IMAX Corporation Reports Second-Quarter 2019 Financial Results

NEW YORK, July 30, 2019 /PRNewswire/ -- 

HIGHLIGHTS
(Note: Percentage and other changes refer to second quarter 2018 unless otherwise noted.)

• Strong execution and focus on core business driving solid financial performance, with record results across key metrics for China business.
• 6.6% growth in revenue driven by growth in global box office.
• 10.0% growth in commercial network.
• 28.8% growth in IMAX Greater China box office.
• Delivered GAAP net income per share of $0.19, compared to $0.12; adjusted net income per share of $0.32, compared to $0.30 per share.
• On-track to deliver low double-digit growth in IMAX global box office for full-year 2019.

IMAX Corporation IMAX, a world leader in using technology to eventicize content, reported revenues of $104.8 million, gross profit of $59.6 million and net income attributable to common shareholders of $11.4 million, or $0.19 per diluted share, for the second-quarter ended June 30, 2019. Adjusted net income attributable to common shareholders for the quarter was $19.7 million, or $0.32 per diluted share, Adjusted EBITDA was $41.4 million and Adjusted EBITDA margin was 43.8%. For reconciliations of reported results to non-GAAP financial results, and for the definition and reconciliation of Adjusted EBITDA, please refer to Tables 8 - 10 and the discussion of non-GAAP measures at the end of this earnings release.

"IMAX is on track to deliver its best year ever at the box office, with the success of Spider-Man: Far From Home, The Lion King, and our record-breaking, first local language animated release in China this past weekend, Ne Zha, leading a strong second half film slate and building on our solid first-half," said IMAX CEO Richard L. Gelfond.  "Our continued success is driven by the privileged position we hold in the entertainment ecosystem, where our end-to-end technology empowers world-class creators to bring cultural events and communal experiences to life on a global scale."

Second Quarter 2019 Results

Box Office Update (Table 2) 
Gross box office from IMAX DMR® films was $364.9 million in the second quarter of 2019, compared to $342.6 million in the second quarter of 2018, representing an increase of 6.5%. The $22.3 million increase in gross box office was principally driven by a $29.1 million increase in China box office. A total of 19 films (15 new and 4 carryovers) were exhibited in the quarter, compared to 14 films (10 new and 4 carryovers) in the second quarter of 2018.

"Through our strong relationships with creators, the power of our global network and our continued cost discipline, we are now delivering top-line growth, EBITDA margin expansion and enhanced returns on capital for investors," Gelfond added. "We continue to enhance IMAX's position in the entertainment ecosystem and have established a solid foundation to deliver further growth in the quarters and years ahead." 

Global Network Update (Table 3) 
The total IMAX® theater network consisted of 1,541 systems as of June 30, 2019, of which 1,445 were in commercial multiplexes. Including upgrades, there were 612 theaters in backlog as of June 30, 2019, compared to the 635 in backlog as of June 30, 2018.

IMAX also signed contracts for 54 new theaters and 19 upgrades in the second quarter of 2019, reflecting the strong demand for our systems. During the quarter, the Company installed 35 theater systems, 27 of which were for new theater locations. For a breakdown of theater system signings, backlog, installations, and network by type for the second quarter of 2019, please refer to Table 3 at the end of this earnings release.

Second Quarter Consolidated Results
The gross margin across all segments in the second quarter of 2019 was $59.6 million, or 56.8% of total revenues, compared to $60.4 million, or 61.4% of total revenues, in the second quarter of 2018. The slight decline in gross margin was driven by higher cost of revenues in our Network and Theater businesses, as well as a decline in revenues in our New Business segment as a result of a residual one-time payment to the Company of $2.6 million in the prior year period related to our discontinued virtual reality initiative. Operating expenses (which includes SG&A, excluding stock-based compensation, plus R&D) were $26.8 million in the quarter representing an 10.9% decline from the prior year period.

Second Quarter Segment Results (Tables 1 and 7)

Network Business

• Network business revenues increased 6.3% to $64.7 million in the quarter, compared with $60.9 million in the prior-year period. The $3.8 million increase in revenues was driven principally by a $3.1 million, or 8.7%, increase in IMAX DMR revenues and a $0.6 million, or 2.3% increase in revenues from joint revenue-sharing arrangements. The strong increase in IMAX DMR revenues was driven by a $22.3 million increase in IMAX global box office.
• The blended take-rate (defined as total Network revenue divided by total IMAX global box office) for IMAX DMR and joint revenue sharing arrangements was 17.7% in the quarter, compared to 17.8% in the prior year period.  The slight decline is due to mix of global box office, including the strong performance of Greater China.
• Gross margin for the Network business was 66.8%, compared to 70.5% in the prior-year period. The decline in gross margin for the business was due to higher contractual marketing costs driven by the strong performance of Avengers: Endgame, as well as a 50% increase in the number of releases in the quarter from the 10 new films released in the prior year period.

Theater Business

• Theater business segment revenues increased 13.2% to $34.9 million in the quarter, compared with $30.9 million in the prior year period. The $4.1 million increase in revenues was driven principally by the higher number of installations in the quarter, as well as higher maintenance revenue on our expanded commercial theater network, partially offset by lower financing revenue. The commercial theater network increased 10.0% to 1,445 commercial multiplex theaters in the current quarter. (Please refer to Table 3 for detail on our signings, installations and theater network at the end of this earnings release).
• The average revenue per new theater system was $1.3 million, compared to $1.2 million in the prior year period.
• Gross margin on sales and sales-type leases was 38.5% compared to 57.6% in the prior year period. The decline in gross margin is due principally to the mix of systems installed in the current quarter, compared to the prior year, as well as the Company's decision to allocate additional resources to ensure the successful roll out and launch of its new IMAX with Laser® technology. For full-year 2019, the Company anticipates margins on sales type theaters to return to approximately 50%.

Cash Balances and Outstanding Debt (Table 5)
Total cash and cash equivalents as of June 30, 2019 was $106.5 million, which includes $64.9 million held in the People's Republic of China. Total bank indebtedness was $23.0 million as of June 30, 2019, including the impact of $2.0 million of deferred financing fees, and represented a decrease of $14.8 million from $37.8 million at December 31, 2018. As of June 30, 2019, $275.0 million is available under the $300.0 million credit facility in place due June 28, 2023.

Share Count and Capital Return
The weighted average diluted shares outstanding in second quarter 2019 declined 3.0% to 61.5 million, compared to 63.4 million in second quarter 2018, due to share repurchase activity. In the second quarter of 2019, a total of 87,769 shares were repurchased at an average price of $19.45 for a total value of $1.7 million. A total of $126.9 million is available under the outstanding share repurchase authorization, which expires on June 30, 2020. Total shares outstanding as of June 30, 2019 was 61.3 million.

Full-Year 2019 Guidance
IMAX's guidance for full-year 2019 is as follows:

• IMAX global box office is expected to experience low double-digit growth compared to the $1,032.1 million recorded in full-year 2018.
• Operating expenses, defined as selling, general and administrative expenses less stock-based compensation plus research and development costs are expected to be in-line with the $110.7 million recorded in full-year 2018.
• The effective tax rate is expected to be approximately 23%.
• Adjusted EBITDA margin is expected to be approximately 41% to 42%.
• Total theater installations are expected in the range of 185 to 190, consisting of new theater installs of 140 to 145 systems and upgrades to IMAX with Laser of approximately 45 systems. New theater installs are heavily weighted toward the fourth quarter of 2019.
• Total theaters equipped with IMAX with Laser are expected to grow to approximately 140 systems.

Conference Call
The Company will host a conference call today at 4:30 PM ET to discuss its second quarter 2019 financial results. This call is being webcast by Nasdaq and can be accessed at investors.imax.com. To access the call via telephone, interested parties in the US and Canada should dial (888) 254-3590 approximately 5 to 10 minutes before the call begins. Other international callers should dial (647) 794-4605. The conference ID for the call is 2957384. A replay of the call will be available via webcast at investors.imax.com or via telephone by dialing (888) 203-1112 (US and Canada), or (647) 436-0148 (international). The Conference ID for the telephone replay is 2957384.

Supplemental Materials
For more information about the Company's results, please refer to the IMAX Investor Relations website located at investors.imax.com.

Investor Relations Website and Social Media
On a weekly basis, the Company posts quarter-to-date box office results on the IMAX Investor Relations website located at www.imax.com/content/investor-relations. The Company expects to provide such updates on Friday of each week, although the Company may change this timing without notice. Results will be displayed with a one-week lag. In addition, the Company maintains a Twitter account: @IMAX_Investors. The Company intends to use Twitter to disclose the box office information, as well as other information that may be of interest to the Company's investor community.

The information posted on the Company's website and/or via its Twitter account may be deemed material to investors. Accordingly, investors, media and others interested in the Company should monitor the Company's website and its Twitter account in addition to the Company's earnings releases, SEC filings and public conference calls and webcasts.

About IMAX Corporation
IMAX, an innovator in entertainment technology, combines proprietary software, architecture and equipment to create experiences that take you beyond the edge of your seat to a world you've never imagined. Top filmmakers and studios are utilizing IMAX theaters to connect with audiences in extraordinary ways, and, as such, IMAX's network is among the most important and successful theatrical distribution platforms for major event films around the globe.

IMAX is headquartered in New York, Toronto and Los Angeles, with additional offices in London, Dublin, Tokyo, and Shanghai. As of June 30, 2019, there were 1,541 IMAX theater systems (1,445 commercial multiplexes, 15 commercial destinations, 81 institutional) operating in 81 countries. On Oct. 8, 2015, shares of IMAX China, a subsidiary of IMAX Corp., began trading on the Hong Kong Stock Exchange under the stock code "HK.1970."

IMAX®, IMAX® 3D, IMAX DMR®, Experience It In IMAX®, An IMAX 3D Experience®, The IMAX Experience®, IMAX Is Believing® and IMAX nXos® are trademarks of IMAX Corporation. More information about the Company can be found at www.imax.com. You may also connect with IMAX on Facebook (www.facebook.com/imax), Twitter (www.twitter.com/imax) and YouTube (www.youtube.com/imaxmovies).

Forward-Looking Statements

This earnings release contains forward looking statements that are based on IMAX management's assumptions and existing information and involve certain risks and uncertainties which could cause actual results to differ materially from future results expressed or implied by such forward looking statements. Important factors that could affect these statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its consolidated subsidiaries (the "Company") and expectations regarding the Company's future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada; risks related to the Company's growth and operations in China; the performance of IMAX DMR films; the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; risks related to currency fluctuations; the potential impact of increased competition in the markets within which the Company operates; competitive actions by other companies; the failure to respond to change and advancements in digital technology; risks relating to recent consolidation among commercial exhibitors and studios; risks related to new business initiatives; conditions in the in-home and out-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security and data privacy; risks related to the Company's inability to protect the Company's intellectual property; general economic, market or business conditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; the failure to fully realize the projected cost savings and benefits from any of the Company's restructuring initiatives; and other factors, many of which are beyond the control of the Company. These factors, other risks and uncertainties and financial details are discussed in IMAX's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Primary Reporting Groups

The Company has four primary reporting groups identified by nature of product sold or service provided: (1) Network Business, representing variable revenue generated by box-office results and which includes the reportable segments of IMAX DMR and contingent rent from the JRSAs and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments, and also includes fixed hybrid revenues and upfront installation costs from the JRSA segment; (3) New Business, which includes home entertainment, and other new business initiatives that are in the development, start-up and/or wind-up phases, and (4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items.

Non-GAAP Financial Measures

In this release, the Company presents adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share, EBITDA, Adjusted EBITDA per Credit Facility and free cash flow as supplemental measures of performance of the Company, which are not recognized under U.S. GAAP. The Company presents adjusted net income and adjusted net income per diluted share because it believes that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) and non-recurring charges on net income. In addition, the Company presents adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results and could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable to non-controlling interests and its stock-based compensation (net of any related tax impact) and non-recurring charges in determining net income attributable to common shareholders. Management uses these measures to review operating performance on a comparable basis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share should be considered in addition to, and not as a substitute for, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP.

The Company is required to maintain a minimum level of "EBITDA", as such term is defined in the Company's credit agreement (and which is referred to herein as "Adjusted EBITDA per Credit Facility", as the credit agreement includes additional adjustments beyond interest, taxes, depreciation and amortization). EBITDA and Adjusted EBITDA per Credit Facility (each as defined below) should not be construed as substitutes for net income or as better measures of liquidity as determined in accordance with U.S. GAAP. The Company believes that EBITDA and Adjusted EBITDA per Credit Facility are relevant and useful information widely used by analysts, investors and other interested parties in the Company's industry.

Free cash flow is defined as cash provided by operating activities minus cash used in investing activities (from the condensed consolidated statements of cash flows). Cash provided by operating activities consist of net income, plus depreciation and amortization, plus the change in deferred income taxes, plus other non-cash items, plus changes in working capital, less investment in film assets, plus other changes in operating assets and liabilities. Cash used in investing activities includes capital expenditures, acquisitions and other cash used in investing activities. Management views free cash flow, a non-GAAP measure, as a measure of the Company's after-tax cash flow available to reduce debt, add to cash balances, and fund other financing activities. Free cash flow does not represent residual cash flow available for discretionary expenditures. A reconciliation of cash provided by operating activities to free cash flow is presented in Table 6.

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Quarter Ended June 30, 2019 vs. 2018

The Company reported net income of $13.8 million, or $0.22 per basic and diluted share, for the second quarter of 2019 as compared to net income of $10.3 million, or $0.16 per basic and diluted share, for the second quarter of 2018.

Net income for the second quarter of 2019 includes a $7.0 million charge, or $0.11 per diluted share (2018— $6.8 million or $0.10 per diluted share), for stock-based compensation and a loss of $4.5 million, or $0.07 per diluted share, for the change in fair value of equity investment (2018 — $nil). The second quarter of 2018 also includes a $0.5 million charge, or $0.01 per diluted share, for exit costs, restructuring charges and associated impairments and a $7.5 million charge, or $0.12 per diluted share, for a legal arbitration award related to one of the Company's litigation matters from 2006.

Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $23.8 million, or $0.38 per diluted share, for the second quarter of 2019 as compared to adjusted net income of $21.7 million, or $0.34  per diluted share, for the second quarter of 2018.

The Company reported net income attributable to common shareholders of $11.4 million, or $0.19 per basic and diluted share for the second quarter of 2019 (2018 — $7.6 million, or $0.12 per basic and diluted share).

Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $19.7 million, or $0.32 per diluted share, for the second quarter of 2019 as compared to adjusted net income attributable to common shareholders of $19.0 million, or $0.30 per diluted share, for the second quarter of 2018.

A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in Table 4.

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Six Months Ended June 30, 2019 vs. 2018

The Company reported net income of $26.3 million, or $0.43 per basic and diluted share, for the six months ended June 30, 2019 as compared to net income of $22.3 million, or $0.35 per basic and diluted share, for the six months ended June 30, 2018.

Net income for the six months ended June 30, 2019, includes a $11.4 million charge, or $0.19 per diluted share (2018 — $11.6 million or $0.18 per diluted share), for stock-based compensation, a $0.9 million charge, or $0.01 per diluted share for exit costs, restructuring charges and associated impairments (2018 — $1.2 million, or $0.02 per diluted share) and a loss of $2.1 million, or $0.03 per diluted share, for the change in fair value of equity investment (2018 — $nil). The six months ended June 30, 2018 includes a $7.5 million charge, or $0.12 per diluted share, for a legal arbitration award related to one of the Company's litigation matters from 2006.

Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $38.1 million, or $0.62 per diluted share, for the six months ended June 30, 2019, as compared to adjusted net income of $38.8 million, or $0.61 per diluted share, for the six months ended June 30, 2018.

The Company reported net income attributable to common shareholders of $19.7 million, or $0.32 per basic and diluted share for the six months ended June 30, 2019 (2018 — $16.1 million, or $0.25 per basic and diluted share).

Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments, the legal arbitration award, the change in fair value of equity investment and the related tax impact of these adjustments, was $30.5 million, or $0.49 per diluted share, for the six months ended June 30, 2019, as compared to adjusted net income attributable to common shareholders of $32.4 million, or $0.51 per diluted share, for the six months ended June 30, 2018.

A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in Table 4.