Imax Corporation

Good day and thank you for standing by. Welcome to the second quarter 2024 IMAX Corporation 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Horsley, Head of Investor Relations for IMAX. Please go ahead.

Good morning, and thank you for joining us for IMAX's second quarter 2024 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 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, are contained in this morning's press release and our earnings materials, which are available on the investor relations page or 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. We are a go-to end-to-end technology platform for the world's greatest filmmakers and creators. We deliver the biggest Hollywood and international blockbusters, original documentaries, and immersive events at scale worldwide across 90 countries and territories. These attributes have been on full display. IMAX delivered one of the best years in its history in 2023. And while last year's Hollywood strikes dealt the entire entertainment ecosystem a temporary setback, it was just that, temporary. Now with the strikes and the lingering effects of the pandemic firmly behind us, we are in the excellent position to fully realize the benefits of our strong asset light business model. We're on a tear in network growth with both system sales, activity, and installations. And the slate through 25 and 26 looks as good as we've ever seen. As we predicted, we began to see this pivot back to progress during the second quarter. The record performance of Inside Out 2 led a succession of recent box office hits, demonstrating that supply, not demand, depressed the global grosses of the early summer. The third quarter is off to a strong start. Twisters easily beat expectations, and local Chinese title successor Open Big leading IMAX to a $21 million global weekend. Deadpool and Wolverine is set to continue the trend and deliver a massive opening this weekend. IMAX is commanding a healthy percentage of pre-sales in line with what we saw for the big debut of Doctor Strange 2, which opened to $33 million in IMAX's global network. And the fourth quarter looks strong with buzz building for Wicked, Gladiator 2, and Joker 2, which was filmed without cameras and will receive a select run in IMAX film. Furthermore, we continue to strengthen our strategic position. We locked a landmark deal in China with our biggest exhibition partner worldwide, Wanda Film. A record of at least 14 releases in 25 are being filmed with IMAX cameras. and we successfully launched our original documentary, The Blue Angels, further diversifying our content portfolio. Several signs in our financial and operating performance demonstrate our growing momentum. Our second quarter financial performance significantly beat consensus estimates across most key financial metrics. We expect to achieve year-over-year growth in installations, on this call raising the floor of our guidance from 120 installs to 130 new or upgraded systems this year, with the high end remaining at 150. Through the second quarter, we've installed 39 IMAX systems compared to 29 over the same period in 2023. We've signed agreements for 99 new or upgraded IMAX systems worldwide year-to-date compared to 84 over the same period of 23. And cash from operations climbed to $35 million in the quarter, up significantly year-over-year from $5 million last year. Consistently, IMAX has navigated periods of disruption to deliver strong results. Yet we know it's not about what we've done. It's about where we're headed. And we believe IMAX is entering a new, very productive era with clear catalysts for growth over the next several years. This is a very promising moment for our business and our shareholders. Today, I'd like to offer updates on our global network and then our content slate. Then I'll hand it over to Natasha before we take questions. On the global network, first, this positive pivot across our business extends to our global network, where both sales activity and installations accelerated during the second quarter. IMAX signed agreements with nine different exhibition partners, including four new clients covering priority markets, including India, France, Southeast Asia, and more recently, Saudi Arabia. And ongoing conversations with existing and new exhibition partners around the world are robust. Our deal with WandaFilm, spanning up to 123 upgraded, new, and renewed IMAX systems holds significant strategic promise, even beyond the hundreds of millions at the box office that these locations stand to generate over the next decade. This is our first agreement with Wanda since Tencent-backed Rui Holdings acquired a controlling interest in the company last year and a strong vote of confidence by its new management team. Many of the upgraded systems are in Tier 1 cities and among the top 40% of IMAX China locations. The deal includes collaboration on the content side. We see powerful potential for delivering alternative content with Wanda Pictures and Tencent, especially when you factor in the interests of Rui and Tencent, the latter of which owns a significant stake in Epic Games and is the exclusive streaming partner for the NBA in China. We're very encouraged by the upcoming content slate in China, and we believe the market is on the cusp of a rebound. In the past two weeks, local hits have reignited the box office, including Successor, our biggest local opening in the market since Chinese New Year. We have two local film primex releases this summer, Decoded and The Travelers, and early indications are that next year's Chinese New Year holiday will offer an exceptionally strong slate, including a local film for IMAX title. Additionally, more Hollywood films are securing Chinese release dates, even edgier R-rated fare like Deadpool and Wolverine. And the region remains a fertile testing ground for new events, experiences, and technologies. Last month, we partnered with the NBA to stream the NBA Finals live to IMAX locations in Hong Kong and Taiwan. The event sold out in hours, and 73% of attendees were first-time IMAX consumers, which is obviously significant for the way we see the network growing. We can see a role for IMAX as an immersive event platform for North American sports leagues looking to grow global franchises. We also announced that IMAX Enhanced will be featured on the world's first Android-based spatial computer, which debuts in China in October. It's similar to what Apple did with Vision Pro in the US. The positive pivot in our business is also very evident in the content pipeline. with the film slate set to come roaring back over the next several years. We have more film for IMAX titles than ever in 2025. Every IMAX release from May through September is filmed with IMAX cameras, including Mission Impossible 8, Marvel's Fantastic Four, and Thunderbolts. Apple's F1 starring Brad Pitt from Top Gun Maverick director Joe Kaczynski, and producer Jerry Bruckheimer, and Superman Legacy. Our Film for IMAX program has become a key driver of sales for IMAX systems worldwide. Film for IMAX releases like Top Gun Maverick, Oppenheimer, and Dune Part II prove that films shot with our cameras deserve to be experienced on IMAX screens. Exhibitors value that and the premium ticket prices and the incremental box office that IMAX delivers. Our slate is almost fully committed for the entire year in 2025. 2025 ends with Avatar 3 and then 2026 kicks off with the carryover box office in January and it also includes installments of Avengers, Star Wars, The Batman, Super Mario Brothers, and Toy Story. Alongside our expanding portfolio of local language documentaries and events and experiences, we continue to make progress in opening our content aperture to deliver a greater diversity of experiences for our audiences and drive capacity utilization for our global network. The Blue Angels was an excellent first outing for our newly revamped original documentary strategy. In its one week IMAX exclusive commercial release, the film scored the highest grossing theatrical documentary opening year to date. It has earned more than $2.2 million in IMAX box office so far. We sold the streaming rights to Amazon Prime Video, where it was the most watched original film on Prime of any kind, documentary or feature, in its first weekend. And in its first full week, it was the third most watched original film on any streaming service per Variety Insight with 1.9 million views. In early 2025, it will release across IMAX's institutional network. The sale to Amazon drove significant incremental revenue, and we will continue to reap the benefits across its institutional run, where it could conceivably play for years. We have several more original dockbusters in our pipeline, including the upcoming Stormbound with producer Adam McKay, which will capture the most powerful hurricanes with IMAX cameras. We continue to build out a robust pipeline of music content as well, including an IMAX exclusive event from Donald Glover next year, an exclusive recent live event for the Beach Boys documentary ahead of its debut on Disney+, and Queen Rock Montreal. which continued to deliver with a one-way bring back in Japan in May and its Chinese debut at the Shanghai International Film Festival. We're experimenting in additional verticals from recurring programming, like our partnership with A24, to market activations, including our multi-city launch event for Prime Video's hit, Fallout. We held our biggest live event to date with an interactive fan event for Twisters across 180 locations, which helped IMAX drive strong over 11% indexing on the film's domestic debut last week. And tomorrow, we'll host a special presentation of the Paris 2024 Olympics opening ceremony with Comcast Universal NBC. To close, We believe we've reached a pivot point in the post-strike rebound. Given surging demand for the IMAX experience among filmmakers, studios, and audiences worldwide, we stand on the verge of an extremely exciting time for our business. Our global network at less than 50% estimated penetration worldwide is well-primed to grow and drive even more attractive scale economies for our business. The pipeline of blockbusters over the next several years is truly without precedent, representing incredible filmmakers and the most valuable IP in entertainment. And we'll further diversify our content portfolio with awe-inspiring experiences to drive greater utilization of the IMAX network. We look forward to continuing to deliver results in our business and for our shareholders. Thank you again. With that, I'll turn it over to Natasha.