IMAX Corporation ($IMAX)

Okay. Great. We're going to get started. You'll notice we have a little bit of a unique setup today. So on my left is Natasha Fernandes, CFO of IMAX. And up on the screen on my right, you'll see Rich Gelfond, CEO. Rich, thanks for being with us today.

Why don't we start with you? It's been a while since investors have heard from you. So maybe we could just start by having you share your perspective on kind of recent business trends. what you're most excited about, what you've been focused on as you've come back from your temporary leave.

Thanks, David, and thanks for agreeing to this unique set up. As you know, I can't travel right now, and I really appreciate the opportunity to speak at the conference. So in a way, the staging of my comeback is perfect with the summer slate kicking off right now and all that's going on in the business. First of all, my primary thing that I've been focusing on is shareholder value and increasing shareholder value. And to that end, I started coming back in the last week or -- and we decided to initiate a buyback program a week ago when we bought in over 12 million shares in the last week. The stock has gone down for reasons. I understand that some films over-index what you thought they were going to do. Some go under or on the doorstep of the big movie season. I think people are needlessly worried, but we're not. We're quite confident in the rest of the year and where we're going to end up. And I want to reiterate the guidance for $1.4 million in box office. So first thing I'm focusing on is shareholder value. We're really focused on billing in the slate for next -- for this year and next year in '28. And without giving you specific titles because they're not all formally agreed to, but more agreed to by word, is '28 is almost filled in for the summer. I'll talk a little bit more about it later, but I still think there's a number of things we might do in '26 that make me other reasons for confidence for box office for this year. I'm spending a lot of time working on the brand. I think our brand by virtue of the fact that we're indexing so high in all the movies and our box office is pretty much so far equivalent to what it was last year with Odyssey, Toy Story and 1 part still to come, which comp very favorable to last year's titles. So I think on a global basis, the brand has done phenomenal and there's a lot more we could do around it. And I don't know, David, if you had a chance to see Chris Nolan on either Cobar or 60 minutes this past weekend. And when you understand what we have out there for the rest of the year, I think you'd be as excited as I am.

Got. That's great interest. Natasha, do you want to add anything or...

Yes. No, I think we're super excited. The repurchases, as Rich said, it's $12 million so far, and that's been great because we believe that we're undervalued, and it's a great opportunity for us. And -- and I think that we're excited for the slate ahead of us. I wanted to reiterate what Rich said about being on par. Last year, our biggest title of the year was Ne Zha II in the first quarter. And then we went on to achieve $1.28 billion in the year. This year, we are right on par as of today with our box office of last year at this time and yet the biggest of our slate is.

Got it. So maybe we can unpack the $1.4 billion of box office a bit. Can you just help us understand how you build the forecast. And I think it's also important to how you dynamically manage that throughout the year.

So the way we build the forecast, David, is when we do our budget the year before, we had estimates on a film-by-film basis for everything that's laid out for the next year. and our film department weighs into that, our finance department ways into it and I weigh into it based on comps, but other things. Is it film for IMAX? Is it film? Or is it digital? How long is it playing, all the factors like that. And we know going into a year that not every film is going to track exactly to the ultimate we put together. So you look at this year and things like Hal Mary and Michael have done much better than what our budget was coming into the year. And other things have done worse than what we budgeted, but it's a portfolio and much like investors that you're hosting managed there as a portfolio. That's how we manage it. And we're leaning in much more heavily to the programming end of it. So we used to -- our team was mostly staffed with people who came out of distribution in Hollywood and the jobs of people in distribution is to sell a movie. So if you had gone out and you sold movie X, and it wasn't performing, you try and push Movie X, and that was the skill set. Well, it occurred to us about 1.5 years ago that, that wasn't necessarily the best way to maximize box office. So we supplemented our team with people who came out of programming work for either a chain or thought of things differently. So when the box office, let's say, isn't living up to its potential with a particular movie, we swap it out and we put another movie in. And things move out of the year, so we move other things in -- so it's become a much more dynamic process. And this year -- or I say last year, but Thanksgiving, we played 3 movies. On maximize box office. And you look recently, we bought back Hal Mary and Michael was originally slated for like a week or 2 when we brought it back this weekend. So we're playing a much more active dynamic role.

Got it. Maybe following up on box office. We did see a few weeks ago, Netflix delay Narnia into '27, leaving a gap in the schedule around Thanksgiving by definition, that film would have had 100% indexing. So First, Rich, how should investors view that as impacting your forecast? And then as a follow-up, right, if we go back to the Investor Day, you had spoken about Narnia as sort of a cultural event, a game changer. So what is the absence of having that fully exclusive model over the 2 weeks kind of mean to your longer-term ambitions?

So let me answer it short term and long term, David. So I think it's premature to take what people thought Narnia was going to do and subtract it because there's been a lot of demand for that slot. And a lot of people are interested in, obviously, it's a good time of year to release the movie. And I was hoping on this call to be able to announce what's going in that slot. And we're really close. And I'd be really surprised if in the next week, we don't tell you what's going in that slot. So we're on the verge of replacing it. And you'll be the first to know, but I'm quite encouraged by what we have in there. Longer term, I think the model that we put together will continue to exist may be a different partner, it may be different specific terms. But I'm quite confident that we'll have an IMAX exclusive release that along the lines of what we talked about. And then the final thing I would say is Narnia itself. So as you know, February is traditionally a very weak month. It's moved to Super Bowl wheat, which is traditionally a very weak date. We we have been working hard with Greta. As you'll recall from the press release, I think we played a role in Netflix green to open it up very wide. We still have an exclusive for the first couple of days going forward, they're going to lean in with a lot of marketing to it. So if I'm right, and we have a really good replacement, the movement today looks like not the best thing, but I think people will be comfortable that it's not only good for us, but good for the whole business because we help turn that into a day and date release wide.

I should probably follow up there and ask you just about your thoughts on Netflix and the significance of them committing to that type of theatrical release, right, just with a longer-term view of supply?

So again, you probably should ask them because don't really have the better answer. But I think that they -- in doing the diligence for the Warner deal, kind of learn more about the traditional movie business and the role that it could play. So I think, certainly, they're leaning in heavier than they were. And I think if you look out longer, I think there'll be more open-minded to things like that.

Got it. You mentioned partnerships with filmmakers earlier. Obviously, that's become central to what IMAX does. I think it's 1 of the things that sets you apart -- maybe we can discuss this a bit, obviously, with Christopher Nolan, the Odyssey set to release this summer, that's coming a lot more into view.

So we have something called the CEO Forum at IMAX every year. Where we gather our exhibitors from around the world as CEOs, and we put together some talent and panels. So this year, we don't usually talk about it, but it was so special. I thought it was worth mentioning at this conference. So our guests this year were Tom Cruise, Timothy Salame, Chris Nolan, Denis Villano, Darren Aronovsky, John Fabra and many others. So I don't know who could -- by the way, they don't get paid to do this. They come to speak to our exhibitors. I don't know who else could pull that off. I don't think there is anyone except for maybe CinemaCon, but that's the kind of talent that we put together on a consistent basis. And you even look at this year, we have Mandalorian coming out right now and Fabre obviously is one of the fathers of of Disney and these types of movies. And then obviously, we have Dane doing 2 and 3 at the end of the year. And then you mentioned, Chris, people work with IMAX, like Joe Kazinski, last year did F1 next year, he's doing Miami Vice. So the best filmmakers in the world who have done well want to work in IMAX. And that's really what drives us over time. The Odyssey, I never like to jinx anything, but I've never seen something I've been this excited about in advance. And 1 of the reasons is if you saw Chris in any of those pieces, I mean, he's exuding confidence, but there's way more than that. The cash looks like the red carpet at the Oscars. It's a very expensive movie. Oppenheimer did almost $1 billion just shy, and Odyssey has a much more international appeal than Oppeinheimer did and the marketing behind Odyssey. It sold out a lot of its tickets for film theaters, a year in advance. We're playing it in 41 film theaters whereas last time we only played it in 30. So it just sets up well. And at CinemaCon, I would say June was one of the surprises of the conference in terms of its reception. It was overwhelming receive, well, I don't know if you've seen the tracking for Toy Story, but it's extraordinary. I saw somebody who said 150 to 175 for the opening weekend. We've got Disclosure Day, the Spielberg movie. We've got Minions. I mean it's just a locked thing. And again, I think the filmmakers leaning into it, as evidenced by Chris, that Denis on June 3, they put tickets on sale for Christmas, and those have already largely sold out.

Maybe relative to your outlook, I've certainly gotten some investor questions on how to view China for the year. Natasha mentioned Najam. I think earlier, we saw some titles get moved out of the Chinese New Year period. What's the latest you're seeing in the region? And how do you view the balance of the year?

So the summer looks way stronger than the first half of this year. So there's a lot of good Chinese local language coming in. Also the Hollywood films like Oppenheimer did very well in China. So I think that Odyssey will do well. Also movies that were not playing in North America because of conflicts such as Spiderman and Avengers are going to play in China -- and historically, some of them have done very well. So a very strong Hollywood slate along with a much stronger local language at the back end of the year, tells us that the back half of the year will be considerably stronger than the front half of the year.

So one of the key drivers of IMAX box office has been higher indexing. We really saw that ramp in particular in the back half of 2025 across a range of film genres. Maybe you can talk to some of the factors like studio marketing, film for IMAX that have resonated with consumers. And then I want to ask you on film for IMAX, right? If you look at the ads, Disney seems to be leaning into that a lot for Mandalorian. Going back to Cinema Cono, they did announce the Infinity vision program for Inventures. So just how should we interpret that?

Okay. So actually, first, I should start Mandalorian, which opens in the next couple of days. And I must say I love the forecast, but much of the U.S., which is lots of rain. We love lots of rain on Memorial Day weekend when we opened summer blockbusters. Besides that, I think people are comparing Mandalorian to other Star Wars movies. And it's different than other Star Wars movies. But IMAX is new, the amount of marketing they put into it. So I'm not going to project the box office on Mandalorian, and that's for this thing to do. But I think IMAX will do a larger portion of this than we've done for any Star Wars movie. And that's partly because Fabri is leaning in so hard, and Disney is leaning in so hard. So those are examples when you say about indexing. And the other part of indexing is I'm just amazed that Michael did over 15% and its opening weekend in IMAX. And centers, as you know, did 20% and El Mary did over 15%. Traditionally, IMAX does like 10% of a blockbuster. So there's been kind of a permanent change. So yes, I agree with all the things you said in terms of studio marketing, the filmmakers, but I think it has to do with habits that people are forming like if you go back almost all of these big blockbusters have done better than they've done in prior years because consumers are in the habit of going to them. And I really expect that to continue. You mentioned Disney's Infinity vision. I think we were going to play Avengers when it was scheduled to release over the summer. We made a deal with Warner and Legendary to do doing 3. And as you know, we stick by our deals like we did with the mission impossible. We played a movie about an obscure physicist named Oppenheimer. It turned out okay that we kind of kept our word and did that. And we wish we could have played Avengers and Disney understands that. And I think Disney is going to do great with it. I hope they do. But the problem for Disney was they didn't have their IMAX screens other than in China. And I think that was really important to them. So they created kind of a marketing vehicle called Infinity Vision, which enables them to brand their releases. It's important to note that there's no additional screens. It's just kind of a branding move on their part. And not only are there no additional screens, but there's no proprietary technology. There's no attempt to really create a separate brand. It's like they're going out to existing PLS regardless of the dimensions in the theater, whether they're monitoring, the experience in the theater, so it's a different kind of thing. And I hope they do well on it, but it has none of the attributes of what makes IMAX and we're quite comfortable we'll do really well.

So here we are. We're at a conference focused on tech and AI. But what I want to ask you about is what I think is your most differentiated format, which is IMAX 70-millimeter film. Actually, I said this in Natasha, one of the ways I sometimes measure demand for IMAX is to look at Lincoln Center availability for 70-millimeter, right? And I remember for Project Helmer on opening weekend, there was nothing, right, every single show time. So Rich, what resonates so much about this format? And how do you capitalize on it?

Well, again, I don't want to spend too much time on this, but Chris Nolan said in the 60 minutes interview -- he said, "If you want to go big and you want to go do something really special, you do IMAX film. And he's right about that. He's so right about it that we re-upped over the last year, and we created a new camera to enable real-time dialogue in a film shot completely with IMAX cameras. It's a much quieter solution. And I think he might have said on that or be that the performance is different because the old version of the camera was low. So I think the film just says to the audience, it's really special. It's the biggest, it's the best. We've now found more theaters to release it in. And what was really impressive, David, about how Mary is it wasn't even filed with the film cameras. It was filled with digital cameras and then print it out to fill -- so we're aggressively promoting either using the cameras or printing it out with film, we have a program where we're visiting with the studios. We're visiting with the filmmakers and there's a lot of interest in film now that there are more theaters that can show it. And I said this before, both June and Odyssey have already sold out a lot of their film screenings for -- in the case of June, 6 months from now. So I think film is really going to help the brand help attendance and see very significant box office for those movies.

Got it. So since the pandemic, IMAX has seen significant growth in local language that's moved beyond China. You've gotten notable traction in India, Japan, maybe just for investors who are less familiar with international box office. What's important to know about local versus Hollywood mix, how that factors into your program strategy, how that's played into your network growth abroad?

Yes. I think local language films, an important point is they don't only play in the country of origin. They also play in other countries. So a lot of the Japanese anime has done better in China than it did in Japan or for that matter, even in the United States. So we release films that have local appeal in a number of countries. The biggest ones are China, Japan, Korea, but they include more I think Indonesia and Malaysia, we had films. So what they do is that drive local audiences to come to IMAX for local films, and they increase utilization rate at the theaters, and they increase the economics for the theater operators. And what that does is drive the financial return and that drives more signings that drives more installations. It drives the whole flywheel that makes IMAX work. And if you look at what's driven our growth over the last few years. It has a lot to do with local language I think this year, we'll have like 75 local bills I don't remember exactly the number -- the percentage that Natasha could jump in, but I think it was like 25% of our box office last year. So it's become a significant part of what we offer.

And should we discuss also, Rich, just the role of alternative content and kind of filling out the schedule, including during the week where some of that gets utilized?

Yes, it's the same thing, David, about capacity utilization. -- like how do you find things in the off times or the non-blockbuster times that puts spots and seats. So a week or 2 ago, we did Formula 1 race in Miami. I think we're doing the Monaco Grand Prix, either this coming weekend or next coming weekend. And the Monaco grant prix place at 9:00 in the morning. So you're not really infringing on your slate, but you're bringing people in, in the Miami Grand Prix did a lot of business. Music is one place. We've done very well with particularly led Zeppelin did especially well Taylor Swift, did particularly well. So we're trying to mix and match and find out what brings people in with the lowest cost structure because, again, you don't have the play time to really amortize the marketing cost. But it's been a supplement that's been working well for us, and we just hired someone who comes out of that world. So I think you'll see us do bigger things and more things, and we'll continue to evaluate and decide which of the things we should do and what doesn't work.

I think what's great about local language and alternative content for us is that as we continue to aim towards growing our total box office and growing and hitting those targets that we've talked about at Investor Day, for instance, it's growing all parts of the stool as opposed to looking at just one. So Hollywood where it used to be 90% of our box office. Now it's about 65% to 70% of our box office, but we're growing Hollywood still and then you're growing local language and you're growing alternative, and that's where we can guide to $1.4 billion and then continue to look at how we continue to grow every year because you're getting more content in the stream. I mean the biggest part is that we're doing 120 pieces of content this year where that was half that a few years ago right? So looking at the opportunity for growing that to create the higher utilization.

Obviously, a natural driver of indexing is your network growth. In December, at the Investor Day, you raised the TAM to 4,500 systems. I think that's less than 40% global penetration. So Rich, what are the key strategic levers to execute toward that target. And there's an obvious also just a question about the macro and whether that's impacting just the pace of the installs or signings.

I think it's really the theater economics David, like last year was a record domestically for IMAX box office and the per screen averages were very high, and I don't think it was accidental that last year, we added 7 more chains in North America, which is a mature market. So that's a pretty notable accomplishment. So I think the way it works is you look at what the return is like to the exhibitor based on the box office in that region or that country, and that drives incremental sales. And that's why we got comfortable with raising the TAM. -- years ago, I don't remember how many, but we thought we could only have 90 theaters in China, and that was our TAM. But now it's 800 theaters open -- and I think our TAM is signed 1,400 or approximately that. So I think the better the box office does, the farther the reach, the more the capture is, it ties into what we talked about earlier. The brand and then capacity utilization, and that's what really drives you growth.

Maybe we just follow up on the domestic opportunity, right? I guess, theater owners, they weigh IMAX potentially against other proprietary brands, ScreenX, Box, our own brands. I'm curious what opportunity you see to further fill out the U.S. footprint, either with the big 3 or just the longer tail of operators.

Yes, there is a lot of potential in North America. And as you know, we do sale deals and we do joint venture deals and hybrids. And what we've been able to do is use our capital efficiently to help you would ask about the macro as part of your question, which is some of the macro issues because we have so much cash as we can supplement the economics or change the structure. And I think there's no doubt that North America during the pandemic, obviously, the exhibitors didn't have the capital. But we were able to be profitable during that period and continue to grow because we used our capital smart. So I do think there are opportunities, and I don't remember the TAM, again, if Natasha does she should add it. But I think there's a way to go.

Yes, there's a lot of opportunity. I think as we just go back to the global question, David, I think what people don't actually know because we haven't talked about it a lot is in the past year, we've actually signed deals 23 new exhibitor partners globally. And that's like -- that's across 15 countries. And so there's a lot of opportunity for us to continue to execute against that TAM that we put out at Investor Day, and we've been doing that. chipping that away and making a really big impact from that perspective. But also what's great is what we've seen from our experience is as soon as you -- we sign up with an exhibitor partner, they come back for more IMAX like Aon and Japan is a perfect example. 2 years ago, we signed up for 2 systems. They want to test and see whether or not that would be a -- would be successful for them. having an IMAX. And instead now, they've come back several other times now at this point and sign for more systems with us. And that's growing in a market like Japan where we such good opportunity for a high-return box office and incrementality into our model. So I think that, that's really important.

Got it. Natasha, let's just touch upon EBITDA margins. So the guide for the year, I think, has a floor -- maybe just talk to the incremental gross profit dynamics on box office and then cost efficiency actions on SG&A that underpin that?

Yes. There's a lot of opportunity for incrementality in our model. saw that clearly through last year, this year with $1.4 billion that will come through at a higher rate, which is why we moved our sort of range from being low 40s last year to being 45% plus for the mid-40s. And that really is the opportunity for us. As soon as you hit over the $250 million of box office in a quarter, we have that 85% incrementality flow through on each additional box office dollar, but then you couple that with all of the SG&A actions we've taken. I mean we took significant restructurings last year. We've looked at internally just how do we have cost efficiencies and keeping a steady workforce but then looking at technology because as you grow the business, the first inclination in any business and company as you're growing is, okay, we need to invest more into people and resources. But I think we've done -- the team has done a really good job of looking at how do we operate more efficiently and look at using tools and technology. We started doing digital delivery for a lot of our network, whereas we used to manually mail out all of those keys to theaters. When you look operating a global company, those add up, right? And so I think we have a lot of opportunity to keep looking at that, but I think we've made really good progress so far too.

On free cash flow, IMAX has guided to conversion of roughly 50% in 2016 and growing thereafter, and that's net of growth CapEx. It's a nice pickup from recent years implies better working capital dynamics. Maybe you could just walk through how you're managing that and then how that growing cash flow factors into your kind of willingness to invest in different structures.

Well, the incrementality of the EBITDA margin, for sure, immediately flows right through to your free cash flow, but then a lot more opportunity in that our cost of the films stay static, right? And so a lot of that incrementality not only flows through, but then the dynamic that you have when you have a free cash flow conversion where you're capturing all of that box office in the year. I think our strong balance sheet helps us there, too. because we're being thoughtful about where we invest our -- can we invest as we did in first quarter in putting forward capital towards growing the network faster. And once you grow that network faster, it will essentially grow the box office faster, and you'll get to capture that earlier in the year than later and continue to capture that in the 10-year cycle of systems as well. But I do think you've seen the incremental step that's happened in our free cash flow last year, and it will just continue as we keep growing our network and in turn our box office as well. And I think that's all very good. And of course, we're spending to grow our network and invest back in it, but then also as Rich started off the call today in doing buybacks as well when we see an opportunity to do that.

I want to circle back to the buyback that you just mentioned. I think going into it, the authorization you had was around $250 million. I think it's fair to say IMAX has been an astute buyer of its stock. Maybe just discuss what governs your philosophy and just here now on the current buyback.

Yes. I think part of that is just our -- we have a strong balance sheet. So what are the competing priorities. One would be growing our network and through the investment in joint revenue sharing arrangements -- the second piece would be stepping that up from doing this concept of lease incentives to be able to provide a little more help and capital towards growing the footprint in new locations, particularly domestically is what we've been focused on. And then third, the buybacks, there are always other opportunities that come up. And I think that's where you keep a little bit of capital to make sure you're ready to do those. We're not a highly acquisitive company, so it's not like and doing a lot of M&A. But I think that there are little pieces of our capital structure that could be achieved and cleaned up as well as we look towards deploying capital too.

Great. Rich, we've got time for 1 last question. Maybe it would be great to just get you to sum up your current thoughts on the business and the path ahead.

Yes. As I said at the beginning, David, I mean, we couldn't be more excited. There's never been a summer slate that looks like it does now. I think we pretty much -- unless movies have moved out of the year we pretty much managed our portfolio and predicted it quite well. I think our outlooks are generally spot on. I remember a few years ago when a big movie moved out of the year. We couldn't account for that late in the year coming out of the pandemic. So I think we feel very good about where we're situated. And I think a lot of investors trade us on a week-by-week box office kind of thing, but that's not the right way to look at it. And I think they're missing pun intended, David, the big picture if they don't look at the holistic of what IMAX is and our strategy, how it's working.

All right. That's a good note to end on Rich. It's great to see you, Natasha. thanks for being here.

Our pleasure. Great.

Thank you, David.

Okay. Thanks, Rich.