IMAX Corporation (IMAX) Earnings Call Transcript & Summary

All right. Great. We'll get started with our next session of the day. Thank you, everyone, for taking the time to join us. My name is Stephen Laszczyk, and I cover entertainment here at Goldman. We are excited to welcome to the Communacopia and Technology Conference this year, Natasha Fernandes, the CFO of IMAX; and Anne Globe, the CMO of IMAX. Thank you both for being with us today.

Thanks for having us, Stephen.

It's a pleasure.

Great. Well, I wanted to start high level. Natasha IMAX, we've seen just incredible demand play out so far this summer between Odyssey and Spider-Man far outpacing supply. Would just love to get your thoughts on your strategic priorities stepping out of a record summer as you look out over the next 3 to 5 years, perhaps across network expansion, content, partnerships, pricing and then the investments that you can make in technology.

I think our differentiated model is stronger than ever. It's all about the power of our platform. And so our opportunity is increasingly about converting your demand into capacity and your capacity into earnings. And when you look at our priorities, of course, expanding the network. I mean we're highly underpenetrated. We're in 1,800 locations, 91 countries, but our TAM is 4,500. And so a lot of -- we're less than 50% penetrated, a lot of opportunity to keep growing and in really high-performing markets. So I think we're really excited about how do we expand into new markets and whether that is using our capital or just signing new deals out of all the momentum that's coming out of The Odyssey and the conversations there. I think there's a lot of opportunity, deepening our content partnerships. I think filmmakers and studios as they're designing their releases, they -- I'm sure they've taken a note as to how The Odyssey was released and how Nolan graciously sort of leaned into the IMAX of it all and how it has been proven to be such a success out of that. And I think that that's a great kind of model for filmmakers and studios to take note of and to involve IMAX earlier in the process for releasing a film. Investing in technology is one of our other priorities. I mean it's technology and that technological moat and the differentiated IMAX experience that really creates the brand awareness and the consumer demand for IMAX. Without a differentiated experience, there would not be a reason that filmmakers, studios and consumers all want IMAX. And so keeping that strong and building on it and improving is really important. And importantly, I think the growth comes overall from just all of that together being leveraged in our model and our earnings model, as you know, our operating leverage in the model, it's all creating higher level of earnings, which has a high flow-through down to our bottom line. And so I think all of that really is what is leading us into the next 3 to 5 years. We feel so excited about where we're going in the future, where we had our best year ever last year, and we're going to have a new best this year as we look at achieving our guidance that we put out for the year and looking at growth for years beyond. And I think it's an exciting time to be in the IMAX business for sure.

It's a great overview, and I want to touch on a lot of those points individually. But maybe first, we start with the summer slate, Odyssey materially outperformed expectations. I would just be curious, Natasha, for maybe your updated views on how The Odyssey changes your shorter-term outlook for the 2026 box, but also to how it influences how you think about the long-term growth algorithm for IMAX?

I think it's definitely strengthened our confidence in 2026. But more importantly, I think it's definitely shown us what our long-term growth model is as well. Like The Odyssey is not just about one big title. It's about -- it's a proof point about our business and about the future of our business. And near term, yes, it's a box office hit and 100% we're capitalizing on that. It's going to run through our financials, and it's going to be -- help us achieve our goals for 2026. When you look at the earnings opportunity for future years, I mean, in the long term, you're strengthening several parts of the algorithm along the way, like you're looking at more demand from consumers for IMAX screens. And that demand from consumers for IMAX screens then makes exhibitors want more demand for growing their network because they want to deliver for the consumer what the consumer wants. And then once you start growing the network even more, like our global platform is what is highly desired from filmmakers and studios. So the more you grow the platform globally, then more studios and filmmakers will want that, too, because that's more reach, right? And so all of that put together, you'll get more pricing power because you're going to lead to more higher utilization rates, more revenue per screen. And so it all works in a nice virtuous cycle, but mostly working towards long term. Of course, The Odyssey is helping us achieve our 2026 goals, but definitely setting us up for strength in the future.

And I'm curious if you think consumers are increasingly choosing a movie because it's IMAX and choosing the brand first and perhaps the movie second. And if so, could you maybe talk a little bit more about how the brand has evolved over the course of time to get to this point?

Well, I think with The Odyssey, it was clearly both, right? So we had an amazing film by an amazing filmmaker that really envisioned how to maximize that experience in the IMAX screens. And our dedicated fan base obviously showed up and was very excited about that opportunity. But we also saw new fans coming to IMAX. So it's -- we discovered last year in our own research that our biggest growth area, which is now widely reported for all theatrical is Gen Z ages 13 to 17 that wanted to come to IMAX and want that great experience in the theater. Our fan base broadly, to your question, has been growing. We're up over 12 million fans following us on various platforms globally. Tremendous amount of additional growth there, particularly in international territories where we can talk to people in local language, and we have all kinds of offerings for fans. We have a newsletter following, which people have to subscribe to purposefully, which is closing in on 1 million followers. That is a great way for us to talk to fans and for us to have fans engage specifically with the theater that they want to go to, with tickets that they want to get. We're seeing that already create a lot of excitement for upcoming Filmed For IMAX releases that are on sale, such as Resident Evil and the upcoming Dune. So again, with our subscriber base, we're able to be just directly engaged with our fans on an ongoing basis. We're seeing our brand awareness also continue to grow. So our own study of brand awareness with moviegoers last year was our brand was recognized by 75% of moviegoers in an unaided question. And then now this year already, that's up over 80%. So we are seeing that brand growth, and we're seeing our fan base expand and continue to be excited about what's being offered in IMAX.

How do you hope the brand grows from here? You mentioned a lot of the ways you're engaging with fans, driving engagement, further engagement, perhaps both internationally and domestically. Is there an evolution that you hope plays out over the next couple of years?

Yes, I think we will continue to see that. We do have amazing films created or Filmed For IMAX, both digitally and shot with film that are planned over the next several years, some that we've announced, some that we haven't, but we can look further out and see fans being very excited about that. We have tremendous growth in local language opportunity. And then we're also just seeing generally moviegoing increase and seeing more suppliers of films coming both from traditional studios, from local language suppliers, from even Netflix now, people seeing the value of the theatrical release. So our fan base is responding very positively to that. And we're seeing fans, of course, who had a terrific experience with The Odyssey and Spider-Man and so forth immediately want to know what is coming next in IMAX. So we're seeing that, again, pay back in ticket sales for future titles. So we think that growth is definitely going to continue to increase with new fans and our existing fan base being much more committed to going more frequently.

What's great about the brand growth is creating consumer awareness for the differentiated experience. Like our whole goal is that when you go out to a movie, you're not necessarily saying, I want to see that movie. I want to go to IMAX. I want to see what's playing in IMAX this week. And if you create the understanding that this is a whole different experience, it's not about just a large screen, but it's about a large screen, a different projector, an enhanced experience, a differentiated sound and a different version of the film, like getting consumers to understand that they are a brand -- have a brand affinity to IMAX, that's where you'll increase the utilization eventually as well as you work through the network. And so that is eventually the goal is to continue to do that. And Anne and the team have done a great job over the past couple of years kind of educating the consumer as to we're not just simply a large screen. There's a lot more going on there.

Maybe back to the summer slate, the other hallmark movie of the summer was Spider-Man, which I don't believe was originally set to play in the North American market. Could you maybe just talk a little bit about the decision to bring Spider-Man back to the slate? And then maybe more broadly your ability to be flexible with programming week in and week out?

Yes. I think one of the things that we've been able to cultivate over the past couple of years is our ability to screen share and to do a multi-programming strategy where having an 1,800-plus network in 91 countries allows you to say certain markets I could play different types of content and not necessarily lean into one movie that has to play in every single location. And so Spider-Man, I mean, we've always -- we always wanted to be part of Spider-Man, but we are committed to Odyssey 100%, of course. And we wanted to lean into Odyssey as well. But when we realized, well, China and South Korea and Japan were not opening Odyssey on the same day and date, that gave us an opportunity to play Spider-Man. And then once a few weeks have passed for The Odyssey, that gave us an opportunity to play Spider-Man domestically as well. I think it's really great for the strategy to be able to lean in when you have an opportunity. But I mean, the other side of it is The Odyssey. I mean, we only intended to play it for a handful of weeks originally, and it's playing all the way through until the end of September at this point. So it works the other way, too, where you have the ability to lean in even more to a film that is just so well done and really shows IMAX on full display in a unique way. And so I think that, that's also great, too.

Maybe looking ahead, you have Dune coming up later this year, which has the potential to be another tentpole Filmed For IMAX. Would just be curious on the 70-millimeter front, how long do you plan to play the film in that format? And as you take some of the best learnings from Odyssey this past summer in that format, what are you applying to Dune later this year?

June is shaping up to be another title where the IMAX presentation is going to be integral to the release. I think we're working through all the details of how many film locations. Obviously, we have 41 film locations available, but all the details will be sort of unveiled over the next little while. But I think we are playing it for 2 weeks in December, and then we'll continue to play it into January. The release is December 18. We actually are doing previews earlier in that week, which Anne maybe you can touch on in a minute, too. But I think we -- the lesson of The Odyssey, I think it's clear that the consumers want to have the IMAX experience, and it demonstrates that we have the ability to kind of curate that for them. And so we're being thoughtful about how to approach it and really pull out the differentiated experience of IMAX for the consumer. So they understand the only place to see Dune is in the IMAX locations. That's the best experience. You get the expanded aspect ratio. We'll have the film locations. The sound will be differentiated. I mean the visuals of Dune, just think about it on our massive screen, the cinematography is so well done that it's going to be -- you'll be immersed into it. And so I think that we're planning for it to be something that we've learned over the summer and to make it even better for Dune.

Yes. I think one of the elements of maybe The Odyssey effect is that we were able to start selling tickets early for The Odyssey a year in advance. That became something that we saw that fans really embraced, and then we were able to do that again for Dune. And then we were able to start selling tickets for Dune 4 months in advance, which is, again, pretty long lead time. But that just is because fans are very excited and want to look forward to the opportunity to see that. Dune, again, it was shot partially with digital, partially with film cameras. But we have an amazing filmmaker coming from the beginning of the process envisioning how that story is going to unfold on -- in IMAX and then working very closely with the filmmakers, both at Legendary and Warner Bros., it's just a great partnership, and that is partly learnings from The Odyssey and the effect of what both the audience experience and what we're able to learn in the marketing side and take those forward into the Dune campaign. And we're seeing great presales. As Natasha mentioned, we do have advanced ticket sales that are already on sale starting on the 14th. So that is going to be leading into the release on the 18th and ahead of Avengers, which is also on that date.

That's helpful. Natasha, on the supply-demand front, Dune is another great example of where supply and demand there'll likely be a mismatch. Odyssey, of course, this past summer. Just be curious, as you look ahead to later this year, where do you think the biggest bottleneck in the system is today? And then lessons learned from Odyssey in terms of handling that for go-forward tentpole releases like a Dune?

I think we see it less as having a bottleneck and more about having an opportunity. I mean, the opportunity to add capacity by expanding the network, that's an obvious thing that we know we want to do and we need to do, and we have the opportunity to do it because we're less than 50% penetrated. So I think it's thinking through -- it's a good problem to have when you have more supply -- more demand than supply. And so we're going to continue to have good conversations with exhibitors. There's been a lot of activity on the exhibitor front of signing for new systems and expanding the network. And so I think, obviously, from The Odyssey, you're getting some of those theaters from The Odyssey, their per screen averages on the 1 film, they were more than most locations make in 1 or even 2 years. So you can imagine the returns that came out for the exhibitors from that. And that -- those data points are so helpful for our sales team to immediately highlight in the sales pitch because that ROI conversation becomes so much easier when you have all these data points as well to expand the network and to work through there. So I do think that we're in a good position to continue to increase the supply of IMAX locations to meet demand. But I like the position we're in where there's a lot more demand than our locations for sure.

That's great. I wanted to turn to the competitive environment. Over the course of the last number of years, there's been examples of competition coming in, in the premium large format space. I'd be curious if you could talk a little bit about what differentiates IMAX today versus some of the competition out there. I think in the past, we've touched on things like the filmmaker relationship. There's the proprietary technology, perception of the brand amongst consumers. Could you maybe just touch on some of those topics?

I actually wouldn't choose one moat because -- are we okay, [ Kevin ]? I actually wouldn't choose one moat because the power of the IMAX platform really comes from the combination. We have a global network, and we have proprietary technology, and we have relationships with filmmakers and studios. And so any one of those moats on its own is not necessarily in itself sufficient. I think you need all of it working together in that nice healthy combination for there really to be the success of the platform there. And I think increasingly, what's been increasing over the past little while is brand awareness and consumer behavior as well. So I think that, that is adding to our competitive differentiation because consumers understanding the difference of IMAX is actually what is helpful towards strengthening that moat as well. Because if you're a consumer and you understand that I haven't just gone to -- I haven't just visited an IMAX location or a regular theater, and I've seen a very big presentation, but I've actually gone to an experience where that film was curated in an IMAX version of the film. It is a bespoke sound set that I'm listening to, like if you sit in an IMAX theater, that sound will shake your seat, and you feel it while you're watching it. And you're having a whole experience, but also the fact that we maintain our systems across our worldwide network and to make sure that it's a consistent offering. The quality of systems is not something that is maintained for most other offerings, most other screens, right? Systems are not like checked for maintenance levels and sound levels and calibration and everything. Every day, our systems are going through a daily calibration. There's like small details behind the scenes, but it makes the quality of the experience so much different. And I think all of that adding together along with our technology and the fact that we continue to invest in technology. I mean, we have 80 engineers that work for us that -- we are constantly evolving our technology. We're not just sitting back and waiting for something to happen, we are actually actively pursuing new technologies and making our experience stronger and differentiated. I think all of that coming together kind of creates that competitive differentiation.

That's great. I wanted to focus a bit on the international opportunity, the local language opportunity for IMAX ahead. Maybe a good place to start is with this past year. I'd be curious if you could just spend a little time talking about The Odyssey and Spider-Man and the performance that you saw in China and if that surprised you in any way?

Yes. I think Spider-Man and The Odyssey in China definitely didn't surprise us. I think we knew that they were going to do well in China. And what's interesting is the Chinese consumer is not unlike the consumer in North America. They just want good content. So content that is a good story, fresh, new, something relatable. They actually like a family connection or a relationship in the story is something that they enjoy as well. So I think from that perspective, that the China market, we know exactly how to kind of create content for them. We just have to make sure that content is created in a way that meets their demands. But on the local language front, I mean, we're doing so many other countries. In the past year, I think we've done 5 or 6 new countries offerings of local language. And it's all part of our whole content strategy of diversifying the types of content that we offer. So whether that be Hollywood or local language alternative content, really making sure that you -- we sort of meet the consumer demand. Like when we think about our network, we're less -- we're only about 35% penetrated from a network perspective in the international markets outside of China. And how do you grow the network over there? Well, that's by meeting the consumer demand and what the consumers want in those markets is local language content. So like last year, one of our German exhibitors said to us, that there was this really popular German title coming out. We had no idea about it. But we didn't really know much about what the German content was that was popular. And so when the exhibitor highlighted to us, our film team picked it up and we played it and it did really well. But what's good about that is that then opens the door for conversations with exhibitors, because once you offer them the local language that they want for their country, then -- plus Hollywood, then that's where the conversation for sales can happen as well.

How do you think about the longer-term opportunity for local language and alternative content that you're thinking across some of your key markets in Japan, India, perhaps the some of the underpenetrated markets out there where you see a big opportunity?