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Edited Transcript of 1970.HK earnings conference call or presentation 31-Jul-19 12:00am GMT

Half Year 2019 IMAX China Holding Inc Earnings Call

SHANGHAI Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of IMAX China Holding Inc earnings conference call or presentation Wednesday, July 31, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jiande Chen

IMAX China Holding, Inc. - CEO & Executive Director

* Jim Athanasopoulos

IMAX China Holding, Inc. - CFO, COO & Executive Director

* Richard Lewis Gelfond

IMAX China Holding, Inc. - Chairman of the Board

* Stephen C. Davidson

IMAX Corporation - Head of IR

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Conference Call Participants

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* Ellie Jiang

Macquarie Research - Analyst

* Hyungwook Choi

Daiwa Securities Co. Ltd., Research Division - Head of Hong Kong & China Internet and Regional Head of Small/Mid Cap

* Lin Qiu

CCB International Securities Limited, Research Division - Analyst

* Timothy Lee

CLSA Limited, Research Division - Research Analyst

* Wei Meng

China International Capital Corporation Limited, Research Division - Analyst

* Xufa Liao

Goldman Sachs Group Inc., Research Division - Research Analyst

* Yue Hang Chan

BofA Merrill Lynch, Research Division - Junior Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the IMAX China's Half Year 2019 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stephen Davidson, Global Head of Investor Relations. Please go ahead.

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Stephen C. Davidson, IMAX Corporation - Head of IR [2]

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Thanks, Steve. Good morning, everyone, and thank you for joining us on IMAX China's Half Year 2019 Earnings Conference Call. Joining me today is our Chairman, Richard Gelfond; CEO, Jiande Chen; and Jim Athanasopoulos, our CFO and COO, who have prepared remarks. Also joining us is Megan Colligan, President, IMAX Entertainment; and via telephone we have Karen Chan, our new Vice President of Investor Relations from IMAX China. For the purpose of this call, all financial figures will be provided in U.S. dollars, unless stated otherwise. Furthermore, the financials we provide to you today will follow IFRS accounting standards, which may differ in some respects to U.S. GAAP.

I would also like to remind you the following regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking and pertain to future results or outcomes. Forward-looking statements involve a number of risks, uncertainties or other factors beyond our control. Actual future results or occurrences may differ materially from these forward-looking statements. We are under no obligation to and expressly disclaim any such obligation to update the forward-looking statements as a result of new information, future events or otherwise. The full text of our half year 2019 earnings release, along with supporting financial statements and the slide presentation we have prepared for this call, are available on our website, imax.cn. Today's conference call is being webcast in its entirety on our website.

With that, let me now turn the call over to Rich Gelfond. Rich?

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Richard Lewis Gelfond, IMAX China Holding, Inc. - Chairman of the Board [3]

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Thanks, Steve, and good morning, everyone. I'm very pleased to share our exceptional first half financial results with you today, reflecting significantly improved performance and increasing momentum in our business. As illustrated on Slide 4 of our earnings presentation, in the first half, we recorded record revenue up 15% to $59 million, and record adjusted net income up 17% to $25 million, which drove a 14% increase in adjusted EBITDA to $38 million.

We achieved record box office up 24% to $236 million, and up 35% in RMB terms in Mainland China. Our same-store sales were up 9% in Greater China and 17% in RMB terms in Mainland China against network growth up 16%. Box office in 2019 increased 29% versus the same period last year, representing 8 consecutive quarters of year-over-year growth. Our strong performance contributed to further IMAX China market share gains, illustrating the strength of our business and our ability to generate growth, as summarized on Slide 5.

We also hit key milestones in expanding our network and alliances. We signed our largest deal of the year with CGV, a 40-theater revenue share deal that includes the rollout of our new IMAX with Laser technology in upper tier cities. Our contractual backlog is now at 298 theaters, providing clear visibility into our future installation pipeline.

We also introduced our new IMAX plus CRM platform to better enhance our data-driven marketing capabilities. Our relationship with Maoyan continues to deliver positive returns, and we look forward to continuing our strategic relationship as they deepen their alliance with Tencent. Our exceptional performance is the direct result of the strategic actions we've taken in China since 2017, positioning us for growth in the quarters and years to come.

For the remainder of my prepared remarks, I would like to update you on the strong demand we've seen from consumers for Hollywood and local Chinese language content and our efforts to increase usage of our cameras by younger filmmakers in China, the strong demand from exhibitors and consumers for our 4K IMAX with Laser technology, and then I will close with an update on our privileged position within the entertainment ecosystem.

First, Chinese consumers are increasingly seeking out and willing to pay a large premium for The IMAX Experience. A prime example of this was the record-breaking performance of Avengers: Endgame, a must-see film shot entirely with IMAX cameras. The film generated $83 million in IMAX box office in Mainland China, representing 13% of the film's total box office in China on less than 1% of the streams in the market, smashing previous box office records held by Avengers: Infinity War and Furious 7.

This strength in the indexing was not unique to Avengers: Endgame. Our indexing for opening weekend tentpole Hollywood films in the first half of 2019 has averaged approximately 12%, up from 10% in 2018 and up from 9% in 2017 as shown on Slide 6. Blockbusters are increasingly making up a larger percentage of the market in Mainland China, representing only 32% of the market in 2016, and growing to 54% of the market in '18, as reflected on Slide 7. This important trend plays to our strengths and is very supportive of our model.

Consumers are not just seeking out The IMAX Experience for Hollywood films as we are increasingly being viewed as a go-to for local tentpole films, as demonstrated by our breakout performance on the local sci-fi hit, The Wandering Earth, and this past weekend's record performance of the local animated hit, Nezha, that Jiande comment on later.

Local filmmakers are beginning to better understand how they can leverage IMAX to unlock their creative talents and diversify genres and leverage the global IMAX network in 81 countries around the world.

Next, I would like to update you on the strong demand we're seeing from exhibitors and consumers for our state-of-the-art 4K IMAX with Laser system, which is a key strategic initiative and solidifies our end-to-end technology solution, as illustrated on Slide 8 of the presentation.

The new technology and the enhanced experience it provides has been very well received by consumers, exhibitors and filmmakers, and we continue to see increasing momentum and demand for the product. Underscoring this demand was our 40-theater CJ CGV deal, the second-largest IMAX partner in China, and the third largest globally. This is our fifth deal with CGV in China since 2010, bringing their commitment with us to 140 IMAX theaters. Having the IMAX brand and technology interwoven as part of CGV's long-term strategy, both in China and globally, reflects the value CGV sees in our offering. This deal is a significant endorsement of IMAX with Laser, which we believe will spur other players in China to upgrade to maintain their competitiveness.

The CGV deal also demonstrates our focus by continuing to grow the network in a capital-efficient manner. It is primarily focused on Tier 1 and Tier 2 markets under a revenue-sharing model with a minimum box office guarantee to IMAX. Xenon rollout in Tier 3 to Tier 5 markets will be under a traditional hybrid structure requiring no capital commitment from IMAX, thereby de-risking those theaters while maintaining our upside from the box office.

Lastly, let me take a moment to discuss our privileged position in the ecosystem of the entertainment industry, continuing on Slide 8. IMAX's powerful position is driven by our ability to deliver unique value throughout the ecosystem, to consumers, studios, filmmakers and exhibitors. For studios, we're a first choice partner for both Hollywood and Chinese studios. We are the mark of a must-see film, and studios rely on us to eventicize their releases. Consolidation among content providers only fuel this trend as the focus on franchise tentpoles and IP intensifies, benefiting our model, particularly with local-language films. With filmmakers, our deep creative relationships fuel our business with increasing number of the world's best filmmakers choosing IMAX cameras to bring their creative visions to life, from Anthony and Joe Russo with Avengers: Endgame and Infinity War, to Christopher Nolan who is current filming his highly anticipated epic, Tenet, entirely with IMAX cameras. Next year's James Bond and Wonder Woman films are currently shooting with IMAX cameras, and Jiande will discuss the local films that will receive similar differentiation in his remarks shortly.

Our unique value proposition is reflected in consistently higher IMAX indexing for films with IMAX DNA. So we're very pleased that our cameras are being used in many of the biggest releases scheduled for 2020. Top Gun: Maverick is also slated for 2020 and expected to be filmed using IMAX-certified digital cameras. Marvel also recently announced that they will be releasing Black Widow and Eternals in 2020.

Exhibitors recognize the commercial value IMAX adds, which translates into the ticket premiums they charge. Our premium is supported by our ability to punch far above our weight class and the box office performance of our films enabled by IMAX technology. We will continue to build on our award-winning "films to the fullest" brand campaign and regularly provide both film and brand assets to our partners to support our differentiated experience.

IMAX globally is also experimenting with alternative content like music and live events to increase theater utilization, particularly in off-peak and non-blockbuster periods.

Lastly, on Slide 9, we highlight the key attributes of our business model that will drive long-term value creation for our shareholders.

So in summary, we delivered an exceptional first half of the year and the momentum we established last year has continued to build. We are very pleased with the continuing growth in our box office and our strong positioning within the Chinese entertainment ecosystem as the destination for blockbusters. As local movie production continues to develop, we believe our local language programming will continue to be enhanced. We are moving from strength to strength with a strong slate of films for the remainder of the summer and the rest of the year. The momentum we have generated as a result of the large IMAX Laser -- with Laser deal with CGV is expected to drive follow-on deals and upgrades with other customers. The slate for 2020 is still developing, but based on the films expected, we believe it will be a solid slate with at least 3 films shot on IMAX, plus 1 or 2 local language films. And lastly, we believe that the foundation has been set for continued strong financial performance reflected in our record revenue generation and improving margin profile and return metrics.

So with that, I would like to now pass the call to Jiande for a review of our upcoming films and strategy with IMAX cameras.

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Jiande Chen, IMAX China Holding, Inc. - CEO & Executive Director [4]

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Thanks, Rich. We are on pace for a record July with Spiderman, (inaudible) Lion King and the exceptional performance of Nezha over the past weekend, the first local animated film released in IMAX theaters and highest grossing opening weekend of all-time for an animated film at RMB 54 million. This demonstrates Chinese consumers' strong demand for quality content and a differentiated cinematic experience. We are confident our refined local program strategy will continue to enhance our position in the Chinese entertainment ecosystem as we gain market share in local films.

In addition to these films, the global IMAX slate for the second half of the year includes highly anticipated films, such as Hobbs & Shaw from The Fast and The Furious franchise; Gemini Man; Joker; Terminator: Dark Fate; Frozen 2; Jumanji: The Next Level; and Star Wars: Episode 9. This will be complemented by local films such as Shanghai Fortress, and The Bravest, among other announcements soon to come.

We remain very focused on delivering more box office to our bottom line from local language films through the differentiation. We view this opportunity as a low-hanging fruit for IMAX China, knowing only 22% of our local box office come from the local titles during the first half of 2019. Our refined programming strategy has shown continued success with IMAX presenting close to 10% of The Wandering Earth box office during the Chinese New Year, an indexing level on par with that of our Hollywood content. Our 8% box office indexing of Nezha on the opening weekend also set a record in the animation genre.

We recently licensed [true] IMAX cameras to the production of Detective Chinatown 3 that began shooting this summer. Our goal is to further increase our market share on local films where we enjoy an even higher revenue share. As Rich mentioned earlier, our box office growth has significantly outpaced the industry and more importantly, has been consistently delivering over the last 24 months in a very competitive market. We look forward to delivering continued growth and profits in the second half of the year.

With that, I would now like to pass the call to Jim for a review of our financial results. Jim?

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Jim Athanasopoulos, IMAX China Holding, Inc. - CFO, COO & Executive Director [5]

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Thanks, Jiande, and good morning, everyone. We believe our strong execution and focus on our core business has served to reinforce the positioning of the IMAX platform as the venue to experience a blockbuster film. And our first half financial results reflect this success, hitting new records across multiple metrics. We generated record revenue of $59.3 million, up 15%, and record adjusted net income of $24.9 million, an increase of 17%. Adjusted EBITDA increased 14% to $38 million. We generated record box office of $236 million, up 24% year-over-year or 35% in RMB terms in Mainland China. Our major operating metrics in Mainland China also show double-digit growth across-the-board, including attendance and screen growth.

While we grew our network by 16% during the first half of 2019, same-store sales box office in Mainland China was up 17% in local currency, reflecting strong organic demand for a differentiated cinematic experience. Our robust backlog, consistent over-indexing on big box office films, and the early momentum we see from IMAX with Laser, positions us well to further capitalize on our market-leading premium position in China and drive the long-term earnings power of the network.

Looking at our first half results in more detail, let's begin with our network growth. We signed agreements for 51 new theater systems in the first half, up from 34 during the same period last year and headlined by our CGV deal, putting us track to exceed prior year signings.

Broken out by deal type, 8 of our signings were sales and 43 were revenue-sharing arrangements, some of which included minimum box office requirements. Our signings lead to backlog and we ended up the first half with a contractual backlog of 298 systems, establishing a tangible path to future installations.

Turning now to our installations. We installed 30 theaters in the first half of 2019 as compared to 25 installations in the comparable prior period. First half 2019 installations included 24 new installations and 6 laser upgrades. Of these new installations, 5 were for sales, 12 were full revenue share and 7 were hybrid revenue share. In addition to this new installation was 1 sale laser upgrade, bringing our total sale installations to 6.

Our Greater China network now stands at 662 theaters, up 16% compared to the first half of 2018.

Moving on to revenue, we delivered total revenue of $59.3 million in the first half, up 15% from the prior period. Our network business revenue, driven by our $236 million in box office in the first half of 2019 increased 24% to $33.7 million. We programmed 22 films in Mainland China during the first half of 2019, up from 18 in the comparable prior period. Network business margin of 75% increased 360 basis points from the prior period, driven by the inherent operating leverage of our larger network and box office growth.

Our theater business revenue for the first half was $25.4 million, 5% more than the first half of 2018. The revenue increase was the result of higher maintenance revenue from a larger network of theaters and 5 incremental hybrid installations, partially offset by 2 fewer sale installations, including 1 IMAX with Laser upgrade. Theater business margins of 61% decreased from 72% last year primarily due to increased cost to our maintenance business and to a lesser extent from new installation of 1 IMAX with Laser upgrade. On average, revenue per sales installation of $1.4 million was in line with the prior period.

Our resulting total gross profit of $41 million up 11% -- was up 11% compared to the first half last year. Total gross margins of 69% were down slightly from 72% last year.

Moving to operating expenses. SG&A excluding stock-based compensation decreased $0.4 million to $6.7 million, accounting for 11% of total revenues, down from 14% in the prior period. We remain committed to cost discipline to enhance the inherent operating leverage of our model. Adjusted net income margin came in at 42%, 70 basis points higher than the prior year -- prior period.

On the cash side, we ended up the first half with a cash balance of $97 million, which reflects the investment in Maoyan of $15.2 million, share repurchases of $16.8 million and dividends paid. We have been buying back our stock because we believe it's a prudent deployment of capital given the current valuation. For the first half of 2019, our Board approved the payments of an interim dividend of approximately $7 million or USD 0.02 per share or the equivalent of HKD 0.16 per share, maintaining our 33% adjusted net income payout ratio. Between buybacks and dividends, we returned approximately $37 million to shareholders over the last 12 months. Our asset-light business model drives healthy cash flow generation and supports our commitment to returning capital to shareholders in a consistent and sustainable manner. We generated operating cash flow of $17.1 million in the first half of 2019, with maintenance CapEx remaining largely stable at $5.7 million.

Before I turn the call back over to the operator, in terms of guidance, our full year 2019 guidance remains unchanged. In summary, we're very pleased with our record first half performance, and we look forward to building on the momentum generated. We believe our continued focus on the core attributes that drive and enhance our differentiation will continue to make us the experience customers seek out, driving long-term value creation for our shareholders.

With that, I will now turn it over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Ellie Jiang with Macquarie.

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Ellie Jiang, Macquarie Research - Analyst [2]

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Congratulations on the solid results. I have 2 questions. The first is about the laser system. So we installed 6 lasers in the first half. Seems to slightly accelerate the pace of installations, assuming more theaters are welcoming such product. So are we going to further accelerate the installations for the laser systems? What would be the estimated percentage impact on the margin, that management could give us some color in terms of gross margin as we install more lasers? And the second question is regarding the strategic plans for Tencent or Maoyan. Could management elaborate a little bit more on the further plan with both companies?

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Richard Lewis Gelfond, IMAX China Holding, Inc. - Chairman of the Board [3]

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Yes. In terms of the laser acceleration, it will accelerate because we just signed a lot more laser deals with CGV and others. So over time, you will see more laser installations. The laser has a slightly -- the laser margins are consistent from a dollar point of view with the existing system. The margin percentage is a little bit lower because the price is a little bit higher. But -- so you could expect similar margin contribution from the lasers that you have now.

The second question was about Maoyan and Tencent. So just to refresh anybody's memory, we made an investment in Maoyan about 6 months ago when they did their IPO. At that time, we started to afterwards engage in some strategic discussions with them about ways we could work better together, share some information, market through them. And it's -- so far, it's been very productive.

They announced recently that they were going to align a little closer with Tencent, which is an investor in Maoyan, and broad that relationship. So I think of that relationship, broad (inaudible) to IMAX's benefit. But beyond that, we plan on doing more collaboration with more data sharing, trying to understand more about people's taste in movies in China and figure out better and more efficient marketing plans for us. I don't know whether you want to add anything.

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Jim Athanasopoulos, IMAX China Holding, Inc. - CFO, COO & Executive Director [4]

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Yes. No. I mean, there's going to be a lot of collaboration with -- from what we understand in terms of content distribution and content creation, so obviously, given our role and how well we've done with those types of films, we're looking to take advantage of that in the future as well through our relationship with both Maoyan and ultimately with Tencent as well.

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Operator [5]

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(Operator Instructions) We'll take our next question from Emerson Chan with Bank of America.

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Yue Hang Chan, BofA Merrill Lynch, Research Division - Junior Analyst [6]

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My questions are more industry specific. I just wonder why cinema operator are still quite aggressive to build cinema and screen although the box office in China is slowing down; and how sustainable of the screen growth in China, particularly after 2020. And how will it impact the IMAX screen installation in long run?

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Richard Lewis Gelfond, IMAX China Holding, Inc. - Chairman of the Board [7]

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Thank you for your questions. I think your first part was why are they being aggressive in building additional theaters when box office is not growing -- or slowing. I think at a macro level you can't look at 1 half year's box office and draw long-term conclusions. On the first part of this year, although IMAX box office, as we said, was up significantly and the blockbuster business which we're involved in was up significantly, there wasn't a lot of local Chinese production and that it slowed in the first half of the year. And I think that's going to speed up in the second of the year. So I think my -- a couple of parts to the answer. One, I don't think people are building cinemas because of a 6-month period in box office. I think they are looking at the increased demographic in China, increased middle class, increased appetite for entertainment, areas that are under screen. And I think, long term, they see a value opportunity there. And that's the reason they're still building screens. In terms of its impact on IMAX, I think it's interesting, when you looked at the slide before, that our indexing every year for the last 3 or 4 years has gone up. So while the screen count has increased rapidly for non-IMAX theaters, our market share has kept going up. And I think that's because the Hollywood blockbusters as a percentage of box office has gone up; and also because the kinds of productions, local content such as Wandering Earth, which is more in IMAX' wheelhouse being science fiction, also came out this year. So I think that the increase in the screen count will not have a material impact on IMAX going forward. Of course, we have a backlog too, so our screen count is going to go up in China. So I think they're really separate issues. I guess the last thing I would add is that, when you look at our approximately 30% increase in box office in China, I think we're in a different business than the traditional cinema operators. And I think you have to do a separate analysis of blockbusters as a percentage of movies, Hollywood films as a percentage; the pricing has been very strong and IMAX has been somewhat inelastic. So I think they're -- it's comparing apples and oranges.

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Operator [8]

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And we'll take our next question from Wei Meng with China International Capital Corporation.

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Wei Meng, China International Capital Corporation Limited, Research Division - Analyst [9]

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My question is about the deal with CGV. Would you please shed more light on the installment schedule of the deal? And what is the approximate split between full revenue sharing and hybrid revenue sharing in this deal?

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Jim Athanasopoulos, IMAX China Holding, Inc. - CFO, COO & Executive Director [10]

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Sure, yes. The CGV deal is, as we've mentioned in our earlier remarks, it's a combination of hybrids in lower-tier cities and in the upper-tier cities JV deals with minimum box office guarantees attached to them. So treat it similar to hybrid deals in terms of kind of how we would look at them from an accounting perspective. Again, overall CGV has been very focused on Tier 1 and Tier 2 cities and to a certain extent opportunities in Tier 3 cities. That's why we're very focused on laser and rolling that out and getting it up and running. So while the specifics haven't been laid out in particular, we do expect the lion's share of them to be in Tier 1 and Tier 2 cities overall.

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Operator [11]

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(Operator Instructions) We go next to John Choi with Daiwa.

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Hyungwook Choi, Daiwa Securities Co. Ltd., Research Division - Head of Hong Kong & China Internet and Regional Head of Small/Mid Cap [12]

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I have a couple questions from my end. So first of all, if you look at the -- your IMAX indexing in year-to-date, it's been pretty strong, 12%. What is the level that you guys think we'll be able to achieve in the long run? I mean assuming the current screens that are installed and in the future installments and also considering competition. Second is the local film strategy. And I -- it seems like, since 2017, your strategy has been working, but now I think for the local films, I think Richard mentioned in the prepared remarks, was about like 22% or something like that. And what is going to be the long-term proportion from the Chinese local films? That will be it.

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Richard Lewis Gelfond, IMAX China Holding, Inc. - Chairman of the Board [13]

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Thank you. So I think the level of indexing is very hard to predict going forward in the future, but if you look at other territories in the world such as North America and Europe, it would certainly be our goal to sustain something in the neighborhood of where it is now. I think the opportunity is particularly better local content, a better marketing, better films. I think this level is quite a profitable level, as you saw in -- during the first half of this year. So we'd like to do better, but realistically I think this is probably a fairly strong place to be. In terms of local films, the percentage of local films has been going up every year over the last several years. And obviously, one of the drivers of good production of local films is the Chinese box office because, the higher the box office, the more money to put it into local production and higher-quality films. So it's really conjecture, but I would say and Jiande, jump in and correct me if you disagree, but I would say eventually I think it'll be something like 50-50 Hollywood films and local films. But I don't think it'll get to that ratio for a number of years.

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Jiande Chen, IMAX China Holding, Inc. - CEO & Executive Director [14]

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Yes. If you look at IMAX China's history and we started with like a year just 1 local movie or even less; and then now, every year, we do local film of more than 8, 9, 10, sometimes even more than that. So I think there are a number of reasons behind that. Number one, I think the quality of the local movie is getting better and better. And then secondly, I think that, the production capability of those people, they are different from the old generation. So they learn the Western skills. They learn how to make movie in -- to attract the more young Chinese moviegoers. And so if we look at [placement], currently there is a very strong movie in the market called Nezha. And that's the first IMAX-made film via animation. And this movie actually is directed by a medical school graduate, and he -- just after 4 years efforts and just made this movie. So we have a -- IMAX have very high hope for those young generation. And we believe working together closely with those guys, introduce our DNA, introduce our technology, introduce our cameras and help them to produce a high quality of the movies; and that the local production quality and quantity will be further improved.

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Operator [15]

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We'll take our next question from Timothy Lee with CLSA.

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Timothy Lee, CLSA Limited, Research Division - Research Analyst [16]

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Actually just 2 small questions from me. First of all, regarding the guidance for the new installations for the year. I think it is maintained at 90 to 95 installations for the year. May I just check that this -- that number include laser upgrade? And if not, what's the expected number of laser upgrades for the year? That's the first question. And the second is about the gross margin. Can management elaborate a little bit more regarding the decline in the gross margin? I know -- especially for the theater business, I know it's partly because of the increase in the IMAX -- the laser upgrade, which has lower margin, as management mentioned before. And what's the reason for the decline in the margin for system maintenance in particular?

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Jim Athanasopoulos, IMAX China Holding, Inc. - CFO, COO & Executive Director [17]

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Sure. On the guidance side of things, the 90 to 95 are new installations in a similar mix to what we had in 2018. We haven't given any guidance out on laser installations at this point in time, but those 90 to 95 could include xenon or could include laser overall. On the profit margin side of things, overall profit margin was 72%, and it's now overall at 69%. As you rightfully said, our network margin went up, which is basically the result of increased box office and the operating leverage that we've got overall in our network. Our theater margin went down. That was driven by a couple of things. One, we had a more expensive laser installation this year in terms of the sale installation. We also had some maintenance costs related to certain parts on our xenon projectors, so it was more of like a timing thing than anything else, that were higher than normal from last year. So again, if you look at our revenue per sale deal, it's still consistent at around $1.4 million in terms of what we're delivering. So again I think, if you're focusing on the margins and focusing of the network business, again the operating leverage has been demonstrated. And looking at the bottom line: Our adjusted profit margin went from 41% to 42%. And again, we're keeping a control on our costs as well, which came down. So overall I think the box office growth is demonstrating the inherent leverage that we've got in the network.

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Operator [18]

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We'll take our next question from Xufa Liao with Goldman Sachs.

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Xufa Liao, Goldman Sachs Group Inc., Research Division - Research Analyst [19]

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Congratulations for the great results. My question is for Rich, about the dividend payout policy. The Board of Directors have approved the payment of an interim cash dividend of $7 million for the first half. And we know that the company has been doing the stock buyback, spending about a couple million as well in the first half. So that will add up to roughly 60% or 70% of the net profit in the first half. So my question is, the first one, about the dividend payout policy. From the parent group's perspective, what would be the more sustainable level in the next couple years? And the second question is about how to balance the dividend payout and as well as the stock buyback.

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Unidentified Company Representative, [20]

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Jim? The first one...

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Jim Athanasopoulos, IMAX China Holding, Inc. - CFO, COO & Executive Director [21]

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Sure. Yes, sure. So yes, Xufa, you -- I mean you saw our sort of free cash flow generation has basically allowed us to sort of -- give us the flexibility to deal with the dividends, to deal with the buybacks. On the dividend side, we've been fairly consistent at 33% adjusted payout ratio, like we've mentioned beforehand. On the buybacks, we are just looking for opportunities. And at the end of the day, as we said, we thought the stock was undervalued, so we took that opportunity to step up our buybacks. It's not a scheduled approach. It's much more in terms of understanding, kind of recognizing where the value is. So overall from an IMAX China perspective, the cash flow generation coming from the company is giving us flexibility to kind of deal with buybacks and with dividends and with recurring dividends going forward. So with that, it's -- we're going to continue to evaluate. It's, hopefully, our shareholders are happy in terms of what capital returns we've done. And again, our business is sort of at the point where it's generating that recurring cash flow that's giving us that sort of flexibility.

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Richard Lewis Gelfond, IMAX China Holding, Inc. - Chairman of the Board [22]

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Yes. And just following up and virtually the same thing Jim just said. I think going forwards we just have to assess what the free cash flow is, where -- whether we feel the stock price is undervalued at that point and what makes sense as a dividend, but I think we'll do it on an analytical basis as those pieces move forward.

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Jim Athanasopoulos, IMAX China Holding, Inc. - CFO, COO & Executive Director [23]

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And just one last comment. We've talked about being -- in terms of our capital investment going forward and how we're structuring these deals in terms of full revenue shares and hybrid revenue shares. So hopefully, as we go forward, we're not going to be spending as much on CapEx with respect to full revenue share deals given sort of how we've been structuring our deals going forward. So that will allow us a little bit more flexibility as well.

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Operator [24]

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We'll take our next question from Eric Qiu with CCBI.

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Lin Qiu, CCB International Securities Limited, Research Division - Analyst [25]

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My question is it seems like the signings business same half was more than before. I think it's mainly because the CGV deal. Is that true? And what about your outlook for the signings in the second half and for the next 1 or 2 years? And also, besides your guidance for the new installation for FY '19, what's the outlook for FY '20 and '21?

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Richard Lewis Gelfond, IMAX China Holding, Inc. - Chairman of the Board [26]

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So signings, as you said, were pretty strong for the first half of the year. If you look into the second half, there are a number of negotiations underway. And you can't be sure whether they're going to lead to deals or not, but I would say the tone of our business is pretty strong in China, so I would expect the second half to continue, where signings [will be] robust. In terms of signings in '20 or '21, it's a little far out. You're not in the negotiations yet because people aren't approaching you about signing a deal. So it's premature to speculate, but given the results in the theaters in other parts in the world, when box office is up and the theaters do well, signings generally go up also. But it's too early to predict that, but that would follow the rest of world if that happened.

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Jim Athanasopoulos, IMAX China Holding, Inc. - CFO, COO & Executive Director [27]

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Yes. And just to follow up with that as Rich said, we're performing well on blockbusters. We've got new laser technology. So all of those things should definitely help us sort of facilitate more signings in the future. I mean all of the metrics are in place to kind of drive that, so that should basically help us in the second half of this year and beyond.

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Operator [28]

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Ladies and gentlemen, this does conclude today's question-and-answer session. For closing remarks, I would like to turn the conference back to Mr. Gelfond.

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Richard Lewis Gelfond, IMAX China Holding, Inc. - Chairman of the Board [29]

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Thank you very much, operator.

It's no secret that, if you go back a few years ago, IMAX China went through a more difficult period. And in 2017, we started a strategic overview and analysis. We came up with a plan of various things and included things like [playing] multiple movies. It included different strategies for different tier cities. It included our alliance with Maoyan. It included a lot of things, and I have to clearly say that the first half of this year demonstrated that a lot of those things are working. And when you look at it from a strategic point of view, that's one thing. And I usually don't repeat things like this, and it's in the slides, but again if you go through the numbers again: Revenue's up 15%, Greater China box office up 24%, Mainland China box office in RMB up 35%, network growth 16%, Greater China same-store sales 9%, Mainland China same-store sales up 17% in RMB, adjusted net income up 17%, adjusted EBITDA up 14%. I think the numbers speak for themselves. So I think, if you look at the snapshot of the company in the first half, you'd have to say our strategic initiatives are working and we're very much on the right path.

So thank you all very much.

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Operator [30]

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Ladies and gentlemen, this concludes today's conference. We appreciate your participation.