IMAX Corporation (NYSE:IMAX) Q4 2023 Earnings Call Transcript
IMAX Corporation (NYSE:IMAX) Q4 2023 Earnings Call Transcript February 27, 2024
IMAX Corporation beats earnings expectations. Reported EPS is $0.17, expectations were $0.1. IMAX Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to IMAX Corporation's Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today Jennifer Horsley, Head of Investor Relations and Senior Vice President. Please go ahead.
Jennifer Horsley: Good afternoon, and thank you for joining us on today's full year and fourth quarter 2023 earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; and Natasha Fernandes, our Chief Financial Officer. Rob Lister, Chief Legal Officer is also joining 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 earnings press release and the slide presentation have been posted on the Investor Relations section of our site. Our historical Excel model is posted to the website as well. I would like to remind you of the following information regarding forward-looking statements.
Today's call as well as the accompanying slide deck may include statements that are forward-looking and that pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause our actual future results to not occur or occurrences to differ. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today. And we undertake no obligation to update these statements as a result of new information future events or otherwise. During today's call references may be made to certain non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures as well as a reconciliation to non-GAAP financial measures are contained in this afternoon's press release and our earnings materials which are available on the Investor Relations page of our website at imax.com.
With that let me now turn the call over to Mr. Richard Gelfond. Rich?
Rich Gelfond: Thanks, Jennifer and thanks everyone for joining us today. IMAX powers awe-inspiring experiences for audiences around the world with a premium offering that invites people into exclusive and often impossible situations worlds both real and imagined alongside others who are equally immersed. Our business capitalizes on the limitlessness of human imagination our innate desire for shared experiences and the unceasing human demand for awe. These are evergreen market opportunities that transcend what Hollywood movie is playing at your local multiplex on any given weekend, which is why IMAX remains among the most consistent winners in global media and entertainment and why we delivered such strong results in 2023. Adjusted EPS for the full year of $0.94 up from $0.06 in 2022; growth of 25% or greater across revenue, gross margin and adjusted EBITDA; operating cash flow of $60 million up from $17 million the prior year.
We installed 128 IMAX systems worldwide at the high end of our guidance and signed agreements for 129 new and upgraded systems. And we grew global box office to nearly $1.1 billion our second highest grossing year in our history. When you look at our results and growing demand for IMAX across the ecosystems it's increasingly clear that IMAX is indeed the future of cinema. I'm in LA for the month and this is a growing refrain among Hollywood filmmakers, studios and producers all of whom want to capitalize on the shift to IMAX at the box office and who see increased market pressure on exhibition to meet growing consumer demand for premium experiences a trend across all of out-of-home entertainment. Our global technology platform and asset-light model remain remarkably resilient.
Our guidance was in line for the year, even with the fourth quarter, heavily impacted by the labor strikes in Hollywood. Strike-related slate delays have impacted the current quarter as well. While we never like seeing our stock go down, this has created an opportunity for us to buy back more shares. We have repurchased more than $40 million in IMAX stock since October 23. We believe IMAX stock is very undervalued given our growth outlook and we expect to continue to use our strong balance sheet to be a buyer at depressed levels. Looking ahead, we expect to deliver another solid financial performance in 2024 including growth in system installs to between 120 to 150 for the full year, similar results to 2023 for global box office. Total adjusted EBITDA margin in the high 30s percent range.
We expect 2025 to be a strong growth year including at least high single-digit revenue growth, mid-single-digit percentage network growth, total adjusted EBITDA margin of approximately 40%. Our strategy for the year ahead is two-pronged; accelerate global sales activity and network growth by capitalizing on our expanding content, portfolio, and the proven returns IMAX technology delivers for our clients. And two curated diversified global content portfolio. We expect to deliver more than 100 IMAX Experiences for the first time in our history by expanding further into local language blockbusters IMAX documentaries and new and exclusive IMAX Experiences and events. Today, I'd like to discuss how we're advancing our strategy on both fronts, while continuing to explore new further opportunities for growth.
Then I'll turn it over to Natasha to detail our financial results before opening it up to your questions. Network growth. First, we recently conducted a new worldwide zoning analysis of our technology network for the first time since 2019 to measure our total addressable market including how many IMAX locations can be sustained in each territory. As a result IMAX is increasing its network zones to 3,619 globally from 3,318 previously. IMAX is a highly recognizable global brand in premium cinematic experiences. And yet we still have significant room to grow with our core technology product. By our analysis, we are only at 47% global penetration with our current footprint of open locations. And we can sell or open approximately 1,900 additional IMAX systems worldwide, more than double the size of our network.
As a reminder, we update the zoning analysis every few years and we'll continue to do so. Our sales activity in 2023 underscores the strong demand for IMAX technology even in a period of uncertainty coming out of the strikes. Our 129 signings for the year were delivered with 36 partners, including seven new clients across 26 territories worldwide, 84% were for new IMAX locations. Of these 128 system installs we completed in 2023, an IMAX record 61 were in international markets outside of North America and China, further diversifying our unique footprint. These installs were weighed toward our most productive markets as well. Overall, installs were in territories delivering per screen averages that were more than 20% higher than the average PSA across our full network.
Turning now to content. We are focused on curating a diversified global content portfolio and creatively managing a slate to deliver more than 100 IMAX Experiences in a single year for the first time in our history. We're appealing to a wider audience with awe-inspiring experiences drawn from across Hollywood, international film industries, documentaries, and events. This diversity continues to be a key differentiator for IMAX and the biggest reason why we are a growth platform worldwide. Despite a strike-impacted fourth quarter, IMAX Global Box Office in 2023, increased 2% over its 2017 to 2019 average compare that, to a 21% decline for exhibitors worldwide based on estimates by Gower Street Analytics. We think of our portfolio in three product lines: first, Blockbusters, both Hollywood and local language; second, IMAX Documentaries; third, IMAX Events experiences that widen our aperture across genres, including music, gaming, sports and more as well as live and interactive formats.
First, although the 2024 Hollywood Slate has clearly been impacted by the strikes, we remain optimistic given the strong indexing we're driving on a title-by-title basis and a consistently high share of Box Office we capture in the post-pandemic world. This weekend's Dune: Part Two will offer an excellent example of the differentiating advantage of the IMAX platform. The film was shot entirely with IMAX cameras and will receive a limited run in IMAX 70-millimeter film, further feeding demand for the format, In the wake of 'Oppenheimer'. IMAX earned more than 22.5% of Dune: Part One, opening domestic weekend. Our IMAX exclusive preview, screenings just a few days ago on Sunday, approached sellout capacity throughout the United States. And our strong presales indicate that we will dramatically over-index.
Presales exceed what we saw with Oppenheimer, in the same window pre-launch. I've seen Dune: Part Two and this is a very special film. Make no mistake about it. This film has been much anticipated in the past, but it exceeded my expectations. Look no further than the Academy Awards to see our broadening impact. IMAX releases scored more than 40 nominations not just for Oppenheimer, but a variety of films across genres from Killers of the Flower Moon to the Japanese anime hit, The Boy and the Heron. Across this year the Slate remains balanced with a consistent offering that will stand out in IMAX including Godzilla vs. Kong, Furiosa, Deadpool & Wolverine, A Quiet Place: Day One, JOKER 2 and Wicked. And this year is just a Precursor to a stacked 2025 Slate, which includes Avatar 3, several entries from the retooled Marvel and DC franchises, including Fantastic Four and Captain America as well as Superman: Legacy and the sequel to The Batman and of course Mission: Impossible 8.
Our local language strategy also continues to be a powerful growth driver for IMAX. In 2023, we smashed our record for local language box office with $227 million in receipts from films across China, India, France and Japan as well as Malaysia and Thailand. This year looks very promising as well, particularly in China where we expect the summer season to be among our best ever. Our relaunched IMAX documentaries unit continues to gain steam. And we'll see the release of the Blue Angels in partnership with Amazon Studios and J.J. Abrams' Bad Robot this May. We're also in production with Adam McKay's Stormbound a film that will, put IMAX cameras and our fans inside the most powerful hurricanes on the planet. We will continue to grow documentaries, as a source of global box office with downstream streaming revenue potential as well as a strong driver of our brand.
We're also building out our portfolio of events and experiences, beyond feature and documentary films as a key strategic priority. This strategy has already yielded success in the first quarter most notably with Queen Rock Montreal, a first-time IMAX remastering of a seminal 1981 performance, which has delivered the best opening weekend ever for an IMAX exclusive event and has so far grossed about $5.4 million. We also held a one-night-only cinematic listening event for the new release from hip hop legend André 3000. The film which recorded several sellouts and drove great utilization on an otherwise quiet Tuesday night in January yielded a fee from the record label in addition to our standard box office tape. Expanding our brand. We also continue to advance our streaming and consumer technology business, pushing further into new experiences beyond the cinema.
IMAX was pleased to be among the launch partners for the Apple Vision Pro. Our goal is to test and define the IMAX experience on this exciting new platform, from user experience to content to monetization to new avenues for innovation across streaming and playback. But the IMAX app also has provided an exciting new application of our enterprise software StreamSmart purpose built to deliver the clearest picture for less money for streamers like Disney+. We continue to make steady progress, building out our streaming consumer technology business. While we don't want to steal a page from every other earnings call in the world, the technology we acquired by our acquisition of SSIMWAVE is AI-based. Through that acquisition, we have a team of 40 engineers, specializing in machine learning and artificial intelligence.
That team is working not only on streaming but broader applications across our business from image capture and optimization to improving our internal systems and processes. To conclude, 2023 was one of the best years on record for IMAX. Our technology continues to power awe-inspiring experiences that bring the entire range of human imagination to life. Consumers want the IMAX experience and we curate one of the most diverse portfolios of experiences from around the world. Consumers are gravitating towards visceral you-are-there documentaries and we're using our technology to tell stories that immerse audiences in the impossible. Consumers want unforgettable communal experiences, and we continue to open our aperture and expand the definition of the IMAX experience from using music to gaming to sports.
And anyone who has watched the results of the award shows this year can't help but escape, noticing the influence of film and IMAX for audiences around the world. And this week again filmed in IMAX, we open Dune 2, which we have high expectations for. As a result demand for our technology is strong worldwide. We have already established IMAX as a premier global platform and we see an opportunity to double our footprint. It is a great time to be in the IMAX business. And we look forward to growing our momentum and delivering results for our shareholders. Thank you. And with that I'll turn it over to Natasha.
Natasha Fernandes: Thanks Rich, and good afternoon, everyone. As Rich mentioned IMAX delivered a strong performance in full year 2023. We have a business that stands out in the entertainment industry both for the experience it provides consumers and our financial model. Let's review our Q4 and year-end results and then I'll expand on our expectations for 2024 and beyond. Our 2023 results underscore the strength of our model and demand for the IMAX experience. Full year adjusted EPS grew significantly to $0.94 in 2023, up from $0.06 the year prior with $0.17 coming in Q4. Full year gross margin of $214 million grew 37% year-over-year and gross margin percent of 57% was up 500 basis points year-over-year. $44 million of that came in Q4 at a gross margin percent of 51%, which was up 100 basis points year-over-year as the impact of the lower box office was offset by cost discipline and lower marketing expense.
Adjusted EBITDA attributable to IMAX grew 52% to $128 million for the year, including $23 million in Q4. Full year adjusted EBITDA margin was 37%, up 650 basis points year-over-year driven by strong revenue growth and operating leverage in our business. We grew total revenue 25% year-over-year in 2023 to $375 million driven by expansion of the IMAX network and our diversified content portfolio. We did this even with a 12% revenue decline in the fourth quarter due to the impact of the Hollywood strikes on the slate. Our portfolio approach to programming across Hollywood, local language, documentary and event content allows us to optimize our mix across the year. We continue to post strong global market share 3.2% of the world's box office in 2023 on less than 1% of the screens globally.
Our robust revenue growth in 2023 reflects strong performances from all of our segments led by Content Solutions up 24%; and Technology Products and Services up 22%. We also doubled revenue in all-weather to $14 million for the full year driven by our growth in streaming and consumer technology. Within operating expenses, we invest for long-term growth and to exploit our differentiation and iconic brand. R&D expense was $10 million for the full year of which $2.7 million was in Q4, and increased $4.8 million for the full year over 2022, reflecting our investments in new technology including streaming optimization software StreamSmart along with continued investment in our core business. SG&A excluding stock-based compensation was $122 million for the full year of which $29 million was in Q4 and increased $2 million from full year 2022, which excludes onetime transaction costs and the inclusion of SSIMWAVE expenses which were not in most of the prior year given the acquisition closed at the end of Q3 2022.
As a percentage of revenue, SG&A excluding stock-based compensation was 33% in 2023, lower than the 37% in 2022, an improvement of approximately 400 basis points reflecting the leverage in our business model coupled with the focus on cost discipline, including actions to gain cost efficiencies in areas of our business including IMAX China. Our cost discipline efforts will continue in 2024. System installations and signings remains a key driver for our long-term growth. In 2023, we completed 128 system installations, up approximately 40% over 2022. We closed the year strong with 69 installations in Q4 growth of 33% year-over-year. Installations were weighted to top markets with higher per screen averages approximately 20% above our network average.
Examples include Japan, South Korea and France as well as domestic. This robust installation growth resulted in 4% growth of the IMAX commercial network. We signed 129 systems for the full year more than 2.5x the prior year. And 55 systems were signed and installed in the same year resulting in immediate network expansion. Asia Pacific was the biggest driver with 34 signings nearly double our previous high. We delivered record signings in Thailand, Indonesia and Malaysia all markets where we've recently expanded into local language content to strengthen our position. In Japan, we delivered 12 new signings, our best total in the market since 2015. We also saw strong growth in the Americas, highlighted by resurgent activity in Latin America Mexico and most notably North America.
Our ability to drive expansion in even our most mature market 26 signings in total and three new clients demonstrates the demand for our technology. Our sales momentum continued in the fourth quarter with 35 signings, our best Q4 since 2015. Overall, the robust growth in signings in 2023 is a positive leading indicator for future growth. And with installations and signings relatively equal for the year, we continue to have a substantial committed backlog entering into 2024 of 450 systems of which 382 are new systems and 68 are upgrades. Our backlog, which historically installs within two to three years along with the fact that our zones are only 47% penetrated globally, gives us confidence in our ability to expand the IMAX network for years to come.
Turning to cash flow and the balance sheet. Operating cash flow for the year was $59 million or $1.06 per share, representing significant growth versus the $17 million for 2022 or $0.30 per share. The tripling of our operating cash flow year-over-year is a result of our higher profits and improved cash conversion. Free cash flow before growth CapEx defined as investment in joint revenue sharing arrangements improved by $39 million to $44 million versus $4.5 million in 2022. This is the cash flow measure that best reflects our efficiency and profitability. Our capital position remains very strong as we ended the year with $76 million in cash and $257 million of debt excluding deferred financing costs. As a reminder, $230 million of our debt comes from our convertible senior notes due in 2026 that bear an interest rate of 0.5% per annum with a cap call leading to a $37 per share conversion price.
Our current available liquidity is approximately $407 million which includes $331 million in available borrowing capacity under the company's various revolving facilities. From a capital allocation perspective, these last few months we have been aggressive in repurchasing our shares as we believe they are significantly undervalued. In 2023, although we were in a blackout period for a significant portion of the year, we repurchased $26 million worth of shares with $24 million of that coming in Q4. To date in 2024 we have repurchased an additional $16 million worth of our shares and we have $151 million remaining available under our share repurchase authorization. On the back of a strong 2023 and the signings and installations momentum we carried into the year, we look forward to continued growth and progress in 2024.
Our guidance for the year includes a higher level of system installations compared to 2023 in the range of 120 to 150 systems, which is wider to reflect China's reopening and continued recovery; box office at a similar level to 2023 driven by growth in local language and event box office. Total consolidated adjusted EBITDA margin we expect to be consistent with 2023 and in the high 30%. This guidance is at the consolidated level as opposed to the attributable level. In 2024, we will focus our discussions at the total adjusted EBITDA level to reflect the results of our fully consolidated business, consistent to how we discuss revenue, gross profit and most other financial metrics. We believe this is more in line with peer reporting and simplifies modeling for the Street.
For context, in 2023, our total consolidated adjusted EBITDA was $144 million at a 38.4% margin versus the attributable adjusted EBITDA of $128 million at a 36.7% margin. While we are not formally guiding to 2025, we believe it is important to provide investors a normalized view of our business and financial model, absent strike or COVID impact. Looking to 2025, we expect revenue growth of at least high single digits driven by accelerating IMAX box office and mid-single-digit network growth, which will result in steady adjusted EBITDA margin expansion. We target total consolidated adjusted EBITDA margin to be approximately 40% by 2025 driven by the strong incrementality in our model as we scale. To conclude, 2023 was a year of robust growth for IMAX with strong financial results driven by accelerated signings and installations and a number of box-office milestones.
We see significant potential to build on our momentum in 2024 and beyond. With consumers genres of films come and go. We transcend genre which makes IMAX the preferred platform for a growing array of awe-inspiring experiences. Demand for the IMAX Experience among audiences worldwide is high. Studios, exhibitors, filmmakers and artists recognize the value of our premium technology platform and our unrivaled global scale. This fuels new system sales and our expansion into streaming and consumer technology. And as we grow our scale, our asset-light highly incremental business model is delivering expanding margins bottom line profit growth and robust cash flow generation. Thank you. And with that I will turn the call over to the operator for Q&A.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Eric Handler with ROTH MKM. Your line is now open.
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