 10 months of all time. In fact, we'll do almost as much business in October as we did in each of both the first and second quarters of this year. In September, our monthly growth was right in line with our pre-pandemic September totals from 2017 to 2019. We even eclipsed the strong September of 2019, which was our best full year ever at the box office. Each successive release has demonstrated the comeback of the box office in new ways. The surprise hit free guy had impressive legs at the box office. performed very well in China where IMAX has accounted for more than 13% of the box office and helped establish a new franchise for Disney with a sequel already announced. Shang-Chi emerged as the highest grossing film of 2021 at the domestic box office and lifted IMAX to its biggest September weekend of all time during its debut. Sony's Venom sequel shattered expectations with a $90 million domestic opening, including $8 million across IMAX screens in North America. No Time to Die, the first Bond film shot with IMAX cameras, has earned $34 million globally in the IMAX network so far, demonstrating how broadly the recovery is spreading. The film delivered IMAX its biggest opening for a Bond film ever in 24 countries worldwide in such diverse markets as the UK and Japan, Hong Kong and Italy, South Africa and Ecuador, and its international holds surpassed many recent Bond films. Additionally, older audiences turned out for the film globally, despite fears that they would stay home. Dune, also shot with our cameras, has earned $29 million in the IMAX global network to date, and demonstrated the marketing power of a filmed-for IMAX release. We captured 22.5% of the opening weekend domestically, despite a day-and-date release on HBO Max, and 20% of last weekend globally. Finally, in China, IMAX yet again delivered its best-ever opening weekend for the National Day Holiday, led by the Battle of Lake which has earned more than $33 million. Again, film for IMAX. The movie has already surpassed $780 million in box office as one of the top grossing Chinese films of all time. Free Guy, Dune, and The Weeknd's release of No Time to Die have also calmed fears that China is souring on IMAX Hollywood product. There have been a number of unusual challenges for Hollywood releases in 2021. There's been a backlog of Chinese local language films, which led the government to prioritize local titles over Hollywood ones. Hybrid streaming releases have unleashed widespread piracy, and given how vocal the Chinese authorities have been in protecting the theatrical window, resistance in admitting films widely available on the internet does not come as a surprise. And finally, we've seen cultural sensitivity around some films, a consideration that doesn't generally impact more than one to two films a year this year. With many of the industry's issues now resolved, we're very optimistic about the slate ahead for the remainder of Q4 and 2022. This year closes with Marvel's highly anticipated Eternals, opening next weekend. Ghostbusters Afterlife, which earned raves at the recent CinemaCon Exhibitor Conference. The latest Spider-Man and the new installment of The Matrix. The unprecedented 2022 slate includes DC's The Batman sequels to The Flash and Aquaman and the introduction of Black Adam, starring Dwayne Johnson. Three Marvel films, including new installments of Thor and Black Panther, new franchise entries for Jurassic World, Mission Impossible, and Transformers, Top Gun Maverick, shot with IMAX cameras, and of course, the sequel to James Cameron's Avatar, the film that, to this day, remains the highest-grossing IMAX film of all time. The unique success of the first Avatar on IMAX screens created a halo effect for the company, boosting installation activity and accelerating the growth in our network. In its initial release, Avatar generated $240 million in box office on less than 200 IMAX screens. And in March of this year, IMAX captured 30% of the box office on only 1% of the screens with the re-release of Avatar in China. demonstrating how strong the brand association remains between IMAX theaters and James Cameron's epic avatar 13 years later. We are excited for this franchise to return with another three movies over the coming years. Now let's talk about our strong Q3 results. Recent box office momentum is reflected in our results for the third quarter, which demonstrates strong, consistent progress not only toward recovery, but in recovery. The company delivered its best results in nearly two years across several key metrics, including adjusted EBITDA, adjusted EPS, gross margins, revenue, and global box office. In fact, IMAX recorded its fourth consecutive quarter of positive EBITDA and its third consecutive quarter of $100 million plus in box office, and its strongest quarter at the box office since 2019. During the quarter, we repurchased 4.6 million shares of IMAX stock and $5 million worth of IMAX China stock. While we wanted to be aggressive and opportunistic, we were somewhat constrained by blackouts during the quarter. To conclude, with momentum in our business and across the industry, We are cementing our strong long-term strategic position. We command the only global out-of-home platform for premium blockbuster entertainment with a diversified footprint across 85 countries and territories worldwide. We have a flexible asset-wide business model, and we are an in-demand global brand beloved by audiences worldwide, critical to filmmakers and studios and ripe for new business opportunities. We believe we have reached a very positive inflection point for IMAX and the global film industry. Theaters are open, the pipeline of blockbuster content is flowing, and audiences are returning in record numbers. We look forward to strengthening our position as one of the world's premier entertainment experiences. Thanks again to all of you for joining us today. With that, I'll turn it over to our interim CFO, Joe Sprasio.