Good day, ladies and gentlemen, welcome to IMAX China's full year 2022 earnings conference call. All participants are currently in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. To ask a question during the session, you need to press star 11 on your telephone. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Karen Chan, Vice President of Investor Relations. Please go ahead, ma'am.
Good morning, everyone, thank you for joining us on IMAX China's full year 2022 earnings conference call. Joining me today is our Chairman, Rich Gelfond, CEO Daniel Manwaring, CFO and COO, Jim Athanasopoulos, who will have prepared remarks. Also joining us is Megan Colligan, President of IMAX Entertainment, IMAX Corporation. For the purpose of this call, all financial figures will be provided in U.S. dollars unless stated otherwise. Furthermore, the financials are in accordance with IFRS accounting standards, which may differ in some respects to U.S. accounting standards. I would also like to remind you of the following regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking and to 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 full year 2022 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 also being webcast in its entirety on our website. With that, let me now turn the call over to Rich Gelfond. Rich.
Thanks, Karen, and good morning, everyone. Over the past three months, we have seen a dramatic positive turnaround in the film industry in China, driven by the rapid lift of COVID restrictions and broader reopening of the country, the return of day and date Hollywood blockbuster releases, led by the strong performance of Avatar: The Way of Water, and a remarkable Chinese New Year, IMAX's highest grossing Chinese New Year holiday of all time. Demand for moviegoing is soaring in China, and the country has quickly reclaimed its title as the world's top grossing theatrical market. In fact, Chinese box office more than doubled North American box office in January, and it's clear that IMAX China, the largest and most successful premium theatrical platform in the country, is back in business.
Our record-breaking Chinese New Year box office of RMB 231 million was up 54% over 2022, thanks to a strong, diversified slate, including The Wandering Earth II, Full River Red, Hidden Blade, and Deep Sea. We delivered our highest grossing January box office of all time. In one month, IMAX China delivered two of its top three all-time releases with the Avatar sequel and The Wandering Earth II, with each earning more than $50 million. Finally, Marvel films have made a long way to return to Chinese theaters, with IMAX China delivering a 20% opening weekend indexing on Ant-Man and the Wasp: Quantumania. IMAX China's diversified content strategy of blockbuster local content, complemented by a robust Hollywood slate, is showing strong returns early in 2023.
We are beginning to see an accelerated pipeline of imported titles gaining entry into China, including the upcoming Shazam! Fury of the Gods, Dungeons & Dragons: Honor Among Thieves, and Japan's Suzume, a consistent cadence of blockbusters with ample release time to implement effective marketing and promotional campaigns. It's clear that China is refocusing policy on driving economic growth and domestic consumption. With COVID-related theater closures and a shortage of Hollywood content hopefully behind us, IMAX China sees significant opportunity in 2023, a compelling slate of blockbusters and a potential for network expansion. To date, IMAX China in 2023 has already delivered over $86 million in box office, well over half of what we delivered in full year 2022.
Today, I would like to discuss the strong rebound of our box office performance, the robust and reinvigorated blockbuster content pipeline, which heavily features IMAX DNA, our unique value proposition built on years of technology investment and our progress on new business initiatives as we look to grow beyond blockbusters and expand consumer reach into the home. First, as the country pivoted away from COVID zero policies, the majority of our theaters resumed operation by mid-December. With quality content available and consumers free to enjoy out-of-home entertainment, Chinese audiences continued to show very strong demand for the IMAX experience. The December release of Avatar: The Way of Water, first of four new sequels planned through 2028, attracted a huge IMAX fan turnout in spite of the significant ramp up in COVID cases during the month of December.
Our screens captured over $52 million in box office and 22% indexing, a record for a first-run Hollywood release in China. Of the top 20 locations in China, IMAX theaters accounted for 18 of them. Chinese New Year further proved that enthusiasm for moviegoing remains as strong as ever, with industry box office up a healthy 12% over 2022. IMAX China box office outpaced the market, up 54%, representing a market share of 3.4%, up 90 basis points year-over-year. The Wandering Earth II, a Filmed for IMAX title, led the way, now our highest-grossing local language release of all time. Year-to-date, IMAX China's market share reached 4.4%, meaningfully up from 2.2% during the same period of last year.
As more high production value Hollywood and Chinese blockbusters enter the market, consumers are choosing to experience them in IMAX. We expect this trend to continue, driven by an IMAX-friendly blockbuster slate and the release of pent-up consumer demand, much like IMAX is experiencing in the rest of the world. For example, IMAX theaters in Hong Kong reopened in late April and almost immediately capitalized on the release of Top Gun: Maverick. Our five screens contributed to 22% of opening weekend box office, and IMAX drove an impressive per-screen average of $2.3 million for the year, which came in almost 70% higher than pre-pandemic levels in 2019. IMAX captured an 8% market share in box office on less than 2% of the screens.
Throughout the pandemic around the world, IMAX has continually demonstrated how quickly it can recover where audiences feel safe and great content is available. Turning to content. We see a strong, diversified content slate ahead in 2023. This includes local blockbusters such as Born to Fly, a showcase of China's Air Force power, to be released on April 28th. Post Truth, which opened the Hainan International Film Festival to great acclaim, and will be released on March 10th. The first installment of a big-budget trilogy production, Creation of the Gods. Demand is growing among Chinese filmmakers to use IMAX cameras, and a growing number of them are incorporating IMAX DNA, which ultimately translates into strong box office performance.
The top-grossing title in each of the past three years in the country of China, The Eight Hundred, The Battle at Lake Changjin, and Water Gate Bridge, were all Filmed for IMAX, either shot with our cameras or created to include an expanded aspect ratio exclusive to IMAX theaters. Films with IMAX DNA accounted for 31% of IMAX China's box office and 20% of the industry. Equally as encouraging is the renewed flow of Hollywood content. The return of Marvel titles and the rare theatrical extension of Avatar: The Way of Water over Chinese New Year, a typical blackout window for imported titles, demonstrates that Hollywood remains a key contributor to the growth of China's box office.
Looking into 2023, the Hollywood film slate has no shortage of commercially successful franchises in the China market that hopefully will be admitted in, including the latest installment of Fast & Furious and Transformers, the highly acclaimed Mission: Impossible 7, sequels to Aquaman and Dune, and additional Marvel titles, including The Marvels and Guardians of the Galaxy. Our market share for Hollywood titles has always been strong, and that has only further strengthened. Our average opening weekend indexing reached 17% in 2022, up from 14% the previous year. This positions us well to reap the rewards from a reboot in the Hollywood film slate, given the number of mega-blockbuster franchise releases slated in the years ahead.
While we are still early into the industry recovery, IMAX is uniquely positioned to lead the market in the long term, given our unmatched brand power that has grown synonymously with blockbusters, both Hollywood and local language. Our unrivaled premium footprint, with 95% of our box office generated from the top 20% of multiplexes in China. Our unique end-to-end technology that empowers blockbuster filmmaking from production all the way through the chain to exhibition, and the premium prices and high per-screen averages we generate despite the size of our network. We also offer Chinese studios and filmmakers unique access to our global network of more than 1,600 theaters. The latest example is The Wandering Earth II.
The film was originally released day-and-date in North America on 31 IMAX screens, which contributed to approximately 30% of its opening box office, all of which underscores our differentiated value proposition to Chinese filmmakers, exhibitors, and consumers. With more than 20 years of technological innovation and investment, IMAX China is developing into a leading immersive entertainment ecosystem, leveraging our brand and technology to expand our reach across platforms and create new revenue streams. Our IMAX Enhanced in-home entertainment initiative and IMAX Corp's recent acquisition of streaming technology company SSIMWAVE are on the leading edge of this effort. SSIMWAVE is a cutting-edge provider of software that allows streamers to optimize video quality while significantly saving on content delivery and bandwidth costs. We are actively exploring opportunities to offer SSIMWAVE's technology in China and believe there are significant places with streaming, gaming, and social media platforms where SSIMWAVE will fit.
Through IMAX Enhanced, we optimize blockbuster content for in-home entertainment delivered through high-end consumer devices. More than 50 films are now available on Enhanced in China across the country's top streaming platforms, including Tencent Video and iQIYI, from Hollywood franchises like Spider-Man to local hits like The Battle at Lake Changjin. Our certified device partners for IMAX Enhanced in China include industry leaders such as Honor, TCL, Hisense, and Xiaomi. While these businesses are in their earliest stages, we are excited about their long-term potential. To conclude, IMAX China is off to a remarkably strong start in 2023, with the early acceleration in the content pipeline and strong signs of consumer demand exceeding our expectations. We expect the year ahead to be one not only of recovery, but of growth.
With that, I would like to introduce Mr. Daniel Manwaring, our newly appointed Chief Executive Officer of IMAX China. Daniel brings IMAX China a wealth of experience and insights from across the Chinese media landscape, having most recently served as the head of CAA's China Motion Picture group. With his proven experience in business development and strong network in the China film industry, I look forward to Daniel leading the company and maximizing opportunities while creating new growth avenues for IMAX China. Before I pass this on to Daniel, I would like to sincerely thank Jiande Chen for his excellent work in serving as our interim CEO and look forward to his continuing participation as vice chairman of our board. With that, I would like to pass the call to Daniel for his first public remarks as our new CEO. Daniel.
Thanks, Rich. I'm excited to join IMAX China as we start an important year of recovery coming out of the pandemic. Throughout my career in China's film industry, I've worked with a lot of amazing film talents who are creating better and bigger movies, a significant opportunity for IMAX, given how deeply embedded we are in China's entertainment ecosystem with unparalleled brand power, technology, network, and most importantly, relationship with content creators. Over the past couple of years, we've made meaningful progress in driving our local language indexing, expanding our Filmed for IMAX program, and rolling out IMAX laser upgrades. This has set a solid foundation as we look to restore growth momentum upon a normalizing content supply and the release of consumer pent-up demand, especially for great blockbuster entertainment.
Looking back on the last three years, it cannot be more clear that COVID has accelerated blockbusterization in both content consumption and creation, which will continue to propel China's movie industry growth. We have grown our average Hollywood box office indexing from 10% in 2018 to 17% by 2022, and our local language indexing from 3.2% to 4.1%. We will remain focused on a number of strategic priorities that ensures IMAX China stays at the forefront of premiumization in the years ahead. These priorities include growing our box office market share, in particular, local language, as production increasingly gravitates towards the IMAX experience, expanding our content portfolio and the involvement of IMAX DNA, involving our platform and further unlocking the monetization value for our unique assets.
The business momentum we saw in the last few months, most notably our record-high Chinese New Year box office, gives us increasing confidence that IMAX China's unique value proposition will fuel long-term growth as we capitalize on a formidable film slate, our expanding network, content portfolio, and partnership in both theatrical and in-home entertainment. I couldn't be more excited about the proposition IMAX has to offer to filmmakers, strategic partners, and fans. I know from my previous role in the industry how important IMAX is to the success of large-scale productions, both local and Hollywood. I look forward to leading the company to not only solidify its position as the leading entertainment technology brand, but also taking it to new heights with our new growth initiatives. With that, I would like now to pass the call to Jim for a review of our financial results. Jim.
Thanks, Daniel. Good morning, everyone. As Rich mentioned, rolling closure of theaters and the less-than-optimal content supply had a significant impact on our 2022 financials. We're highly encouraged by our box office momentum shown in the early days of a full reopening. As the impact of lockdown and supply chain constraint eases, we expect IMAX China to regain growth trajectory as business normalizes in 2023.
Now let me go through our financial results for the year. Total revenue was $73.3 million, down 35% year-over-year. IMAX China box office dropped 32% year-over-year to $163 million, given the limited Hollywood content and COVID-related theater closures and capacity constraints throughout the year, including key markets such as Shanghai and Beijing. For the second half of 2022, we delivered $86 million in box office, representing a 4.4% market share, up 90 basis points year-over-year, mostly driven by Avatar: The Way of Water. This demonstrates the powerful flow-through effect once an IMAX-catered film slate returns. Technology network revenue dropped by approximately 36% to $25.3 million, driven by the lower levels of box office.
Technology sales and maintenance revenue declined by approximately 34% due to reduced number of sale and hybrid installations, as on-site development activities were adversely impacted by the COVID restrictions and lockdowns that were in place for much of the year. For the full year, we completed 28 system installations, including 19 new installs, four laser upgrades, and five relocations. Of these new installs, six were sales, two were hybrid, 11 were full revenue share. Including the four sale laser upgrades, our total sale installations for the year were 10. Gross margin for the segment remained largely stable at roughly 63%. Looking into 2023, we expect installs to recover meaningfully as COVID-related restrictions ease, content flow normalizes, and exhibitors are encouraged to invest on the back of the strong success of Avatar in Chinese New Year.
As of year-end 2022, our total network stands at 794 theaters, with contractual backlog of 204, including 69 full sales and sales type lease, 93 hybrids, and the rest full revenue sharing arrangements. Operating expenses, excluding stock-based compensation, were approximately $13.5 million, which included approximately $1.4 million in foreign exchange losses due to a depreciation of the RMB earlier in the year. Excluding that, adjusted operating expenses would have been approximately $12.1 million, down 19% year-over-year. In addition to the above, we incurred a $4.5 million fair value loss on a local film investment.
Despite considerable business headwinds, we managed to deliver an adjusted net profit of $12.4 million and adjusted EBITDA of $30.4 million as we took measured steps in cost control as shown by the 19% lower OpEx year-over-year. Capital expenditures primarily related to theater investments for the year was $9 million, up from $7.6 million in 2021. On behalf of the Board, we are pleased to announce a final dividend payment of approximately $5.1 million or HKD 0.117 per share on a stable 50% payout ratio.
During the year 2022, we returned a total $12.5 million of capital to shareholders, including $9.5 million in dividends and $3 million share buybacks at an attractive average repurchase price of $1 per share, resulting in a year-end net cash balance of $62 million. Our current cash position stands at approximately $80 million. To close, our unique asset-light business model with high operating leverage and incremental margin sets the stage for a meaningful revenue and earnings recovery as business continues to normalize, similar to what we demonstrated in 2021 following a six-month complete industry shutdown in the year prior. That concludes our prepared remarks. With that, I will now turn it over to the operator for Q&A.
Thank you. We'll now begin the question-and-answer session. As a reminder, to ask a question, please press star 11 on your telephone. To cancel your request, you can press star one one again. Please stand by while questions are being collected. One moment for the first question. First question comes from the line of Xueqing Zhang of CICC. Please go ahead.
Thank you. Good morning. I have two quick questions. First one is about the full year Chinese film market outlook. We have seen outstanding box office performance during the Chinese New Year. I think it's a good start. Just wondering how does management expect the performance of the Chinese film market in the full year 2023? Second one is about the competition. As we know, China Film has been expanding its own high-end cinema system brand called CINITY recently. How does management view the competition landscape and what unique advantages IMAX will have in the future compared to other brands? Thank you.
Thank you. I'll take a shot, and then I'll ask Daniel to give a further perspective on the 2023 film slate. We feel that 2023 the Chinese box office will approach its levels in 2019, the pre-pandemic levels. It's hard to, you know, until you know exactly what films get in to the country and all the local language ones released, it's hard to be specific and really fill it out. As you went to in your question and we said in our remarks, Chinese New Year was really strong. As we said, it was, you know, way higher than our budget. Our budget was RMB 42, and we did over RMB 60. You know, Wandering Earth did so well.
I think we think of it as a year that'll approach 2019's box office in China.
In terms of your second question about CINITY, as you know, CINITY is a specialty format, distrib-backed by China Film Group, and they're, you know, fairly aggressive in it. You know, I think there's lots of room in the market for different kinds of formats, premium formats. Ultimately, I think it's what the consumers want. If you look at the comparative performance of CINITY versus IMAX over the Chinese New Year period and Avatar for the year, you know, IMAX outperformed. I think there are certain technical attributes about IMAX, things like screen size and sound system, in which I think we really excel that make a difference. I think as well, there's the brand.
I think, you know, the IMAX brand has been in China for a long time. Consumers really value the brand. It means something really special. I think we feel good that both our technical advantages and the brand will keep us in a very comfortable place. Before we take the next question, though, Daniel, do you wanna add anything on the 2023 film slate?
Sure. Thank you, Rich. I think you covered it most. I'll just add a little bit of color on our local language titles. You know, I think this is a year where we're gonna see an incredible increase in quality, both in production as well as distribution of local titles. In addition to several big Hollywood franchises that'll be releasing in China this year, we've got a whole host of really high-end movies, and big blockbuster films that have sort of been on the shelf for the last couple of years during the pandemic and are now going to be able to finally release. Some of those movies, you know, would include, for example, The Great War. We're really excited about which is One and Only, Lost in the Stars.
Rich mentioned earlier about Creation of the Gods, you know, which is a massive local language franchise. I think we have a really robust pipeline, that's gonna do very well for our local language business.
Thank you for the questions. As a reminder to ask question, please press star one one on your telephone. Next question comes from the line of Melody Chan of Jefferies. Please go ahead.
Thanks management for taking my question. My question is about our mix between the Hollywood and local films in 2023, given the normalized pipeline. How should we think about the installation trend in 2023? My last question is, can management provide some more updates or color on our IMAX Enhanced business and the contribution? Thank you.
Thank you. First, you asked about the split between international films and local films. Again, I think it's hard to say because obviously the international films have to go through an import process. I would expect it to be similar to what it was pre-pandemic. We'll see. We've been very encouraged by the number of films that have gotten in so far, you know, Ant-Man, Wakanda, Shazam, Dungeons & Dragons, a number of other films. We think that the Film Bureau is kind of returning to a more normal policy. I think the split would be consistent with what we've seen before. In terms of installations, that's a difficult one to really give guidance at in this point. The reason is because the cadence of the way the business works.
If you think about it this way, you go from signings to well, signings to backlog to installs to open to box office. Since China opened very recently, because of the zero COVID policy, I think it's hard to really predict the pace of, when, you know, what are new signings? How will things come out of backlog? You know, how quickly installations will return to normal. I'm not really gonna give specific guidance on the installs other than to say in a typical year, installs all over the world, but in China as well, are back-end loaded.
I would think because of the speed with how recently and the speed of the turnaround, I'm gonna say that I expect most of the installs to come in the second half of the year and to be, you know, especially in the fourth quarter. As the year goes by, you know, our next call, I guess, is at the six-month point, I think we'll be able to give you much more specific detail at that time. In terms of the enhanced question, Jim, why don't you answer that?
Sure. Yeah, we've started to make headways on the IMAX Enhanced side of things right now. As Rich said, it's, we're working with a lot of different partners. We've already secured a number of deals. There seems to be quite a bit of, you know, excitement in terms of the product. It's still quite early, in terms of giving more specific guidance or anything like that on revenue contributions, but we can say that we are working with a number of different partners. We are working with IMAX Corp globally on it. It is a sort of, it is, it is an area of the business that we're sort of working together on to monetize. IMAX Corp's had some early success on it as well.
We don't see any reason why we wouldn't be able to sort of, you know, have the same sort of success here. Again, some of the early OEMs and partners that we've been working with, it's been well-received.
That is. Thank you.
Thank you for the questions. One moment for the next question. Next up, we have the line from Andy Huang from Morgan Stanley. Please go ahead.
Thanks. Thanks, management. I got two questions regarding your theater install. First is that I understand near term it's hard to predict, but what's your longer-term outlook? Could we potentially see a rebound on installation pace back to the pre-COVID levels? I'm keen to know what are the key drivers and the hurdles underpinning your outlook. Secondly, could you please provide more insight on how expansion pace and your plan differ in high-tier cities and low-tier cities? Thanks.
Okay. Your first question about longer term, how we see installs. You know, China had a longer and later reopening than other markets in the IMAX business. What we've seen was that in the year following the reopening, you know, there's been a lower level of installs. If you ask me to take a guess, I would say it's unlikely that the total installs in China would return to pre-pandemic levels in 2023. However, we're seeing now, again, keeping in mind we're about six months to 1 year ahead of China in coming back, you know, installs are starting to approach more normal levels. I think looking out longer term, in China, I do think over time, they will approach pre-pandemic levels.
Remember, we have a fairly sizable backlog in China of, Jim, you could correct me, but a little bit more than 200 theaters. You know, I think those are contractual obligations. I think we'll start to see those come online, as well as new sign-in installs as we move forward. I would think over time, we will approach the historic levels of installs. Jim, maybe you wanna talk about the second question about the performance in different tier cities.
Sure. I think Daniel was rightfully going through the slate and what we've said over and over again. We perform exceptionally well in Hollywood films, and we are performing significantly better on local language films, and we're very focused on delivering different types of experiences with local language films using cameras, aspect ratios, injecting IMAX DNA, working with the creators and the content. Daniel obviously brings a wealth of experience from his previous roles before. I bring that up because, you know, as you go down into lower tier cities, local content obviously becomes more important, and it's something that we're very focused on, and we've penetrated those markets quite well up until now.
You know, given the way the slate is looking and given how our performance on the box office and our market share has been improving on local language films, we're feeling pretty confident in our ability to continue to deliver box office in those lower tier cities. Upper tier cities, I would say there's still lots of room for growth. Rich cited about Hong Kong and what we've done post-reopening and how we've delivered incredible market share there. You've seen some of the numbers that have been coming through on some of the Hollywood films and, you know, the ticket prices that are being charged. It is definitely there's opportunities in tier one cities to continue moving forward as everything normalizes on the content side.
There's significant opportunity for us to continue to drive box office in the lower tier cities given the local language films that are coming up and in our focus on, doing with those films what we've done really well with Hollywood films all around the world.
Great. Thanks.
Thank you for the questions. Once again, to ask question, please press star one one on your telephone. At this time, there are no further questions from the line. I would like to hand the call back to Mr. Rich Gelfond for our closing remarks.
Thank you very much, operator, and thank you all for joining us today. We've been very pleasantly surprised by the speed at which the Chinese market has come back. We were all fairly optimistic about the loosening of the COVID restrictions, and we were somewhat optimistic about how quickly the box office would rebound, particularly compared to others looking at the industry. If you had told us that we would set a record for Chinese New Year and that Avatar would do over $50 million and that The Wandering Earth II would be our biggest local language film of all time, I wouldn't have believed you.
If you told us that, Marvel movies would be back in the country and other movies would be back in the country by now, I wouldn't have believed you on that either. It's happened much quicker than it's anticipated, and the public is voting, you know, with its wallet and fairly strongly for IMAX. We feel very good about 2023 in China. If the turn was so rapid and so dramatic, I think it's hard to be specific about how each part of our business, signings, installs, but from a box office point of view, as I said, you know, I think we're going to approach 2019 levels. On the other KPIs, I think as the year moves on, we'll continue to more normalize on those levels also.
Hopefully we'll have a lot more to tell you the next time we talk. We've been very pleased, and we're quite confident about where it's going right now. Thank you all for joining us.
This concludes today's conference call. Thank you for participating. You may now disconnect.