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Edited Transcript of IMAX earnings conference call or presentation 26-Apr-19 12:30pm GMT

Q1 2019 Imax Corp Earnings Call

MISSISSAUGA Apr 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Imax Corp earnings conference call or presentation Friday, April 26, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Megan Colligan

IMAX Corporation - EVP

* Michael K. Mougias

IMAX Corporation - VP and Head of IR

* Patrick S. McClymont

IMAX Corporation - Executive VP & CFO

* Richard Lewis Gelfond

IMAX Corporation - CEO & Director

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Conference Call Participants

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* Aravinda Suranimala Galappatthige

Canaccord Genuity Limited, Research Division - MD

* Chad C. Beynon

Macquarie Research - Head of US Consumer, SVP and Senior Analyst

* David Karnovsky

JP Morgan Chase & Co, Research Division - Analyst

* Eric Christian Wold

B. Riley FBR, Inc., Research Division - Senior Equity Analyst

* Eric Owen Handler

MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst

* James Charles Goss

Barrington Research Associates, Inc., Research Division - MD

* Michael Joseph Hickey

The Benchmark Company, LLC, Research Division - Research Analyst

* Steven Bruce Frankel

Dougherty & Company LLC, Research Division - Senior VP & Director of Research

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Presentation

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Operator [1]

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Good day, and welcome to the IMAX First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Michael Mougias, Vice President of Investor Relations. Please go ahead, sir.

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Michael K. Mougias, IMAX Corporation - VP and Head of IR [2]

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Thank you, Patrick. Good morning, and thank you for joining us on today's First Quarter 2019 Earnings Conference Call. Joining me today is our CEO, Rich Gelfond; and our CFO, Patrick McClymont who will have prepared remarks and will be available for Q&A. Megan Colligan, President, IMAX Entertainment and Rob Lister, Chief Legal Officer are also with us today.

Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our first quarter release and the slide presentation accompanying today's call have been posted on the Investor Relations section of our website. At the conclusion of the call, our historical Excel model and guidance information, we have posted to the website as well.

I would like to remind you of the following information regarding forward-looking statements. Our comments and answers to your questions on this call as well as the accompanying slide deck may include statements that are forward-looking and that they pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for more detailed discussion of some of the factors that could affect our future results and outcomes.

During today's call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. Discussion of management's use of these measures, and the definition of these measures as well as reconciliation to adjusted net income, adjusted EPS and adjusted EBITDA as defined by our credit facility, are contained in this morning's press release.

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

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [3]

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Thanks, Mike, and good morning, everyone.

With a potential audience of a 0.5 million people for global IMAX Experience, our unique end-to-end technology helps optimize virtually every facet of the creative palette for the biggest blockbuster events in more than 80 countries around the world. IMAX is a go-to collaborative partner to the world's most innovative creatives -- creators in arts. We help bring their content visions to light and IMAX delivers an immersive experience to audiences like no other on the planet.

On our last earnings call, we discussed how our achievements in 2018, which included more effectively articulating this message to consumers and further differentiating our experience, set the stage for IMAX to deliver a blockbuster 2019 year. I am pleased to note that these efforts are paying off, and we've hit the ground running this year.

Today, I'll touch on our first quarter results, led by our strong performance in China, briefly touch on our recent network activity and then wrap up with some thoughts on the year ahead.

Beginning with China, last quarter, we delivered $106 million of Greater China box office, our second highest grossing quarter of all time. In fact, our box office in mainland China was up 34% in the first quarter, far surpassing the soft overall market. We believe several factors along with our new brand campaign drove the improved performance.

First, our refined programming strategy maximized our box office returns and reduces scenarios where we miss key Chinese titles. Second, we're working more closely with key ticketing platforms such as Maoyan, to better market IMAX at the point-of-sale. And lastly, we continue to expand our footprint at theaters. When you combine our performance last quarter with the early results of Avengers: Endgame, it is clear that the steps we took to improve our box office performance in China are working. Importantly, we anticipate they will continue to improve the earnings power of our business going forward.

Next, let's discuss our network activity. Overall, we continue to see robust network expansion. We hosted over 100 meetings across 80 exhibitor partners at CinemaCon, the industry event in Las Vegas a few weeks ago. Coming out of those meetings, it is clear that exhibitors around the world are looking to elevate and differentiate their theaters, just as filmmakers look to IMAX to elevate and differentiate their stories.

Given our recent activity, we are confident the second quarter will far exceed our signings activity last quarter. Year-to-date, we have signed strategic deals across North America, Japan and Europe. In North America, we signed a 15 system agreement with Cinemark, extending our 20-year partnership. The agreement renews all of our existing footprint as the new IMAX with Laser screen scheduled to open in the fourth quarter of this year and upgrades one of their existing locations to IMAX with Laser.

Turning to Japan, the third largest box office producing country in the world. We signed agreements for 2 new systems and 5 upgrades in the first quarter. We see Japan as a promising market given the strong returns from the existing network there. In fact, our same-store sales were up 21% in Japan last quarter, driven by the success of titles such as Bohemian Rhapsody, which became our highest grossing film ever in Japan, surpassing Star Wars: The Force Awakens. We ended the first quarter with 32 screens open in the country and an additional 11 new screens in backlog. We believe Japan could support over 80 IMAX screens, and we look forward to further increasing our footprint in the market. It will also be exciting to watch the results of films like Frozen 2 in Japan this year, given the first Frozen occupied the top spot in Japan at the box office for 16 straight weeks.

Germany is another promising market for us, and a market where we significantly outperformed the industry last year. As you may have seen, earlier this month, we signed a deal with Lochmann, for the world's largest IMAX screen, which will be 126-feet wide. This is our first feel of an independent exhibitor in Germany where independent operators represent roughly 70% of the market. We currently have 8 screens open in Germany, 6 in backlog, and we're already in discussions with additional operators, so stay tuned.

I'd like to now touch on our box office performance in the first quarter and walk through our outlook for the remainder of the year.

Despite the difficult year-over-year Chinese New Year and Black Panther comparisons we faced in the first quarter, we increased IMAX global box office 4% to $256 million, well ahead of our internal expectations. Our strong international performance drove these results, underscoring the significance of our footprint outside of North America. Greater China, rest of world office were up 19% and 10%, respectively, compared to the first quarter of 2018, which highlights the advantages of diversification on a global basis. Wandering Earth, which we included in our lineup of films due to our multi-film strategy in China earned $45 million in IMAX box office in the first quarter, becoming our highest grossing film ever in China. We also saw broad success with titles such as Captain Marvel and Bohemian Rhapsody.

As a result of our strong performance in the first quarter, we now expect IMAX full year 2019 global box office to grow in the low double digits compared to a previous guidance of mid-to high single-digit growth. Also fueling this optimism is the incredible start to Avengers: Endgame, which was shot in its entirety with IMAX cameras. The film opened on Wednesday in China and in the first 2 days, we grossed a record $21 million of IMAX box office, representing over 13% of the total country box office. On opening day, our network delivered a powerful $23,000 per screen, our highest ever opening PSA in China. Not to mention, we achieved this with over 600 screens in the network across all tiers throughout the country. Moreover, our average ticket price for the film is up 85% compared to the prior Avengers, demonstrating the value that dynamic ticket pricing can have in that market for high-quality films. The film also opened in several international markets including Germany and France, where it went on to become the biggest IMAX opening day ever. In total, we have broken opening-day records in roughly 38 markets. This is particularly impressive when you factor in the films 3-hour run time, which equates to fewer shows per day than your average film. Given our results across numerous international markets, we're very optimistic to say the least, go into this weekend.

It's important to remember that much of the success we see with films like Avengers, begins with our long-standing relationships with the creative talent behind these tentpole films throughout the years. Along with our proprietary technology, and our unmatched stability to deliver a completely immersive audience experience, our creative collaborations truly set the IMAX Experience apart.

For tentpole titles, which represent an increasing share of the overall global box office, IMAX has become a key component of how filmmakers approach the conception of their creative vision. For example, we work with the Russo brothers for over 2 years to help bring their vision of Avengers to life. Jon Favreau specifically optimized 5 key sequences of the highly anticipated Lion King in our proprietary aspect ratio to maximize the IMAX consumer experience. Next year, we already have 3 films confirmed to be using our film cameras. Patty Jenkins is currently using these cameras on Wonder Woman 1984, creating an immersive story for moviegoers that no other format can watch. I'm also thrilled to announce that Bond 25, which comes out next year, will be the Bond film to use our cameras. And of course, Chris Nolan will be using IMAX film cameras to help bring his next film to life. All in all, we're laser focused on introducing more IMAX DNA into the world's biggest blockbusters.

As various industry players navigate the shifting marketplace for motion picture exhibition and other mass entertainment of events, partners will increasingly look for companies like IMAX that are uniquely positioned to succeed. Based on our technology, leadership and broad global network, our positive brand perception and high-end value consumer experience, as well as our long-standing relationships with the creative community, we believe IMAX has all the attributes necessary to thrive in this time of change. And with more screening platforms coming online and more content being created than ever before, content creators are increasingly looking for ways to differentiate their work and broaden their consumer reach. Given the global scale of our network, IMAX is the only platform capable of distributing the highest quality immersive experiences globally and launching it in a differentiated experience. We are currently in discussions with key streaming players who understand the value of creating powerful, out-of-home events around the launch of the original content and expect to make more formal announcements in the months ahead.

To summarize, 2019 is off to a great start. We believe the robust content lineup coupled with the continued rollout of IMAX with Laser, our refined marketing effort and our prime position in the global entertainment ecosystem will drive margin expansion, increase the earnings power of our business and drive stronger returns to shareholders.

We demonstrated the success of our strategies last year, and we demonstrated them in the first quarter and we're confident we will build upon that success in 2019 and beyond.

With that, I'll turn the call over to Patrick.

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [4]

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Thanks, Rich, and good morning, everyone.

On our February call, we provided a framework for our thoughts about 2019 from a growth, margin and return standpoint. We articulated the positive trend lines for these key metrics in 2018 and how we expect continued improvement in 2019. Given the better-than-expected start to the year, I'm pleased to say, we now see even stronger box office and margin improvement in 2019 versus what we communicated on our last call. The overarching message is clear. The proactive steps we took in 2017 and 2018, to improve the earnings power of our business are working.

Before I jump into the details, I'd like to point out the second slide of our earnings presentation, which illustrates our co-branded marketing efforts with Disney and Marvel for Avengers: Endgame. This is another great example of the level of collaboration between IMAX and our partners. This instance leverages each of our unique intellectual properties to market The IMAX Experience to fans across our global network and is yet again a prominent demonstration of our unique position in the entertainment ecosystem. Most importantly, it looks really cool, especially on social media where there's emotional element to it so please take a look.

I'll begin by providing some additional detail on network expansion before going into our financial results for the quarter and ultimately updated guidance for the year.

Let's start with our network expansion detailed on Slide 4 of our earnings presentation. Our sales team delivered 23 signings in the first quarter, 15 of which were for our new IMAX with Laser system. We installed 14 new IMAX systems in the first quarter, largely consistent with Q1 last year. We also upgraded 3 systems last quarter. Breaking our new installs out and more to sale, 6 were for sale type, 4 were JVs and 4 were hybrids.

Now let's turn to our financial results, which begin on Slide 5. Total revenue in the first quarter was $80.2 million, $4.8 million lower than the first quarter of 2018 due almost entirely to less sales-type theater installations in the first quarter this year, which totaled 7 fewer than the same quarter last year. This dynamic is entirely timing related. We continue to expect the full year number of sales-type system installations to be a similar number in 2019 as it was in 2018. With regard to the sales-type installation line, our margin was 42% in the quarter. This came in below historical levels due to the mix of systems as well as our decision to allocate additional engineering and support resources to ensure the successful rollout and launch of the IMAX with Laser systems. For the full year, the anticipated margin on sales-type theaters to increase sequentially as the year progresses, resulting in a full year rate of roughly 50%. As we have seen historically with other new product launches, the margins should improve in the years ahead as the technology matures, and we reduce the additional engineering support to sustaining levels.

During the quarter, we generated $45.1 million of gross profit, which resulted in a 56.3% gross margin. Lower gross margin rate compared to Q1 2018 was influenced by the installation of 7 fewer sales-type theaters last quarter. Operating expense, which we define as SG&A plus R&D, excluding stock compensation, was $24.8 million last quarter versus $27.3 million last year. Adjusted EBITDA for the quarter came in at $28.5 million, producing adjusted EBITDA margins of 39.8%. Our tax rate came in at 26% last quarter and included certain onetime discrete tax charges. Net income for the quarter was $8.3 million or $0.13 per share, while adjusted net income was $10.8 million or $0.18 per share.

Please note this is the first quarter where investment in the China mobile ticketing platform, Maoyan, is reflected in our financial statements. While the gain in the value of the investment in the quarter is included on the face of our P&L, it is not included in our adjusted EBITDA and adjusted net income figures. We're pleased with our close collaboration with Maoyan, and the team in China is already seeing tangible benefits from their relationship as they work to develop longer-term strategic initiatives with our partners at Maoyan.

I would like to now provide our updated guidance for 2019, which will be posted on the IR website at the conclusion of this call.

Beginning with installations, we continue to anticipate installing roughly 185 to 190 systems this year. Of this, we expect upgrading 45 screens to Laser and to install roughly 140 to 145 new systems. We expect the mix of new installations for the year to follow historic patterns and be weighted toward the back half. With regard to our 45 upgrades, we expect roughly 5 of these upgrades to come with full sales-type margin and be installed in the back half of the year. For the second quarter, we expect 7 sales-type installations.

Given the early traction of our consumer electronics licensing business, we now expect to draw in roughly $3 million of revenue associated with this business. Given the licensing nature of the business, we anticipate close to full flow through to pretax profit on this revenue. We also reiterate our flat OpEx guidance for the full year, which would mark our fourth consecutive year of holding the line on operating expenses. With regards to tax, given the discrete tax charges in the first quarter, we expect our full year tax rate to be roughly 23%. Excluding the onetime charges from the first quarter, our tax rate would have been the initial 22% we guided to.

Turning to box office and margin guidance. Our box office in the first quarter exceeded internal expectations, and we now expect our full year box office to grow in the low double digits. We expect most of the revenue from the box office increase will flow to the bottom line. As a result, we now anticipate adjusted EBITDA margins attributable to common shareholders will increase to between 41% and 42%, compared with our previous guidance of 40.5%.

To close, we continue to see positive momentum for IMAX. Our efforts and accomplishments in 2018, set the stage for us to capitalize on what is shaping up to be a blockbuster 2019 in terms of box office performance, margin expansion and increased return on capital. All of which increase value for shareholders.

With that, I'll turn the call 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 will take our first question from Eric Handler with MKM Partners.

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst [2]

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Rich, quick question for you on dynamic pricing in China. How big of an impact has it been for other films aside for Avengers, and are you seeing that most of your growth, is it from the pricing side or is it from the attendance side? And then I've got a follow up.

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [3]

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It's Patrick. I'll give you some initial thoughts on that. This film in particular, they'd really stretched on the dynamic pricing and so -- and that's across the market including IMAX. And particularly, midnight showings the first day and into this first weekend. And so from an attendance standpoint, we're seeing numbers that are similar to what we saw for last Avengers but the increase in pricing is delivering very attractive growth in box office.

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [4]

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Although that's -- I don't think Eric was asking about one picture, I think he was asking about overall trends. And I think if you looked at Wandering Earth, it was kind of both. Eric, it was pricing in the early phases, but it was bodies in the later phases. So I think it's actually -- it's both, and I think that's fantastic. First of all, it shows somewhat the inelasticity of the IMAX Experience, meaning that people wanted so badly that whatever the increases they're willing to still come, which is an important point but as I say, for other titles, we've seen it in bodies.

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst [5]

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That's great. And then as a follow up, when the IMAX cameras or a film has IMAX DNA as you say, you seem to get very -- you get above average market share. And I'm just curious, is there enough equipment or is there enough interest from directors where you can eventually get to the point where maybe you have one film a quarter that uses IMAX cameras?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [6]

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I mean, they're already for next year. We, as I said in the remarks, we have 3 films using IMAX cameras. Chris Nolan's new film using the film cameras. Wonder Woman 1984 and Bond, which was just announced yesterday and Megan is sitting across from me. You might want to add a little bit of color but there is sometimes competition for the cameras, and I think there's way more and more interest around them. And I think we're navigating that. But that's a high-class problem. Megan, why don't you talk about just how difficult it is to manage that?

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Megan Colligan, IMAX Corporation - EVP [7]

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Yes. I would say that the point of distinction is the film cameras are one bucket and the film cameras are in high demand and Rich just pointed out that we are maximizing the use of the film cameras. When you talk about Avengers, you're talking about digital cameras and the Russo brothers used the digital cameras and shot that film entirely digitally. And that happened on a regular basis and there's movies happening all the time that are shot with the digital cameras. So we are -- there's films happening on a regular basis that are using the full aspect ratio and filmmakers are coming in talking to us all the time about how to work with us and then there's situations where filmmakers come to us later in the process like Jordan Peele did with us. And then discover the process and then talk about their next film and how they may use it in the future. So it's the constant conversation that we're having with creators all the time about upcoming movies and how to best utilize the format for what they're creating and how they can work with us. We're in a steady conversation with all sorts of creators at every studio on an ongoing basis.

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Operator [8]

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We will take our next question from Steven Frankel with Dougherty.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [9]

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Rich, I wonder if you might give us a sense of what same-store sales are looking like in China or how you're contributing the strong performance to network expansion versus again that performance of the same-store sales basis?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [10]

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Yes. In the first quarter, same-store sales were up in China and as I've said during my remarks, the second quarter with Avengers is off to a pretty impressive start right now. I mean when I mentioned the fact in the script that it was the highest PSA for an opening day in ever in China. And remember, that's at 600 theaters. We did movies at 300 theaters and 200 theaters, and I know a lot of you are concerned at times about openings and lower-tier markets and what that does to the business. But I think for the right content, it's incredibly encouraging how you can drive people through a network that large and achieve the right results and as you look forward, this year, particularly on the Hollywood films, there's an awful lot of impressive blockbuster content. Also I should mention that we have a film called 800, coming out in China this year, which is the first film to use IMAX cameras in China. So we'll see how that affects the index.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [11]

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Great. And maybe some just color around the impact of subscription programs like A-List on your domestic business?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [12]

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So for -- a film like this, I mean I think it's got to help. And the reason I say that is, this is the kind of film that has a lot of repeat business. We were at New York friends and family screening and my step kids were there and they both said, they want to see it 2 or 3x. It's not a scientific sample but it's a family sample. And I would think when you look at the A-List program, where you can see up to 3 movies a week, I've got to believe that's going to facilitate a lot of additional people going, particularly when you have a movie shot with IMAX cameras over the IMAX DNA, and people have a choice. I've got to believe a lot of people are going to see it in IMAX, so I would say I think it will all have a positive impact.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [13]

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Okay, and then from Patrick, any update on where you are in the share buyback?

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [14]

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Steve, no change in how we think about that, which is -- our first priority is to continue to invest in growing our network where we see opportunities. And our second priority, we believe that we've got excess capital, and we believe there's an opportunity from a share price perspectives to buy back stock so no change in our framework.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [15]

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Okay. And then lastly, you mentioned the ticket partnership with the online vendor in China. What are you learning there from a data perspective? Or is this really more about of point-of-sale marketing?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [16]

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At the moment, point-of-sale marketing and being integrated into their information flow, but we're in the process of negotiating a broader relationship and I think we will get more data. I think we've gotten some things now, but I think they're going to help us build out our CRM. We think there's a lot there we can learn, which we will learn. But again, just this morning, Megan and I had a conversation before this call, she was on the phone with China last night and she said that they believe that the integration with Maoyan has definitely helped in the Avengers release and in our first quarter results.

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Operator [17]

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(Operator Instructions) We'll take our next question from Alexia Quadrani with JPMorgan.

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David Karnovsky, JP Morgan Chase & Co, Research Division - Analyst [18]

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This is David on for Alexia. Rich earlier, you mentioned in your prepared remarks, conversations with streaming services and the potential to carry some of their movies in IMAX. I'm interested to see if there's any update on this and Megan, it'd be great to get your thoughts as well.

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [19]

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I'll just say there are no official updates. We are in discussions I said, and we have time. When deals are signed, we'll announce them. But Megan's been spearheading some of those negotiating, so maybe you can give some flavor?

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Megan Colligan, IMAX Corporation - EVP [20]

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Yes. I would say that there's things that are on the horizon. I think that the streaming services are in a place where they're still developing their strategies and they're still relatively young in their development as content companies and getting their suites together and building their strategy and being able to have the kind of event, films that work in our network and we are -- have excellent relationships with all of the leaders of those streaming services, and we have great conversations with them and as I said, announcements are imminent.

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David Karnovsky, JP Morgan Chase & Co, Research Division - Analyst [21]

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Okay. I know you touched on this in your prepared remarks a little bit. Can you maybe discuss a bit more of your performance in Japan in the quarter? What was the successes from like Bohemian Rhapsody potentially mean for how moviegoers and exhibitors, maybe IMAX experience there?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [22]

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Yes. I think that we were all surprised at how strong Bohemian Rhapsody is. I mean just think about that, it did better than Star Wars in Japan. And I spoke to some of our Japanese exhibitors, and they said it's just something about the culture where if you to penetrate the zeitgeist, everybody needs to see it. And that movie for whatever reason, although you have to remember a year ago, The Greatest Showman also did extremely well in Japan. I think they -- clearly they like musicals, clearly they felt the IMAX Experience where, particularly the end of Live 8 concert in the stadium was something that couldn't be replicated anywhere else. As for the market in itself, as you probably know, Japan is a famous place for being second. And I don't think they wanted to be the leaders in going into the IMAX business but once they got into it, the results speak for themselves, among the highest PSAs in the world for IMAX. So that success has made them more comfortable with opting more theaters, and I think some of the largest companies still aren't in the business and are taking retires right now. And as I said in my remarks, it's the third largest film market in the world, so I think there's significant box office upside for IMAX in that market.

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Operator [23]

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(Operator Instructions) We'll take our next question from Aravinda Galappatthige with Canaccord Genuity.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [24]

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Rich, so obviously, you've made the investment in Maoyan. Patrick, and maybe correct me if I'm wrong, I think that $15 million number that is in the investment and equity securities is entirely that. I know that you've sort of stepped away from new initiatives. You're going back to sort of focusing on the core business. But as you sort of see attractive opportunities like this in businesses that are adjacent to you and they're synergistic potential, and given your balance sheet, is there still an appetite to kind of move in that direction and maybe build off of some of the opportunities you have?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [25]

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I think I would say, if it's related to our existing business in some kind of a direct way, and it's relatively small, I could see making selective investments that support the core business or expand the core business. So if we're not in a mindset to tap a big net and look for major acquisitions, we feel that our technology, our relationships, our network and our brand have us in a very good place. And if we could find small filings to help us lever off of those and grow the business with a clear payback that is something we will consider.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [26]

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Okay. And then with respect to the Laser installations, I know you've installed a number of Laser systems during June and December. I know it's early days, is there any early feedback in terms of the numbers that gives you a sense of comparability with the rest of the network?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [27]

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Again, I think, numerically, it's too early to say. I think anecdotally, our clients are happy and people are happy with the experience. But whether it's translated into financial results, we just can't say yet. Again, because different movies, it's hard to compare periods-to-periods.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [28]

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Rich. And this last question's for Patrick, on working capital. Obviously, you saw a little bit of extra working capital use this quarter. It was obviously a positive swing last year for the full year. Any sense as to how we should think about the full year sort of management of working capital?

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [29]

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In the first quarter, you saw some inventory growth and while that is related to ramping up the laser product, some of that will come down over the course of this year just as we get closer to sort of steady state levels of productivity. So I would think inventory will have that coming down. And the receivables numbers just moves around, it's mostly what's happens with box office and sort of the scheduling of things. So that kind of played a little bit based upon some of the films from the fourth quarter and then also the early part of this year because we had a strong first quarter. So nothing of concern there, just the normal seasonality in the business. If there's -- we expect to see improvements on the working capital side, largely due to the inventory issues over the course of the year.

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Operator [30]

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We'll take our next question from Jim Goss with Barrington Research.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [31]

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The -- your raised IMAX box office to low double-digit percentage growth for the full year is noteworthy and that it's in the context of a year when flattish to normally higher domestic overall box office would be a good achievement. You have a number of drivers including your global platform growth. Perhaps steadying of PSAs, your film selection. I'm wondering how you are thinking about this process that's continuing a pattern that you actually had over the past several years in which your total IMAX box office has been on a pretty steady upward trend?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [32]

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First of all, Jim, we don't really compare ourselves to the overall box office. We compare ourselves with the blockbuster box office and as you look through the year on going forward, you kind of go from one to the other throughout the year. And when we were in CinemaCon, there was kind of -- which is the industry convention, there was a bet going on as to what will be the biggest film of the year. Avengers: Endgame, Lion King or Star Wars: Episode IX. So I think when you look at the year and all of those out, just enormous potential. And then there's so many others Godzilla, Spider-Man, Frozen, Lion King, Aladdin, I mean, forgetting a lot of them, I apologize. But it's one to the other throughout the year. So that would be the first thing. The second thing I would say is the better performance coming out of China. So I think you've got to say that feel pretty good that, that's going to have a better year than it had last year. As you know, as we talked about the first quarter, it started out really well and the early Avengers numbers coming out are incredible, I don't have the word to describe them. So I think that would be something that would give us comfort.

And then I add 2 other things, which wouldn't be obvious but one would be our branding efforts. So if you look at our slides, you'll see how we were integrated into the Avengers: Endgame campaign. And if you think back a couple of years, the posters used to say an IMAX where you need it a magnifying glass to see it. But I think all of the studios have done a better job and particularly, it did in this case of integrating us into their marketing campaigns. And I think it's not an accident that the opening has been among the strongest we've ever seen. And then I would add a different kind of marketing, the increase of laser, upgrading the seats, more branding in the theaters, all of that and I think all of that makes us extremely comfortable. There have been other years where maybe a big film opens and you're feeling very excited about it. But I think this year, what's unique about this year and 2020, is the films, there's a lot of other things going on as I said the marketing, the technology, the use of IMAX DNA, all kinds of things. So it's all of that, that gives us the confidence.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [33]

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Okay. And one other question is between the joint revenue sharing model STLs and hybrids, do you have any current orientation of one model toward another. I know it's going to be each effort on a unique basis but are there things about the areas you're penetrating right now that tilts you in one direction or another?

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [34]

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Sure. I'll take that, Jim. As we've talked about, it's great that we have 3 different flavors and there's obviously flexibility around each of those and so we use that to figure out ways to create value for our exhibitor partners and make sure we're doing deals that make sense for IMAX. We have talked about that in China. We've started to lean much more towards hybrids as a solution, particularly in markets where we just may not see the kind of box office opportunity that would justify us putting our capital into a joint revenue deal. And so you saw deals last year where with one client, we had a mix of all 3 different types. And that's a strategy we've continued to focus on over there. Really look market-by-market and deploy different solutions depending on what we see as the opportunity. And our clients have been receptive to that as well because they want to go with IMAX. So I think the flexibility is great, and we're trying to lean more towards hybrids and opportunities where we just don't see box office getting to the right level.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [35]

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Okay. And is Japan, most of the hybrids?

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [36]

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No. It's a combination there. In fact, we've done a number of sale deals and some deals that are revenue sharing. So it's a mix depending on the clients' objectives.

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Operator [37]

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We will take our next question from Chad Beynon with Macquarie.

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Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [38]

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Rich, you mentioned that you met with a lot of the operators in out at CinemaCon, and I'm sure they were all excited about the Hollywood lineup obviously, Avengers being the big one here. Was there any buzz from any of your partners around any local language films that we might not be aware of, just anything coming out through the balance of the year in any particular markets that might be a little off the radar for us?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [39]

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I'm trying to think. I mean, I think there are a couple in China for the summer that were coming out, but I can't name them. One or two in India. I don't know, Megan, did you hear anything?

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Megan Colligan, IMAX Corporation - EVP [40]

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800 is -- as Rich mentioned earlier, has been shot with IMAX cameras, it's also been dated for July. I want to say fifth, but it'll be the big title for the summer. And we also have locked in Russia, which will be the New Year title for switches being shot with some IMAX cameras for New Year's next year, so those are 2 big titles for China. And we were having a lot of conversation about the Indian market, which is a -- there's a lot of enthusiasm around that market, but it is still a very fluid market and one that we're looking at very closely. But no, overall, China was the one we were spending some time looking at and talking about.

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Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [41]

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And as you reflect on the first quarter, which was extremely strong in China, do you feel like you're not missing out on any films. Obviously that was a concerted effort of you guys, but have you kind of declared victory at least in the first quarter in terms of not missing out on any local films that may be bigger in Tier 2 or Tier 3 cities?

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [42]

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Yes. I think we certainly had declared victory and if you look at what happened with the New Year holiday, going into that, we had 3 films and the market thought that Crazy Alien was probably going to the biggest movie. And most people had reasonable but not high expectations for Wandering Earth and so we ended up doing 3. We had all 3 available for the exhibitor partners. And then we worked with them closely over the course of the opening weekend, and it became clear very quickly that Wandering Earth was going to be the runway hit, and we were able to shift our showings to that and that ended up -- as of right now, that's the biggest IMAX box office movie ever in China. I expect that's going to change over the next week or so with Avengers. But the strategy is extremely successful. And importantly, it doesn't just work for IMAX, it's really important for our exhibitor partners because we're giving them flexibility and optionality so they can drive as much box office as possible.

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Operator [43]

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We'll take our next question from Eric Wold with B. Riley.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [44]

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Sorry I was on mute. Two questions. One, on the guidance for low double-digit growth in box office for '19. Can you parse it out in terms of what you're expecting for 3 to 4 regions, U.S, China and then international, ex-China. And then you talked a little about this, about the continued strategy in China towards moving, towards more hybrid and sales-type deals kind of mitigate the risk somewhat in the smaller markets. Unfortunately, obviously, the reported box office and reported per screen average captures all of that and kind of muddies it a little bit. Is there any way to discuss the relative box office performance of those under full JVs versus those under sales at least for hybrid? Because obviously, under the later models, any box office is kind of gravy, since your capital has kind of pulled out, so maybe give us a sense of kind of how that strategy's been working?

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [45]

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So on your first part, Eric, we don't forecast by region. But we do a fairly detailed build up. So we look at each title. We looked at what -- how performance was during that period of time over prior years, we analyzed the title. A lot of people are involved, and we make judgments. But it's hard enough to forecast box office on particular titles as well on by regions. No, we don't do that. In terms of the China mix, why don't you talk about that, Patrick?

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [46]

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But --I think your question overall, can we share sort of the breakdown between the different types of sales. And I don't think it would be value-added exercise, Eric, because it varies so much depending upon movie to movie. And so, for example, in the first quarter of this year, a lot of JVs domestically because our big partners with AMC and Regal and as everyone knows, domestically there was one big movie, which was Captain Marvel but otherwise a little bit quiet. Whereas in the second quarter, with Avengers, we're going to see tremendous performance domestically. So it really is so movie dependent part, disclosing that and then talking about relative differences is not value-added. What matters is the fact that we've got 1600 screens around the world, what matters is that we've got exposure only to these big blockbuster films and yes, we have got multiple ways to make money on it, both from the studio side and then from the exhibitor side. And so that's what we focus on, is making sure that we've got exposure to those big opportunities.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [47]

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Okay. And then maybe Rich, if I can follow up, I just think you don't want to give out guidance for each region. I get that. Can we assume that you're assuming growth in all 3 regions for the year?

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Patrick S. McClymont, IMAX Corporation - Executive VP & CFO [48]

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Yes.

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Operator [49]

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We will take our final question from Mike Hickey with The Benchmark Company.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [50]

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Congrats on a strong quarter. I realize we're just through first quarter of '19 here but obviously, it's looking good. You're raising investments for the year. So I'm sort of wondering if you can share with us maybe what you're thinking about in terms of 2020. I know what the way's out, maybe of the box office, but sort of your thoughts on the growth opportunity, more medium term.

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [51]

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Yes. I think, we're feeling very good about 2020. The schedule obviously has this fill in for the year but I mean to start with -- to start the year, you're going to have to carryover from Star Wars: Episode IX and that was one thing about the quarter, which we actually didn't mention but somewhat surprising how strong the quarter was, because we didn't have a carryover Star Wars, which you've had many of the previous years. So this was kind of more of a greenfield year than we've had at other years. But starting 2020, we'll be the carryover of J.J.s Episode IX, which we'll pick it off as we mentioned before, we got 3 movies using IMAX cameras. Chris Nolan has an original movie and although, as probably most of you know, Chris doesn't unveil it very much until it opens. But in discussions with him, you feel it's a very commercial kind of movie and we're very optimistic about it. And then Wonder Woman and Bond as I said, using our cameras. Then, during the year, you've also got Top Gun, Godzilla versus King Kong, Fast and Furious and Marvel hasn't yet announced what its release will be for next year and that's partly because they didn't want to be spoilers for Avengers: Endgame in terms of who was going to live and who wasn't. But I'm sure, Marvel will have a number of very exciting blockbusters for next year. And then, you end the year, with Avatar. So I mean, as far out as we are, it looks about as good as any year I've seen in the blockbuster department. So quite encouraged.

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Operator [52]

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This concludes the Q&A portion of the call. Mr. Rich Gelfond, I'd like to turn the conference back to you for any closing remarks.

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Richard Lewis Gelfond, IMAX Corporation - CEO & Director [53]

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So yesterday, we had our board meeting here in New York, And I started my comments by saying we should all have smiles on our faces because being in the IMAX business doesn't get much better than it is right now, and why is that? Well, looking back on our first quarter that was much stronger than we thought. We're on the -- we're opening Avengers now and the early results are extremely encouraging. I feel very good, not just about the weekend but the prospects for the run. And that movie, it's kicking off the blockbuster lineup for the rest of the year, which we've talked about on this call. We've had more optimism in China than we've had for a long time. We have our new marketing campaign, which is in full bloom. We're rolling out our laser program and our upgrades of our theaters. And we look forward into 2019 and '20 with a lot of optimism. So as I said, it's a good time to be in the IMAX business and for those of you who've supported us for a while, we really appreciate it, and we hope we can deliver on the long-term promise.

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Operator [54]

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This concludes today's call. Thank you for your participation. You may now disconnect.