Imax Corporation

Good day, and thank you for standing by. Welcome to IMAX Corporation's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jennifer Horsley, Head of Investor Relations and Senior Vice President. Please go ahead.

Good afternoon, and thank you for joining us on today's full year and fourth quarter 2023 earnings conference call. On the call today to review the financial results are Rich Gelfand, Chief Executive Officer, and Natasha Fernandez, 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 afternoon'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? Thanks, Jennifer, and thanks, everyone, for joining us today. IMAX powers awe-inspiring experiences for audiences around the world with a premium offering that invites people into exclusive and often impossible situations, worlds both real and imagined, alongside others who are equally immersed. Our business capitalizes on the limitlessness of human imagination, our innate desire for shared experiences, and the unceasing human demand for awe. These are evergreen market opportunities that transcend what Hollywood movie is playing at your local multiplex on any given weekend, which is why IMAX remains among the most consistent winners in global media and entertainment and why we delivered such strong results in 2023. Adjusted EPS for the full year of 94 cents, up from 6 cents in 2022. Growth of 25% or greater across revenue, gross margin, and adjusted EBITDA. Operating cash flow of $60 million, up from $17 million the prior year. we installed 128 IMAX systems worldwide at the high end of our guidance and signed agreements for 129 new and upgraded systems. And we grew global box office to nearly $1.1 billion, our second highest grossing year in our history. When you look at our results and growing demand for IMAX across the ecosystems, it's increasingly clear that IMAX is indeed the future of cinema. I'm in L.A. for the month, and this is a growing refrain among Hollywood filmmakers, studios, and producers, all of whom want to capitalize on the shift to IMAX at the box office, and who see increased market pressure on exhibition to meet growing consumer demand for premium experiences, a trend across all of out-of-home entertainment. Our global technology platform and asset light model remain remarkably resilient. Our guidance was in line for the year, even with a fourth quarter heavily impacted by the labor strikes in Hollywood. Strike-related slate delays have impacted the current quarter as well. While we never like seeing our stock go down, this has created an opportunity for us to buy back more shares. We have repurchased more than $40 million in IMAX stock since October 23. We believe IMAX stock is very undervalued given our growth outlook, and we expect to continue to use our strong balance sheet to be a buyer at depressed levels. Looking ahead, we expect to deliver another solid financial performance in 2024, including growth in system installs to between 120 to 150 for the full year. Similar results to 2023 for global box office. Total adjusted EBITDA margin in the high 30s percent range. We expect 2025 to be a strong growth year, including at least high single-digit revenue growth, mid single-digit percentage network growth, total adjusted EBITDA margin, of approximately 40%. Our strategy for the year ahead is two-pronged. Accelerate global sales activity and network growth by capitalizing on our expanding content portfolio and the proven returns IMAX technology delivers for our clients. And two, curate a diversified global content portfolio. We expect to deliver more than 100 IMAX experiences for the first time in our history by expanding further into local language, blockbusters, IMAX documentaries, and new and exclusive IMAX experiences and events. Today, I'd like to discuss how we're advancing our strategy on both fronts while continuing to explore new, further opportunities for growth. Then I'll turn it over to Natasha to detail our financial results before opening it up to your questions. Network growth. First, we recently conducted a new worldwide zoning analysis of our technology network for the first time since 2019 to measure our total addressable market, including how many IMAX locations can be sustained in each territory. As a result, IMAX is increasing its network zones to 3,619 globally. from 3,318 previously. IMAX is a highly recognizable global brand in premium cinematic experiences, and yet we still have significant room to grow with our core technology product. By our analysis, we are only at 47% global penetration with our current footprint of open locations. and we can sell or open approximately 1,900 additional IMAX systems worldwide, more than double the size of our network. As a reminder, we update the zoning analysis every few years and will continue to do so. Our sales activity in 2023 underscores the strong demand for IMAX technology, even in a period of uncertainty coming out of the strikes. Our 129 signings for the year were delivered with 36 partners, including seven new clients across 26 territories worldwide. 84% were for new IMAX locations. Of the 128 system installs we completed in 23, an IMAX record 61 were in international markets outside of North America and China, further diversifying our unique footprint. These installs were weighed toward our most productive markets as well. Overall installs were in territories delivering per screen averages that were more than 20% higher than the average PSA across our full network. Turning now to content, we are focused on curating a diversified global content portfolio. and creatively managing our slate to deliver more than 100 IMAX experiences in a single year for the first time in our history. We're appealing to a wider audience with awe-inspiring experiences drawn from across Hollywood, international film industries, documentaries, and events. This diversity continues to be a key differentiator for IMAX. and the biggest reason why we are a growth platform worldwide. Despite a strike-impacted fourth quarter, IMAX Global Box Office in 2023 increased 2% over its 2017-19 average. Compare that to a 21% decline for exhibitors worldwide based on estimates by Gower Street Analytics. We think of our portfolio in three product lines. First, blockbusters, both Hollywood and local language. Second, IMAX documentaries. Third, IMAX events, experiences that widen our aperture across genres, including music, gaming, sports, and more, as well as live and interactive formats. First, although the 2024 Hollywood slate has clearly been impacted by the strikes, we remain optimistic. Given the strong indexing we're driving on a title-by-title basis and the consistently high share of box office we capture in the post-pandemic world, this weekend's Dune Part 2 will offer an excellent example of the differentiating advantage of the IMAX platform. The film was shot entirely with IMAX cameras. and will receive a limited run in IMAX, 70mm film, further feeding demand for the format in the wake of Oppenheimer. IMAX earned more than 22.5% of Dune Part 1's opening domestic weekend. Our IMAX-exclusive preview screenings just a few days ago on Sunday approached sellout capacity throughout the United States, and our strong pre-sales indicate that we will dramatically over-index. Pre-sales exceed what we saw with Oppenheimer in the same window pre-launch. I've seen Dune Part 2, and this is a very special film. Make no mistake about it. This film has been much anticipated in the past, but it exceeded my expectations. Look no farther than the Academy Awards to see our broadening impact. IMAX releases scored more than 40 nominations, not just for Oppenheimer, but a variety of films across genres, from Killers of the Flower Moon to the Japanese anime hit The Boy and the Heron. Across this year, the slate remains balanced with a consistent offering that will stand out in IMAX, including Godzilla vs. Kong, Furiosa... Deadpool and Wolverine, A Quiet Place Day One, Joker 2, and Wicked. And this year is just a precursor to a stacked 2025 slate, which includes Avatar 3, several entries from the retooled Marvel and DC franchises, including Fantastic Four and Captain America, as well as Superman Legacy and the sequel to the Batman, and of course, Mission Impossible 8. our local language strategy also continues to be a powerful growth driver for IMAX. In 2023, we smashed our record for local language box office with $227 million in receipts for films across China, India, France, and Japan, as well as Malaysia and Thailand. This year looks very promising as well, particularly in China, where we expect the summer season to be among our best ever. Our relaunched IMAX documentaries unit continues to gain steam, and we'll see the release of The Blue Angels in partnership with Amazon Studios and J.J. Abrams' Bad Robot this May. We're also in production with Adam McKay's Stormbound, a film that will put IMAX cameras and our fans inside the most powerful hurricanes on the planet. We will continue to grow documentaries as a source of global box office with downstream streaming revenue potential, as well as a strong driver of our brand. We're also building out our portfolio of events and experiences beyond feature and documentary films as a key strategic priority. This strategy has already yielded success in the first quarter, most notably with Queen Rock Montreal, a first-time IMAX remastering of a seminal 1981 performance, which has delivered the best opening weekend ever for an IMAX-exclusive event and has so far grossed about $5.4 million. We also held a one-night-only cinematic listening event for the new release from hip-hop legend Andre 3000. The film, which recorded several sellouts and drove great utilization on an otherwise quiet Tuesday night in January, yielded a fee from the record label in addition to our standard box office take. Expanding our brand, we also continue to advance our streaming and consumer technology business, pushing further into new experiences beyond the cinema. IMAX was pleased to be among the launch partners for the Apple Vision Pro. Our goal is to test and define the IMAX experience on this exciting new platform. From user experience to content to monetization to new avenues for innovation across streaming and playback. But the IMAX app also has provided an exciting new application of our enterprise software, StreamSmart, purpose-built to deliver the clearest picture for less money for streamers like Disney+. We continue to make steady progress building out our streaming and consumer technology business. While we don't want to steal a page from every other earnings call in the world, the technology we acquired today by our acquisition of SimWave is AI-based. Through that acquisition, we have a team of 40 engineers specializing in machine learning and artificial intelligence. That team is working not only on streaming, but broader applications across our business, from image capture and optimization to improving our internal systems and processes. To conclude, 2023 was one of the best years on record for IMAX. Our technology continues to power awe-inspiring experiences that bring the entire range of human imagination to life. Consumers want the IMAX experience, and we curate one of the most diverse portfolios of experiences from around the world. Consumers are gravitating towards visceral, you are there documentaries, and we're using our technology to tell stories that immerse audiences in the impossible. Consumers want unforgettable communal experiences, and we continue to open our aperture and expand the definition of the IMAX experience from music to gaming to sports. And anyone who has watched the results of the award shows this year can't help but escape noticing the influence of film and IMAX for audiences around the world. And this week again, filmed in IMAX, we opened Dune 2, which we have high expectations for. As a result, demand for our technology is strong worldwide. We have already established IMAX as a premier global platform, and we see an opportunity to double our footprint. It is a great time to be in the IMAX business, and we look forward to growing our momentum and delivering results for our shareholders. Thank you, and with that, I'll turn it over to Natasha.

Thanks, Rich, and good afternoon, everyone. As Rich mentioned, IMAX delivered a strong performance in full year 2023. We have a business that stands out in the entertainment industry, both for the experience it provides consumers and our financial model. Let's review our Q4 and year-end results, and then I'll expand on our expectations for 2024 and beyond. Our 2023 results underscore the strength of our model and demand for the IMAX experience. Full-year adjusted EPS grew significantly to 94 cents in 2023, up from 6 cents the year prior, with 17 cents coming in Q4. Full-year gross margin of $214 million grew 37% year-over-year, and gross margin percent of 57% was up 500 basis points year-over-year. $44 million of that came in Q4 at a gross margin percent of 51%, which was up 100 basis points year over year, as the impact of the lower box office was offset by cost discipline and lower marketing expense. Adjusted EBITDA attributable to IMAX grew 52% to $128 million for the year, including $23 million in Q4. Full-year adjusted EBITDA margin was 37%, up 650 basis points year over year, driven by strong revenue growth and operating leverage in our business. We grew total revenue 25% year over year in 2023 to 375 million, driven by expansion of the IMAX network and our diversified content portfolio. We did this even with a 12% revenue decline in the fourth quarter due to the impact of the Hollywood strikes on the slate. Our portfolio approach to programming across Hollywood, local language, documentary, and event content, allows us to optimize our mix across the year. We continue to post strong global market share, 3.2% of the world's box office in 2023 on less than 1% of the screens globally. Our robust revenue growth in 2023 reflects strong performances from all of our segments, led by content solutions up 24%, and technology products and services up 22%. We also doubled revenue in all leather to $14 million for the full year, driven by our growth in streaming and consumer technology. Within operating expenses, we invest for long-term growth and to exploit our differentiation and ICONA grant. R&D expense was $10 million for the full year, of which $2.7 million was in Q4. and increased 4.8 million for the full year over 22, reflecting our investments in new technology, including streaming optimization software StreamSmart, along with continued investment in our core business. SG&A excluding stock-based compensation was 122 million for the full year, of which 29 million was in Q4, and increased 2 million from full year 2022, which excludes one-time transaction costs and the inclusion of SIM wave expenses, which were not in most of the prior year, given the acquisition closed at the end of Q3 2022. As the percentage of revenue, SG&A excluding stock-based compensation was 33% in 2023, lower than the 37% in 2022, an improvement of approximately 400 basis points, reflecting the leverage in our business model coupled with the focus on cost discipline, including actions to gain cost efficiencies in areas of our business, including IMAX China. Our cost discipline efforts will continue in 2024. System installations and signings remains a key driver for our long-term growth. In 2023, we completed 128 system installations, up approximately 40% over 2022. We closed the year strong with 69 installations in Q4, growth of 33% year-over-year. Installations were weighted to top markets with higher per-screen averages, approximately 20% above our network average. Examples include Japan, South Korea, and France, as well as domestic. This robust installation growth resulted in 4% growth of the IMAX commercial network. We signed 129 systems for the full year, more than two and a half times the prior year, and 55 systems were signed and installed in the same year, resulting in immediate network expansion. Asia Pacific was the biggest driver with 34 signings, nearly double our previous high. We delivered record signings in Thailand, Indonesia, and Malaysia, all markets where we've recently expanded into local language content to strengthen our position. In Japan, we delivered 12 new signings, our best total in the market since 2015. We also saw strong growth in the Americas, highlighted by resurgent activity in Latin America, Mexico, and, most notably, North America. Our ability to drive expansion in even our most mature market, 26 signings in total and three new clients, demonstrates the demand for our technology. Our sales momentum continued in the fourth quarter with 35 signings, our best Q4 since 2015. Overall, the robust growth in signings in 2023 is a positive leading indicator for future growth, and with installations and signings relatively equal for the year, we continue to have a substantial committed backlog entering into 2024 of 450 systems, of which 382 are new systems and 68 are upgrades. Our backlog, which historically installs within two to three years, along with the fact that our zones are only 47% penetrated globally, gives us confidence in our ability to expand the IMAX network for years to come. Turning to cash flow and the balance sheet. Operating cash flow for the year was $59 million, or $1.06 per share, representing significant growth versus the $17 million for 2022, or $0.30 per share. The tripling of our operating cash flow year over year is a result of our higher profits and improved cash conversion. Free cash flow before growth capex, defined as investment in joint revenue sharing arrangements, improved by $39 million to $44 million versus $4.5 million in 2022. This is the cash flow measure that best reflects our efficiency and profitability. Our capital position remains very strong as we ended the year with $76 million in cash and $257 million of 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 $407 million, which includes $331 million in available boring capacity under the company's various revolving facilities. From a capital allocation perspective, these last few months we have been aggressive in repurchasing our shares as we believe they are significantly undervalued. In 2023, although we were in a blackout period for a significant portion of the year, we repurchased $26 million worth of shares, with $24 million of that coming in Q4. To date, in 2024, we have repurchased an additional $16 million worth of our shares, and we have $151 million remaining available under our share repurchase authorization. On the back of a strong 2023 and the signings and installations momentum we carried into the year, we look forward to continued growth and progress in 2024. Our guidance for the year includes a higher level of system installations compared to 2023 in the range of 120 to 150 systems, which is wider to reflect China's reopening and continued recovery. Box office at a similar level to 2023, driven by growth in local language and event box office. Total consolidated adjusted EBITDA margin we expect to be consistent with 2023 and in the high 30%. This guidance is at the consolidated level as opposed to the attributable level. In 2024, we will focus our discussions at the total adjusted EBITDA level to reflect the results of our fully consolidated business, consistent to how we discuss revenue, gross profit, and most other financial metrics. We believe this is more in line with peer reporting and simplifies modeling for the street. For context, in 2023, our total consolidated adjusted EBITDA was $144 million at a 38.4% margin versus the attributable adjusted EBITDA of $128 million at a 36.7% margin. While we are not formally guiding to 2025, we believe it is important to provide investors a normalized view of our business and financial model, absent strike or COVID impact. Looking to 2025, We expect revenue growth of at least high single digits driven by accelerating IMAX box office and mid-single digit network growth, which will result in steady adjusted EBITDA margin expansion. We target total consolidated adjusted EBITDA margin to be approximately 40% by 2025, driven by the strong incrementality in our model as we scale. To conclude, 2023 was a year of robust growth for IMAX. with strong financial results driven by accelerated signings and installations and a number of box office milestones. We see significant potential to build on our momentum in 2024 and beyond. With consumers, genres of films come and go. We transcend genre, which makes IMAX the preferred platform for a growing array of awe-inspiring experiences. Demand for the IMAX experience among audiences worldwide is high. Studios, exhibitors, filmmakers, and artists recognize the value of our premium technology platform and our unrivaled global scale. This fuels new system sales and our expansion into streaming and consumer technology. And as we grow our scale, our asset-light, highly incremental business model is delivering expanding margins, bottom-line profit growth, and robust cash flow generation. Thank you. And with that, I will turn the call over to the operator for Q&A.

Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. We ask that you please ask only one question. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Eric Handler with Roth MKM. Your line is now open.

Good afternoon. Thanks for the question. Rich, I wonder if you're able to dissect the global box office view for this year. Obviously, always very difficult to project, but I'm just curious how you're thinking about Hollywood versus local language content and maybe alternative content as well.

So, Eric, during the first two months of this year, when kind of the hangover from the strike existed, I think there wasn't a lot of visibility, and I think there was, frankly, a lot of external negativism. But as we're right at the starting gate now of the year turning around, I feel very good about it. I mean, as I go through the year, and I'm not going to mention everything, just a number of things, But as I mentioned in the remarks, Dune Part 2 was better than I thought, and I had high expectations for it. I liked it better than Dune 1. I think it's a great story visually. It's spectacular. After seeing it, I don't understand how you can't see it in IMAX. It's like a made-for-IMAX kind of movie, and I'm not alone in thinking that. And just this past Monday, Sunday, sorry, we had an IMAX-only screening one show a day throughout our North American network, and it was virtually sold out with very little publicity. Going around it, the pre-sales are better than they were for Oppenheimer at the same time. So I'm extremely optimistic about that. And, you know, I think the narrative that prevailed there you know, during the first two months of this year, where are people coming back to the movies? And I can tell you the answer is yes. And IMAX is very little question about that. Then you go throughout the year. I have not seen it, but I've talked to some people who have seen Godzilla Kong. And, you know, I feel very good about that. And again, you don't have to be a genius to think Kong, Godzilla, IMAX, global. You know, I think... I think that will perform very well. Deadpool was the most watched trailer, as you know, and there's a lot of positive sentiment going on around that movie. The Joker with Lady Gaga is highly anticipated. Wicked later in the year. Furiosa I think has also gotten a lot of positive buzz. I just feel much better than I felt a few months ago. now that these projects are coming into focus and people are looking at them. I'm just giving you the top of the trees. There's a lot of other things, Gladiator 2, a lot of other things. That's on the Hollywood side. On the foreign language side, we just had a few releases. Most of our releases are scheduled for later in the year, but particularly in China, The China summer is looking very strong, and movies like Nezha 2 and a number of other movies which have very strong fan bases are coming up, and I think we're going to have a big summer in China. You know, we're working on filling it out with India, Korea, and a couple of new territories, and I think we'll have more movies than we had last year. And we've recently internally coined the term Docubuster, which is like a documentary blockbuster, and we have Blue Angels coming out with Amazon in May, and I've seen kind of a final cut of it, and I think it's spectacular. It was shot by the crew that shot Top Gun Maverick, and Glenn Powell's involved, J.J. Abrams, Bad Robot, and we have two or three other docs in production, including one about you know, being in the middle of storms, which fits right off the IMAX narrative with Adam McKay and a number of other things. And then alternative content, as I mentioned, you know, Queen, you know, killed it. I think it was our number one ever, like, original re-release. It's a 40-year-old movie. And we did about $5.5 million. And I think there's still some more runs to go for it. And as we mentioned, Andre 3000, I think There's a number of other original kind of alternative content that we're coming up with. And Taylor Swift opened in China in January, and that did pretty good numbers. So overall, I mean, I think 25 is a dream year, but I think 24 is going to be a much stronger year than people anticipated. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Eric Wold with B-Rally Securities. Your line is now open.

Thank you. Good afternoon, everybody. Rich, I'd love to kind of get, or I guess anyone would chime in. I'd love to get your thoughts as you go from, you know, the 1,800 or so screens globally now to the potential TAM of 3,600, you know, Would you expect the kind of global share of IMAX box office to kind of double-ish in line with that growth in systems? Would it potentially get stronger than a doubling given that you're going into more productive PSA markets? Just trying to get a sense of what you think the linearity of margin and profitability looks like as you kind of move toward that TAM in the coming years.

It's a complex question, Eric, and a good one. I think if you look at 23... Our signings, which were quite good during the year, 80% of them were new theaters. The territories we did them in, many of them were in high PSA areas like Japan and North America. A bunch of them opened up in Mexico with Cinemex, and they've performed extremely well. Of the ones that have opened in Japan, those are also very good. So the short-term indication is pretty good. I think, you know, when we increase the numbers, they did not increase proportionally in China the way they did in the rest of the world. And, you know, China's a pretty screened market. So I don't think you'll see, like, you know, if we forecast a doubling, I don't think China's going to double. The growth in that market is slower. So I think the growth in the more traditionally established markets will be better than it will be and kind of the developing markets. Again, though, you know, I hesitate to have a conclusion because there's so many variables going on. Eric, you know, obviously, there's all this new kind of content we're putting in. You know, this is not the call to get into detail, but changes in the macro world, like in foreign language film, the cost of versioning, the cost of special effects because of AI and other things, I think it's very hard to to put the calculation that way. But I do think that the growth in our theater network should be in territories that are at least as good as where our network lies today.

That's helpful. Thanks, Richard.

Thank you. One moment for our next question. Our next question comes from the line of Omar with Wells Fargo. Your line is now open.

Thanks for the question, guys. Rich, me, if we can expand a little bit. I know you talked about the China. You guys expect a very strong summer in China. We saw a recovery last year versus 2022 when things were shut down. What do you think is the recovery in China, and how do you feel about the opportunity there to grow in 2024 and into 2025? Maybe just give us, like, a State of the Union address on how you feel about the China prospects going forward. Thanks.

Yes. Sure, Omar, happy to do that. So, you know, it will be a surprise to many people, but the movie industry in China in general did pretty well in 23, and our box office was around 300 million, which is up significantly than any time during the pandemic. And as you said, you know, it really didn't open until January, and it wasn't fully open throughout the year. So have a pretty positive outlook. over the next couple of years. The macro trends appear good and movies are still an economically affordable luxury and IMAX particularly is even at a premium price point has done very well. Our indexing is very strong. So I think with China, the question is just how quickly does it continue to approach normal And what does the backlog slate look like both for domestic films and for Hollywood imported films and other imported films? It's part of my nature, Omar. And I believe, and Natasha could jump in, but I believe we budgeted China this year to be better than it was in 2023. So looking into the future, we feel pretty good about it, but there are still a few issues. variables that have to sort themselves out.

We appreciate it. Thank you, Ed.

Thank you. One moment for our next question. Our next question comes from the line of Stephen Frankel with Rosenblatt Securities. Your line is now open.

Good afternoon, Rich. You caught me a little off guard with the Latin America progress. That was a territory that always seemed like it would be good for IMAX, and there were a bunch of reasons why it never scaled up. So maybe give us some insight into what's changed and how meaningful of a territory can that be for you?

So to be clear, I don't think much has changed yet, Steve. I think we're looking prospectively what might change. And one of the biggest obstacles to us in South America has been very high tariffs. So whatever you charge in North America, it's approximately double because of the tariffs in the territory. And we made some progress, but to be clear, mostly from a modeling internal point of view on ways that we could do things differently to mitigate some of those tariff costs. And I think that's given us some hope and expectation of better business there. The other thing I would say, if you look at the per-screen averages in LATAM, they've been really quite good. I mean, you know, much better than one would anticipate from the outside. And I'd say the third thing is maybe from a relationship point of view, we made progress with certain of our pre-existing relationships over there. So I think if you put those three things together, it makes us more optimistic. But I don't want you to think that that's a done deal and we're predicting a breakout in LATAM this year. I think it's trending in the right direction.

Okay, and then one more China question. It was a bit of an anomaly this year that your box office results for the Lunar New Year weren't very exciting yet. Was that just a function of what movies were available during that window, or was there something else that went on during that holiday period?

Yeah, when you say not very exciting, I mean, our best year ever was last year when we did 33, and we did 28 this year. So, you know, I don't think it's necessarily a trend. You know, it's kind of in the range of rounding errors. But last year we had Wandering Earth 2, which was the biggest local language movie ever. of all time and in China and sci-fi and very much in our sweet spot. And this year it was more a mixture of genres. So I think I would say we performed sort of like a typical Chinese New Year without the boost from that film. And also I would add, like I said about the summer, Steve, a lot of the movies that we would have liked to have seen in Chinese New Year are coming out this summer. So I think we'll make up for a lot of that over the summer.

That's very helpful. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Mike Hickey with the Mint Smart Company. Your line is now open.

Hey, Rich, Natasha, Jennifer. Congrats, guys, on a great 2023. Thanks for taking our questions. Just curious, I guess to start on, Rich, you mentioned the 25 slate, and it does look... Pretty amazing, especially when you look at the amount of sort of fanboy blockbusters that you do so great with, at least domestically in China, other regions. So just curious if that slate is having any influence, I guess, on your current signings or installations, or if you think it will. I mean, it seems like historically before big films. you would see a little spike. And imagine now we've got a full year of great films. We would see a corresponding spike in signings and installs. I'm just curious your view there. And then on the installations, 120 to 150, just curious, Natasha, the sort of mix there between sales, JV, hybrid, if it's similar to what you had in 23, and if we should expect... the quarterly phasing of those installations in 24 similar to 23. Thanks, guys.

Well, certainly, you know, our sales team, when they go out there, will, you know, prominently play the 24 slate and the 25 slate. And I think the extent to which we've locked in movies, you know, so far in advance is much greater than it's historically been. So I would hope and think that, you know, that would help drive-in stalls and signings this year. And, you know, a number of the films for 25, you know, it's not just films in the summer. There are some films early in the year that were pretty good. So we just had our internal sales meeting, and certainly that will be our approach, and that would be our hope and expectation. And I guess historically that's been true. But it's so early in the year, I think we'll have to wait a little bit to see whether that plays out that way. And I'll turn it over to Natasha for your other question.

Hi, Mike. Yeah, on the sales cadence, on the installation cadence for the 120 to 150 systems, we think the cadence for installations will be similar to last year. Q4 heavily weighted, very similar. It's our standard historical type of model. And as well, similar mix to last year between JVs and sales deals as well.

Thanks, guys. Good luck.

Thank you. One moment for our next question, please. Our next question comes from the line of Steven Lasick with Goldman Sachs. Your line is now open.

Great. Thanks for the question. On capital allocation, maybe for Natasha, on the back of the rampant jury purchases over the last two quarters, I was hoping you could comment just a little bit on the pace of forward buybacks going forward. How reoccurring could we expect this to be? How sensitive might it be to share repurchases or to share price, excuse me? And then maybe perhaps more broadly, how you're thinking about balancing capital returns with maintaining balance sheet optionality for any potential future M&A. Thank you.

Hi, Stephen. Yeah, we've done a great amount of share repurchases over the past year, and particularly in the last quarter and into this year, I mean, we've already repurchased over $16 million in this just year to date so far. And as we've always said with our capital allocation, when there's an opportunity for us to repurchase, obviously in conjunction with our board and buyback committees, we will be in the market repurchasing at the right levels and You know, we have a healthy liquidity position, as you know, and a strong balance sheet to be able to support that. And so we have lots of opportunity. And, you know, as we're starting to look at our model, and you would have heard it in my prepared remarks, we're thinking about, you know, how do we start to allocate from a free cash flow, excluding growth capex? Because really, we want to continue to grow the network. And as Rich mentioned, particularly in the regions where there are high-performing screens. And so, if we do a JV model in those regions, that'll give us greater return. And so, we are being thoughtful about the way that we are allocating capital with respect to JVs. But our free cash flow, excluding growth capex, is around 30%. And really, when you think about the targets of that, back in an average of 2018-2019, we were

closer to 50 percent so that would be where we'd continue to move towards and see the opportunity growing over time great thank you for that color thank you one moment for our next question please our next question comes from the line of jim goth with barrington research the line is now open all right thank you uh i'd like to pursue a little more of uh

the subject Eric Wold raised with the 47% penetration and the nearly 2,000 more screens that you could add. I'm wondering what the limiting factors you would think would be in terms of accelerating that penetration. Would it be management, infrastructure, market development considerations, or even capital, though you could shift to more joint venture options you know, because that would be a good driver of the equity values.

So, Jim, as you know, our signings level between 22 and 23 virtually tripled. So, I mean, that's a pretty good sign of consumer demand there. I'm in LA for about a month right now, and I've been meeting with leading filmmakers and studios and whatnot. And a lot of the feedback I've gotten is in a world after Oppenheimer. And as I mentioned in my remarks, films that IMAX was involved with got 40 nominations. And then we're going into a world in the next week, next few days with Dune, which was 100% filmed in IMAX. And the feedback I'm getting is if you want to launch a blockbuster, you need IMAX to be part of it. And this is not just from low-level filmmakers. This is from senior studio executives. The groundwork has really been laid where IMAX needs to be part of these releases. And I think you look at the sales in 23, I think Exhibition, our partners there, is really starting to understand that. And I think you'll see the indexing and you'll see the box office on Dune And you'll see it on Deadpool, which also has IMAX DNA on it. And as that continues, I would expect it to drive significant sales growth. And I think we'll start to see that. Remember, it's disappointing to all of us that within five minutes of something happening, the world doesn't change. But it takes a little longer than that. And I just can't go to a meeting in this town without people understanding what that means. So I think you'll see that there are no internal constraints. As you know, Jim, we can install as many as we need to as long as we have sufficient lead time. We could manufacture whatever we need to. We could design whatever we need to. And I think we're well-positioned to have a good signing space.

All right. Thanks very much.

Thank you. One moment for our next question. Our next question comes from the line of Chad Daynon with Macquarie. Your line is now open.

Hey, good afternoon. This is Aaron Andre Chad. Thanks for taking our question. So you mentioned the recent Queen concert film, which obviously builds upon the great success from Taylor Swift last year. As you do more of these events, are there any learnings or takeaways that you can roll forward? And any more color just on how you're approaching building the pipeline for more events like this?

Yeah, I think there are a number of learnings. I think, remember, the Taylor Swift concert was extremely successful, but it was not just released in IMAX. It was released more broadly, but I think if you look at our indexing and you look at our results in China, the more you lean into the IMAX visuals and the IMAX sound system and the specialness of the IMAX experience, I think you'll drive higher numbers in IMAX and we're going to do that. And I think also, you have to look at this on a global basis. So for example, Taylor Swift is a very big name in China, but there are much bigger names in China that you've never heard of. And we did a concert film in France a few years ago with a band named Indochine, which was an extremely big success. As a matter of fact, the Queen concert We did in conjunction with Pathé in France and it did really well in France and really well in Japan. So some of the lessons are Taylor Swift is somewhat unique, but there is talent in different parts of the world and it's not a really high production cost where you can really find golden nuggets and do really good business in those markets. The other part of your question in terms of a pipeline, it won't surprise you. There is a pretty good pipeline because people who saw the Taylor Swift results and saw the Talking Heads results, which is another one we did, and saw the Queen results, I mean, they're approaching us and they're interested. And as I said, as long as you manage your costs and you use social media and use the group to help promote it, I think there's a pretty good business there.

Great, that's great, awesome color. And then just on SimWave, I think last quarter you talked about merging SimWave with the IMAX enhanced licensing business. So now that you have a couple more months under your belt, can you just talk about how you're planning to use this new brand and what your vision is for what this could look like in a few years time? Thank you.

Well, I mean, I remain incredibly excited about our consumer streaming technology. It's a way not only to save money, for the streamers, but it's also a way to monitor quality and improve quality. We've been making strides not only in streaming content to the consumer, but also sports streaming content to the streamers and to the broadcast networks. So I think the TAM keeps getting larger there. I think one of the things we learned is that maybe the sales cycle is longer than we expected. at the beginning, because in these organizations, it's not like, oh, wow, we've been waiting for you to invent a product like this. You have to figure out where it fits in and how you sell to the financial staff where the savings are. But I think we've done a very good job of building the infrastructure on both the sales side and the marketing side and the plug-and-play side. And it's not going to be tomorrow, but I feel good about our prospects for the remainder of the year.

Got it. Thank you very much. Good luck.

Thank you. I'm currently showing no further questions at this time. I'll turn the call back over to Mr. Richard Gelfand for closing comments.

Okay. Thank you very much, operator. I mean, I think in 2023, you know, the financial results were, you know, speak for themselves. They're extremely good. If you look at our multiples, both on adjusted EPS and adjusted EBITDA and where we're trading. From my point of view, they're surprisingly low, especially given the strong balance sheet and the asset-wide model. Unlike other companies, there are zero existential risks around IMAX, and there's a lot of wind at our backs. And if you look at our non-financial accomplishments, which include, thanks to Oppenheimer and Avatar and other things, introducing the importance of IMAX into the bloodstream of the future of cinema. I mean, I think we are a lot of what the future of cinema is. And I think that as long as we keep doing what we're doing, which we're going to continue doing very soon in a fairly material way, we'll be rewarded. And thank you for those of you who have been around for the ride. And we look forward to our next call.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.