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Why Is Imax (IMAX) Up 31% Since Last Earnings Report?

Zacks Equity Research
·5 mins read

It has been about a month since the last earnings report for Imax (IMAX). Shares have added about 31% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Imax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

IMAX's Q1 Loss Wider Than Expected, Revenues Decline Y/Y

IMAX Corporation reported first-quarter 2020 adjusted loss of 48 cents per share, which was widen than the Zacks Consensus Estimate of a loss of 12 cents per share. The figure was down from adjusted earnings of 18 cents per share reported in the year-ago quarter.

Total revenues of $34.9 million missed the Zacks Consensus Estimate by 20.5% and declined 56.5% from the year-ago quarter.

The year-over-year decrease in revenues was attributed to the closure of substantially the entire theater network of the company and decrease in theater system installations due to the COVID-19 pandemic in the reported quarter.

Category-wise, technology sales, Image Enhancement & Maintenance Services, Technology Rentals and financial income were down 62.8%, 53.1%, 67.1% and 5% year over year to $5.6 million, $20.7 million, $5.9 million and $2.5 million, respectively.

Segment Details

IMAX Technology Network Business

IMAX technology network business revenues were $43 million, down 63.9% year over year due to decrease in IMAX DMR revenues.

Within the segment, IMAX DMR revenues were down 62% year over year to $10.6 million due to 62.9% decrease in IMAX global box office revenues connected to COVID-19-related theater closures.

Notably, Chinese New Year titles slated for first-quarter release were postponed as a result of theater closures.

Joint revenue sharing arrangements-contingent rent was $5.9 million, down 66.9% year over year.

IMAX Technology Sales & Maintenance

IMAX technology sales & maintenance business generated revenues of $15 million, down 49.9% year over year.

Within this segment, IMAX systems revenues declined 56.3% from the year-ago quarter to $5.6 million. IMAX maintenance revenues were $7.3 million, down 43.1%.

Moreover, Joint revenue sharing arrangements-fixed fees were $0.77 million, down 69.7% year over year. Other theater revenues declined 22.3% to $1.3 million in the reported quarter.

New Business & Others

New Business generated revenues of $0.47 million. Film distribution and post-production generated revenues of $2.4 million and other revenues were $0.23 million in first-quarter 2020.

Network Growth Statistics

There were 1,616 theater systems (1,526 commercial multiplex, 14 commercial destination, 76 institutional) operating in 81 countries and territories as of Mar 31, 2020.

As at Mar 31, 2020, 140 IMAX with Laser systems were installed, and the company’s backlog included 147 new IMAX with Laser systems and 94 upgrades to IMAX with Laser systems.

As at Mar 31, 2020, the company signed IMAX with Laser agreements with leading, global exhibitors such as AMC Entertainment Holdings, Inc., Cineworld Group PLC, CGV Holdings Limited and Les Cinémas Pathé Gaumont among others for a total of 140 new theaters, 157 upgrades to existing IMAX theaters, and 52 upgrades to existing arrangements in the company’s backlog.

Operating Details

Gross margin contracted from 56.3% in the year-ago quarter to 14.6% in first-quarter 2020.

IMAX Technology Network business gross margin contracted from 51.9% in the year-ago quarter to 17% in first-quarter 2020.

IMAX technology sales & maintenance gross margin contracted from 43.5% in the year-ago quarter to 31.3% in first-quarter 2020.

Adjusted EBITDA for the quarter was a loss of $4.4 million, down from $28.5 million in the year-ago period.

Selling, general & administrative (SG&A) expenses increased 3.6% year over year to $28.6 million.

Research & development (R&D) expenses increased 93.7% on a year-over-year basis to $2.2 million.

Operating income margin contracted from 17.5% in the year-ago quarter to -110.1% in the reported quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2020, IMAX had cash and cash equivalents of $352.3 million compared with $109.5 million in the prior quarter.

Cash flow from operating activities was $5.96 million compared with $90.4 million in the prior quarter.

Free cash flow was $3.25 million compared with $10.77 million in the prior quarter.

2020 Guidance

The company is actively preparing to reopen to what is projected to be an IMAX-friendly second-half release slate.

Moreover, all major Hollywood releases that were scheduled for the first quarter have been delayed to second half of 2020 or 2021. However, slump in IMAX China box office revenues is anticipated till the coronavirus-led lockdown continues.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -31.05% due to these changes.

VGM Scores

Currently, Imax has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Imax has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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