IMAX Corporation (IMAX) Earnings Call Transcript & Summary

All right, let's get started. My name is David Karnovsky. I cover media, entertainment and advertising at JPMorgan. Happy to have, at least with me the first time at the conference, Natasha Fernandes, Chief Financial Officer at IMAX. Thanks for being here.

Thanks for having me, David.

Let's start a big picture question on how you think IMAX's position in the exhibition industry has shifted post-pandemic, and why should that be meaningful to investors?

IMAX has strengthened its position post-pandemic. We have several tailwinds to IMAX. And people when they go to the movies, they want to see blockbusters and they want a premium experience. We've also shifted our position in the industry with filmmakers and studios. We're now at the forefront of conversations first with even filmmakers and then coming alongside with studios to make sure the IMAX of it all is very present, and you'll see it in even articles and things that come out when they talk about movie releases, and it specifically calls out and it has an IMAX release. That's not something you would have seen a few years ago. And you see this back in our results. We're already back to 2019 box office, capitalizing on IMAX demand by growing our global network, opening that content aperture and having other types of experiences and events happening in our locations. And then if you think about why is it meaningful to investors, well, it's all coming down to how are we growing our bottom line, right? And it's growing through the consumer shift in demand and behavior, growing our market share. Globally, our market share -- we've had our best ever domestic market share in Q1 of almost 6%, which then, in turn, turns into obviously financial results. But then also just even our placement of being able to be at the forefront of conversations.

Maybe I'll ask one on the slate. Outside of the typical August slowdown, you have a pretty consistent, I would say, nicely diverse slate content coming, notably better before than last year. What are you most looking forward to that could surprise the upside in terms of IMAX performance?

The remaining 2024 slate has really good potential. If you sat and you lined up '23 versus '24, '24 slate looks really good. And it's a perfect fit for IMAX. Our Furiosa is actually coming up really quickly this weekend, and the pre-sales are really strong. It's actually stronger than Godzilla Kong and Planet of the Apes with respect to pre-sales. So that's doing really well right now. Q3 has Deadpool, which could be really huge. It's between that and Despicable Me are named as the top performers of the year right now, right? And then that leads us towards thinking Q3 will be a really strong quarter. And then you look at Q4, and it has Joker. And truthfully, everyone at IMAX, including Rich, is very excited about this title. I mean, I think we'll index high. It's a film for IMAX title. It's got film prints and it's going to go out to some film locations very similar to the way Dune was. So it's going to have the whole IMAX of it all in that as well. And then if you look at some other titles, there are some good potentials in Q4 with Wicked. So there's this amazing world building happening there, and Universal is already out behind it, putting marketing materials out there. Gladiator II with some epic battle scenes, and it's been a long time since the first Gladiator. Mufasa, which is a perfect holiday title, and then we also have Venom 3, a film for IMAX title. So everybody who wants their superhero fix, and we'll get in there a little bit too.

I can't believe you left out Beetlejuice Beetlejuice.

Beetlejuice Beetlejuice, yes, is coming as well. I remember that from my days as well. That will be interesting to see.

All right. In the past, when I discussed slate with Rich, I always start with that Hollywood first question, but we do have to cover local more in depth now. So for investors less familiar with theatrical abroad, what's important to know about mix of Hollywood versus local? And what role are you playing there?

What's great is, over the last few years, we've actually seen a shift in our box office dynamic. So we've had about 20% of our box office coming from local language between last year and then even in Q1. And as you -- as we look forward, you look at what that opportunity is. And so we actually -- everybody was closed, right? So we had the time during the pandemic to hone in on local language and what wasn't working versus what could work. And we developed a new DMR in the cloud process, we built out our studios' relationships, our local language studio relationships and created some slate deals with them as well. And that's what's actually created the opportunity for us is we got some time to hone in on building out those relationships with local studios and really pushing that forward. And anime is a great example. It's like increasing consumer demand. It's a great local-to-global strategy. So how we take Hollywood, and we push it global. Well, now you're taking those local languages and you're pushing those global and you're bringing them back to North America, and so lots of opportunity there. What's great is it follows the same economics as our Hollywood deals as well. So you're still getting the same good take as we do in Hollywood titles. And it gives us other content. So you're not so reliant on Hollywood content. You're getting an opportunity for all of this other content. And in some regions, like in other world, in rest of world countries like China or France and Japan, local language is more popular than Hollywood is.

2025 slate looks really strong. Marvel, DC, Avatar and F1 movie that looks like it was kind of made for premium. There's 10 films on there right now shot with IMAX cameras. What's driving that uptick in camera usage. How is that different or -- sorry, how is the indexing different? And that applies -- you also mentioned [ Prince ] before. Maybe how widely can that be used? I know that's a little bit more limited.

Actually, we -- Rich was at [ Cannes ] last week, and so we actually held a press conference there with over like almost 10 firms, and they -- we unveiled -- it was 14 films filmed for IMAX for next year. So it's actually increased since we last talked. So I think it's more than double any previous year, which we're excited about. But I think it's just a win-win all around. We're creating this IMAX films, creating this more immersive sort of experience for consumers, it's resulting in higher demand and better indexing. We have the ability with print. So you think about Dune 2 and even Joker. It's filmed completely on digital cameras, but we've then converted it to prints, and we're doing a limited release amongst like 10 to 15 film locations, and it's creating that halo effect for us of wanting to experience it in IMAX and doing almost appointment booking, right, appointment viewing. And so that's what's been really helpful towards that whole piece too. And demand and use for the IMAX camera has taken off. We've had so many people coming to us with the IMAX camera. So actually at Cannes, we actually talked about the film camera and that we had 4 in production, and we're starting to build out what could the next generation of film cameras look like, and we're working directly with filmmakers on those. So I think there's lots of opportunity there, too, to make sure we build the right one for filmmakers that they want to use.

Got it. Outside of the cameras, what other tools do you or your exhibitor partners have to drive higher indexing on IMAX?

The cameras, the remastering, so our technology that's in the remastering process with respect to creating the quality and the image and the sound [ vitality ], creating the most experience, like immersive theater experience. So sitting back and actually sitting in one of those bigger theaters and getting the sound, the screen, the quality, all happening because we have that 24X7 maintenance happening. And then, of course, the bespoke marketing like you would have seen -- we would have seen in The Planet of the Apes how IMAX was all over that marketing. And then Furiosa well, just experience it in IMAX. So you're no longer seeing like a list of 20 names across a poster. You're seeing IMAX and maybe one other. But in some cases, you're just seeing IMAX. And working with studios and filmmakers to understand, to market it specifically for IMAX and have our name built into that marketing.

Got it. I wanted to follow on one stat I think you gave this either at a conference or on earnings, but it surprised me was that you're indexing on Dune grew in week 2 and then again in week 3. And I don't understand it because I thought, okay, it should have been the opposite, right? All the fan boys come out in week 1, they want the IMAX format, and the more casual audience that get in the way. What's going on there?

That's like the best phenomena ever. It just keeps growing week after week after week. But I think that's exactly back to the appointment viewing. That's what happened. You couldn't get booking -- you couldn't get a seat on weekend 1, so you waited and you booked week 2 or week 3, and I think it's clearly apparent between both Dune and Oppenheimer that the film for IMAX titles really do well with that. And people have the patience to wait now. The one thing about what's happening now is you're not worried about an Easter Egg getting out, right? So some of these titles like Oppenheimer and Dune, you're going for the drama and the effect of it all. So you just want to experience it and you're willing to wait for that best experience.

Got it. Okay. You've stated I think previously your screens are kind of basically booked from like May to September of next year. I'm curious. When we look at this slate generally, we've always been surprised studios don't take advantage of slower periods. If you look at this year, it seems like the first 1/3 of the year had a little bit more room. Do you see room for the kind of slate to extend in the quieter periods? Can you play a role there to facilitate that?

I think there's a complete opportunity. Just because something has been labeled a blockbuster period before it doesn't mean it's always a blockbuster period going forward. I mean you look at March. Dune released March 1. It's not typically a blockbuster period. I think there's an opportunity if you put a really good quality piece of content out there that we could definitely create an IMAX halo effect around it and make it perform well. And I think we need to start thinking through that there's 52 weeks in a year, and every week is a week where people would go to the movies. There's nothing stopping you from going to the movies in January versus in June, right? So I think there's good quality that you can definitely do that. And then just think about it, we also have that opportunity with the experiential content and the alternative content. So pushing that forward in those periods, we did [ Clean Rock ] in January, right, a weekend in January and made $5 million on that weekend. I think that's where you get the opportunities to then fill in the slots that Hollywood is not taking and push some more box office through the IMAX network.

And I was thinking if the studios aren't allowed to talk to themselves, right, you can say --

They're allowed to talk to us.

Someone's going to take this mid-January. Maybe get the Super Bowl sold without that long shot. Okay. So as IMAX's position with studios has become more important, what are some positive implications that come with that? So for instance, one of the more interesting comments I thought on a prior call was when Rich indicated that there have been some increased flexibility from your partners, studio partners, I would say, to book alternative content during the week. So maybe that's one thing you can talk about. But how this could benefit you?

Yes, I think it's a give-and-take. When there's more competition for the windows, then there's -- and they'll ask for greater IMAX alignment and at times flexibility. But I think we view -- we're very smart on the way we view our relationships and we view our relationship with studios as partners. So we work together on that. And you mentioned having conversations. We're always in conversations with the studios as to timing and what could happen. I mean when you think about A24, we actually started a slate deal with A24 for an iconic film series. So they're just bringing back iconic films from their library. I think this week, there's Uncut Gems. It's what's getting released this week, and we've already done 2 others. But it's great because it's creating like this additional piece of content that people get an opportunity to see and it's enabling us to create higher utilization in the IMAX locations. And then internationally, there's always been more flexibility because we don't necessarily lock in the international releases, right? And so you have the opportunity to program what fits local tastes better. And so I think that all works nicely together to create that higher utilization for us.

Got it. How about the take rate, right? Your take rate from studio is fairly consistent. Sometimes there's been a bump in specific periods. I think that's associated with certain films. Any opportunity to kind of increase that over time? Or is that not really the driver?

I wish.

They're becoming more important, right, in IMAX releases.

Yes. And we are. And I think that's where -- the fact that we get 12.5% and it's been steady, it's been consistent over decades, I think that's a pure sign of exactly what -- of how valued we are the fact that has not changed. But where the opportunity lies is the conversations that we're having around other deliverables like marketing, versioning, early release dates, earlier releases than for an IMAX location versus others, doing Q&As with directors and filmmakers. So I think that there's other ways of grabbing opportunities aside from the straight take rate off the top. But I think that's where you get the opportunities from them.

You mentioned before utilization, the partnership with A24 to bring in more content during the week. I guess that leads into a conversation around alternative content. Part of that, I think is you brought some older content back, right? Queen Rock, and that was successful for you. The indexing was good. Sorry, the margins were good. With regards to older content, like what's the wider opportunity here, right? If DMR costs are coming out down, can you like rescreen older films, things that should have been on IMAX 40 years ago, but tech wasn't there yet?

I hope you went to see Jaws and ET because we did bring them back last year after 40 years. So there's definitely opportunity. I think what was great out there, what could we bring back, could you bring back if you're doing -- I don't -- it's not what happening, but if you did Gladiator and you brought back the first one and you want to do the second one or if there's other titles that you want to see first in a series and then see the next installment, I think there's lots of opportunities there. I mean concert series, definitely, there's an opportunity. You look at Queen Rock, we did -- before that, we did the Beatles. We did a small event with Andre 3000. We're doing Beach Boys next week, a documentary with Beach Boys. So lots of opportunities with respect to concert films. And there's a whole library out there of concert films that have existed for decades. So sifting through them and seeing what will work, what could be DMR and make it into a really good high-res and quality fidelity for us, I think that would be a great alternative to push through.

And you have to do an event around it too, put the band back together.

Exactly. I mean we did that with Talking Heads, Stop Making Sense toward last September, and I was there. And that entire cinema in Toronto was like everybody was standing and dancing and it was all -- what I found interesting is it was all different generations. It's not like just the generation from 4 years ago. It's a generation now, too. So I think there's lots of opportunity.

Maybe just moving forward to your theater relationship. So at earnings, you disclosed 17 signings year-to-date. That pace was off a little bit from the same time last year, though Rich kind of talked about activity remaining high, more announcements to come. I think more announcements have come. Any update to provide here? And have you observed any momentum shift in terms of interest from the exhibition community?

Yes. Our sales pipeline is stronger than ever that I can recall, and I've been here 17 years. I mean the pace is picking up. In Con, there was a lot of momentum behind those conversations. Our Head of Sales attended it with Rich as well, and they had lots of conversations with exhibitors, not only in Europe but exhibitors who were from different countries that were there, including from China. And so I think that there are opportunities. Since earnings, we've done a 10-system deal with SM Cinema in the Philippines, and we've done another 3-system deal with Megarama in France. And then in 2023 on the back of Avatar success, I mean, we signed almost 130 systems, right, which was almost 3x the year before. So I think there's lots of opportunity. And you think about even in the States. We just signed a deal with EVO last year for 8 systems. So even regions that you think may be fully populated, then there's still opportunities with respect to what could an experience look like for IMAX in those regions. And EVO's great because it's that experiential environment where it's a complex that has like restaurants and other activities and then a few cinemas. It's not like a 20-plex, right?

Yes. And just remind, I mean, for the audience like the process of going from signings in the backlog to build. Sometimes you're signing and building immediately, sometimes it's extended. What are the factors that kind of drive that?

So it depends on -- we could do sign and install, meaning you sign it this year and you install at some point this year, and that's because the complex already exists. And so really it will only take us a few weeks to go in and pull out whatever technology is in that box and put an IMAX system in. But the other opportunity is if it's a new build, if it's a new build, it could take somewhere between 1 to 3 years depending on the construction timing of the exhibitor and their plans. What's great about our backlog, if you even looked over the past 5 years, it's remained steady. Like we're at about 450 systems in backlog, of which almost 400 are new for new footprint, and we've been growing our footprint about 5% a year. And I think as you look at that, we continue to install. We guided this year 120 systems to 150 for installations. And as you install that, you're then replenishing it with these signings. And so lots of opportunities with respect to not only signing installs, but then also creating a flow of future installations to solidify that continuous growth every year.