Imax Corporation

Good day, ladies and gentlemen, and welcome to the IMAX Corporation First Quarter 2022 Earnest Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Heather Anthony of IMAX. Please go ahead, ma'am.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us on today's First Quarter Conference Call. On the call today to review the financial results are Rich Gelfand, our Chief Executive Officer, and Joe Sparacio, our Interim Chief Financial Officer. Megan Colligan, President of IMAX Entertainment, Natasha Fernandez, Chief Financial Officer, 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 first 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 also be posted to the website. I'd like to remind you the following information regarding forward-looking statements. Today's call, as well as the accompanying slide presentation, may include statements that are forward-looking and 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 the 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 afternoon's press release and in our earnings materials, which are available on the Investor Relations page of our website, imax.com. With that, let me now turn the call over to Rich Gelfand. Rich?

Thanks, Heather, and good afternoon, everyone. Thank you for joining us. We reported our first quarter results today on the eve of a remarkable event blockbuster season set to kick off next week. For the quarter, we exceeded consensus estimates across nearly all key matrix, including total revenue, gross margin, adjusted EBITDA, and global box office. And we drove strong double-digit growth in total revenue, gross margin, and adjusted EBITDA over the first quarter of 2021. Our results demonstrate the solid financial momentum we've established over the last six quarters, and our ability to consistently deliver improved results in a highly dynamic marketplace. Next week begins a formidable slate of long-awaited titles that stretches across the next two years and represents the most bankable franchises, filmmakers, and stars in the world. We're also seeing the pace of deal activity begin to pick up, including recently completed agreements in growth markets such as Japan and Thailand, and we expect that to continue in the months ahead. And we continue to work with all our major partners to map out the rollout of new or refurbished theaters, including recently completed successful agreements with AMC, Cineworld Regal, Pathé, PVR, and CGV. As a result, we see a strong opportunity to build on our momentum and deliver value for our shareholders. As a premier global technology platform for entertainment and events, our focus for 2022 is to expand our business beyond blockbusters and deliver new, unique events and experiences to audiences globally. by putting our technology in the hands of new creative and platform partners and becoming a destination for fandom of all kinds. But immersive blockbuster filmmaking will always be the straw that stirs the drink for IMAX. And the blockbuster pipeline represents a significant opportunity to further drive box office revenue and capture market share and fuel the continued expansion of our business across live and interactive events and into the home. As the slate takes off, it's notable that streaming services face intensifying competitive pressures and renewed questions around the economic model for the streaming business, which could provide a tailwind for theatrical releases. We've long held that as the virus was brought under control and people felt increasingly safe, consumers would be drawn back to communal out-of-home entertainment experiences. We're seeing evidence of this across all aspects of life, from people returning to gyms, to concerts and sporting events, to airlines and hotels reporting record-breaking trends. And recent consumer trends reaffirm the irreplaceable value of a theatrical release. Our partners at the studios and streamers have told us unequivocally that a theatrical window is pivotal to their strategic plans going forward. And that content that benefits from a theatrical launch platform performs far better on streaming and tries greater value throughout the chain, most recently evidenced by the strong performance of Spider-Man No Way Home and the Batman on digital platforms. This creates potential opportunities for IMAX, from streaming services using the IMAX global network to launch 10-pole IP, to additional streamers adopting IMAX enhanced technology as a competitive differentiator. Today, I'd like to discuss our outlook for the 22 content slate and how it creates opportunities across our business, how we're meeting the growing demand for IMAX technology among filmmakers, creators, exhibitors, and our fans, and, of course, our results for the first quarter. The first quarter proved that there's strong pent-up demand for immersive cinematic spectacles. Spider-Man has grossed more than $110 million in IMAX to date, ranking as our eighth biggest title of all time. The Batman exceeded expectations, generating more than $54 million in the IMAX network. The Batman's total North American box office performance was on par with any other top-grossing Q1 title of the last decade. And with our events live strategy, we demonstrated that older audiences are ready to return to theaters for the right experiences. With our successful launch of the Beatles' Get Back with Disney+, which began as a limited one-week IMAX exclusive engagement months after it was released on the Disney Plus streaming platform, and went on to gross $2.5 million in a few IMAX theaters. On the heels of this success comes a strong, consistent flow of highly anticipated releases. And more than ever, these films include IMAX DNA, having been shot with our cameras or created to include IMAX-exclusive expanded aspect ratio, where they leverage the powerful IMAX platform and new and creative ways to launch, further demonstrating our ability to create global events. The slate includes next weekend's Doctor Strange sequel, which builds directly off Spider-Man No Way Home and is driving strong pre-sales globally. Doctor Strange has a clean multi-week run on the IMAX network before the arrival of Top Gun Maverick, yet another film for IMAX release. Paramount just hosted a first-look screening of Top Gun at CinemaCon and the early reviews are absolutely phenomenal. In fact, the audience was saying at the end, play it again. I've seen it and it's phenomenal, backed by a strong emotional story and some of the most stunning aerial photography ever committed to film. Following Top Gun is Jurassic World Dominion, a franchise that has been very successful for IMAX over the years. We're also planning a live connected theater launch event for the film. Pixar's Lightyear, which was very well received at CinemaCon and makes pioneering use of IMAX technology for animation. The next installment of Thor, which was shot with IMAX cameras. And Jordan Peele's Nope, which was shot with IMAX film cameras and will make never before seen use of our technology in his innovative storytelling. On the heels of the summer follows a number of highly anticipated releases, including Marvel's Black Panther sequel and DC's Black Adam. And we continue to eagerly look forward to the December release of Avatar, The Way of Water, the first of four planned Avatar sequels, given our history with this franchise and its alignment with our brand. Disney provided an exclusive first look. at the new film at CinemaCon yesterday, and it looks incredible. The studio will also attach a theatrical exclusive teaser trailer to Doctor Strange. The original Avatar still stands as the highest-grossing IMAX release of all time, with more than $250 million in box office, despite an initial footprint of less than 300 IMAX screens. And that's just the Hollywood slate. We continue to grow and diversify our local language slate, building on our record-breaking local language box office of 2021. In fact, we programmed seven local language titles worldwide in Q1, our most ever in the first quarter. During the quarter, we saw strong box office performance from the China's Battle of Lake Tianjin, to India's RRR to Japan's Jujutsu Kaisen. Local language blockbusters are delivering for IMAX fans not only in their home countries, but around the world. In particular, Japanese anime is helping to drive network-leading PSAs in Japan. In fact, eight of our top 15 theaters worldwide in 2021 were in Japan. and strong performances in the US and other key markets. This summer's blockbuster slate provides an excellent opportunity to advance our IMAX 3.0 strategy and evolve our global platform for events and experiences out of home and in the home. We continue to test our connected network of theaters to create live and interactive events around our biggest releases. As I mentioned, we're planning a live interactive fan event around the release of Jurassic World Dominion. And at this week's CinemaCon, we shared a number of upcoming live events in our network, including performances from a diverse range of acts, including Pink Floyd legend Roger Waters and a partnership with iHeartRadio on December's iconic Jingle Ball concert. The 2022 slate offers a significant opportunity to expand our IMAX Enhanced initiative as well. Our goal is to expand the footprint of Enhanced further across streaming platforms and high-end devices. Given how much technology is featured throughout Disney's slate for the year, we see a strong opportunity to expand our marquee IMAX Enhanced partnership with Disney+. We're also leveraging our blockbuster slate to reignite our IMAX documentary strategy. Our newest project, The Blue Angels, shares DNA and strategic synergy with Top Gun from the ambitious way it will use our cameras to our collaboration with producer Glenn Powell, one of the stars of Top Gun Maverick. Blue Angels is also the first documentary project for our long-standing partners at JJ Abrams' Bad Robot, deepening our partnership with one of the most successful filmmakers in the world. We're excited about bringing a new generation of narrative-driven, modern IMAX documentaries to our network and see this as a viable business opportunity. Whether it's expanded distribution beyond institutional theaters and into commercial locations, or our strategic focus on distribution rights for IMAX docs across streaming services where we believe there are strong licensing opportunities. The 2022 slate is proof positive that IMAX technology is in growing demand among the world's best content creators and global audiences. At least 10 blockbusters scheduled for 2022 will feature IMAX DNA. And we continue to evolve and grow the IMAX global platform to meet that demand. Denis Villeneuve swept the technical Oscar categories with Dune, a groundbreaking film created with IMAX digital cameras. Tom Cruise strapped digital cameras to F-18 Super Hornets to create aerial combat scenes the likes of which the world has never seen. for Top Gun Maverick. And of course, James Cameron is poised to blow the collective minds of moviegoers around the world with the new Avatar. We believe that the next several years are set to demonstrate that we are in a creative and technological renaissance for immersive big screen filmmaking. And fierce competition for who can deliver experiences that fans have never seen before anywhere IMAX technology is the key to this. As a result, we are building and developing a new fleet of state-of-the-art IMAX film cameras. Working in partnership with filmmakers like Chris Nolan, Jordan Peele, and cinematographer Hoyt Van Hoytema, we're currently mapping out specs for the new cameras, and we plan to put them into production later this year for use in 2023. The use of our cameras is and the way that it infuses IMAX DNA and exclusive elements into films is a strong driver of our box office and positions us to continue to take market share. Last weekend, we hosted more than two dozen exhibition CEOs from around the world at our annual CEO Forum. For a three-day program where we give them access to leaders from across the studios, and streamers, as well as talent and creatives from across Hollywood and the international filmmaking community. And there was a consensus among attendees that blockbuster content will be even more important part of the ecosystem moving forward, and that the need for studios and streamers to create global launch events around blockbuster releases will benefit theatrical, and in particular, IMAX. Returning to our results for the quarter, the first quarter was light as projected on new releases globally. Despite this, IMAX drove solid financial results in the quarter, exceeding nearly all consensus estimates and driving year-over-year improvement across several key matrix. Total revenue, gross margin, and adjusted EBITDA all showed strong double-digit growth, over the first quarter of 2021. And importantly, we continued to drive strong market share gains, capturing a record 4.7% of the domestic box office in the first quarter, compared to our 4.4% of our full-year share for 2021, and the 3% market share we captured in the first quarter of our record-breaking year, 2019. We continue to demonstrate confidence in our strategy and the results by being opportunistic with share repurchases, which accelerated under our plan in the current quarter for a total of approximately 1.3 million shares repurchased year-to-date. In China, box office was also a bit softer than anticipated due to rolling closures of certain markets given the resurgence of COVID. We have implemented cost reductions in the market where appropriate, and we are cautiously optimistic around the continued reopening of impacted markets in China. In fact, 65% of our theaters are now open in China, up from 52% as of March 31st. Our 27 theaters in Shenzhen have nearly all reopened. Our theaters in Nanjing, Xi'an, Qingdao, and Hong Kong have also reopened in the past 10 days. We're also encouraged that an increasing number of Hollywood titles are securing releases in China, including The Batman, Fantastic Beasts, Ambulance, and Jurassic World. In conclusion, IMAX is poised to accelerate its momentum at the box office and the evolution of its business with the strong film slate launching next week. And we will continue to drive our current momentum in new theater signings as well. We are the premier global platform for blockbuster content. And in my 28 years with the company, this is one of the best blockbuster slates I've ever seen. It provides an excellent opportunity for to accelerate our financial momentum and further our transformation into a premier global technology platform for entertainment and events. Thanks again to all of you for joining us today. I want to conclude by thanking Joe Sperasio for his excellent work in serving as our interim CFO, and welcome Natasha Fernandez, whom we announced last week as our new CFO. Natasha's a phenomenal homegrown talent with more than 15 years of experience here at IMAX. She knows our business inside out, and I'm confident we'll grow our strong financial position while fueling new business opportunities under her leadership. With that, I'll turn it over to Joe.