Imax Corporation

Good day and welcome to the IMAX Corporation Full Year 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Mr. Brett Harris. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's fourth quarter and full year earnings conference call. On the call today to review the financial results are Rich Gelfand, Chief Executive Officer and Joe Spirasio, our interim chief financial officer. Megan Colligan, president of 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 fourth 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 uncertainty that could cause our 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 or 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 reconciliations to non-GAAP financial measures, including adjusted net loss, adjusted EPS, adjusted EBITDA as defined by our credit facility, are contained in this afternoon's press release and in our earnings material, 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 Gelfand. Rich?

Thanks, Brett, and good afternoon, everyone. Thank you for joining us today. In the world of entertainment, differentiation has always been the calling card of IMAX. We command powerful global reach and a unique end-to-end technology. We empower visionary creators with proprietary cameras and image enhancement, and we create global events around the world-class content with unmatched clarity and sound, scope, and scale. Our runaway performance in the fourth quarter and the way we outpace the global film industry is and drove profitability for full year 2021 drives that differentiation home. IMAX is a premier global technology platform for entertainment and events. We are not an exhibitor. We have never been one and will never be one. And with our industry-leading momentum, we are taking the next evolutionary step for our business. IMAX 1.0 was about creating a premier showcase for groundbreaking documentary filmmaking in institutions such as museums and science centers. We dramatically expanded our scope with IMAX 2.0, bringing the biggest blockbusters to audiences worldwide. With IMAX 3.0, we are pushing further into our future, growing beyond blockbusters to include unique events and experiences globally. by putting our technology in the hands of an expanding set of creative and platform partners and becoming a destination for fandom of all kinds. Just look at some of what we did in the fourth quarter alone. IMAX was the tip of the spear in the record-breaking release of Spider-Man No Way Home, a film shot with our cameras featuring IMAX-exclusive expanded aspect ratio. We launched IMAX Enhanced, on Disney+, a major partnership that extends our brand and technology further into the streaming environment. And we screened our first ever live concert shot with IMAX cameras, delivering a cinematic quality live feed with low latency into the IMAX network nationwide. The event featured Kanye West and Drake, sold out shows, engaged new fans, and a promising relationship with Amazon. For years, IMX has represented the pinnacle of the theatrical experience, but increasingly, we transcended it, and we're just getting started. Today, I'd like to discuss our results for the fourth quarter and full year, our strategy to build our most robust, comprehensive content portfolio ever, and how we're evolving and growing our platform through technology. First, our strong results for the fourth quarter of 2021 demonstrate our leadership position in the industry, differentiation, and the strong demand for the IMAX experience. Across key metrics, our performance was in line with or exceeded pre-pandemic levels, and we beat initial analyst estimates. Our operating income and gross profit topped our fourth quarter of 2019, which was our best year ever in terms of both global box office and total revenue. We returned to positive adjusted earnings per share of $0.31, and our strong EBITDA of $44 million demonstrated the overall continued performance and profitability of the company. Underpinning these results is a box office performance that stands alongside our best ever. Our Q4 global box office beat Q4 2019 by 15%. As a reminder, 2019 was our highest grossing year ever. This was our sixth highest grossing quarter ever. We delivered our best month of October ever with $118 million worldwide, beating our previous 2013 high by 50%. For the full year, 2021, IMAX grew global box office year over year by 146%, doubling the estimated 78% growth in the traditional exhibition industry. And we captured our largest share of the global box office ever, 3% global market share for the full year. This accelerated in the fourth quarter, with IMAX taking 3.3% of the global box office and 5.6% of the domestic box office. IMAX drove $68.6 million in EBITDA for the full year, demonstrating the strength of our model and our ability to quickly capitalize on box office momentum. We've generated positive EBITDA every quarter going back to Q4 2020. We finished 2021 with $516 million in available liquidity, having raised more than $200 million in a convertible debt offering at extremely attractive rates. And we were opportunistic in repurchasing $14 million of IMAT stock during the year. Certainly, we benefited from studios recommitting to exclusive theatrical releases. and audiences returning to theaters wanting the best, most immersive experience. But the separation we've created at the global box office is also the result of a multi-year strategic effort. We built the most robust, comprehensive IMAX content portfolio ever, comprised of Hollywood blockbusters with more and more films shot with IMAX cameras, local language blockbusters, exclusive events and experiences from a growing roster of new partners, and of course, documentaries. In 2022, IMAX will feature one of the strongest Hollywood slates we've ever seen. And with the Batman and Uncharted approved for release in China and dated for mid-March, early indications are that Hollywood films will have improved access to the Chinese market this year. What makes this slate truly unique, however, is that it should include more IMAX DNA, more blockbusters filmed with our cameras, and more sequences featuring IMAX expanded aspect ratio than any before it. Thanks to our strategic effort to infuse more DNA through our certified camera program, at least 10 releases in 2022 should include exclusive IMAX elements. reflecting a rapidly diversifying set of talented, ambitious filmmakers creating specifically for the IMAX platform. This effort to expand the Filmed in IMAX program has been a key driver of our strength at the box office. In 2021, seven of our 10 top releases included IMAX DNA. And more than 50% of our global box office for the year came from films with IMAX DNA. This ignites a virtuous cycle. We are one of the only global platforms that can create events around content throughout the entirety of its lifecycle. By putting tools in the hands of creators, we can drive brand intention throughout the filmmaking process from filmmakers, studios, and audiences. Kate Dune, a visually stunning film for IMAX title for which we earned 22% of the opening weekend gross and then popped up to 30% in the second weekend thanks to fantastic word of mouth for the IMAX experience. IMAX is a powerful mark of must-see content in theaters and at home. Beyond Hollywood, we continue to tap into rich, growing local language film industries in countries around the world, diversifying our creative partnerships and engaging our fans with highly relevant content where they live. 2021 was our highest grossing year ever for local language films, with more than $181 million, up 36% over our previous best set in 2019. For the second year in a row, the world's highest-grossing local language film, China's The Battle of Lake Tianjin, was filmed for IMAX using our certified cameras. And we kicked off the 22 Chinese New Year by earning $23.3 million in box office with The Battle of Lake Tianjin 2 over the six-day period. We've dramatically accelerated our local language strategy during the pandemic. In China and Japan, we continue to embed even deeper in the local filmmaking ecosystems, from putting our technology in the hands of local filmmakers to becoming an important player for anime blockbusters in Japan. Several upcoming Chinese blockbusters are being filmed with IMAX cameras, including the 2022 summer tentpole, Mozart from Space, In Japan, IMAX has renewed its five-picture slate deal with Toho, the company's first slate deal with a studio outside of Hollywood. And we're in discussions with several Japanese blockbuster productions on shooting with IMAX cameras. We're also strategically targeting international film markets poised for a post-pandemic comeback, including India, Russia, South Korea, and France. IMAX sees a lot of opportunity in India in 2022, given that, unlike China and Japan, local studios have held back releases over the last two years, and a significant pipeline of local blockbusters are set for 2022. IMAX is also eyeing local language blockbusters in Russia and South Korea, and will release our first filmed in IMAX French title, Notre Dame IMAX. in 2022 as well. Even as we diversify geographically, IMAX is moving beyond blockbusters, transforming the company into a global platform for events and experiences of all kinds and bringing an entirely differentiated offering to market. We are connecting our theaters to build a high-speed network capable of broadcasting the IMAX experience with high-definition video and high-fidelity audio around the world. This creates, in effect, a decentralized global arena, already the size of Madison Square Garden, currently spread across 79 locations in three countries.