Good day, ladies and gentlemen, and welcome to IMAX China's first half 2022 earnings conference call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a questions and answer session. If you would like to ask a question, please signal by pressing star one on your telephone keypad. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Chan, Vice President of Investor Relations. Please go ahead, ma'am.
Good morning, everyone, and thank you for joining us on IMAX China's first half 2022 earnings conference call. Joining me today is our Chairman, Rich Gelfond, CEO Edwin Tan, and Jim Athanasopoulos, our CFO and COO, who will have prepared remarks. Also joining us is Megan Colligan, President of IMAX Entertainment. For the purpose of this call, all financial figures will be provided in U.S. dollars unless stated otherwise. Furthermore, the financials we provide to you today will follow IFRS accounting standards, which may differ in some respects to U.S. GAAP. I would also like to remind you of the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking and pertain to future results or outcomes. Forward-looking statements involve a number of risks, uncertainties, or other factors beyond our control.
Actual future results or occurrences may differ materially from these forward-looking statements. We are under no obligation to and expressly disclaim any such obligation to update the forward-looking statements as a result of new information, future events, or otherwise. The full text of our first half 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.
Thank you, Karen, and good morning, everyone. Due to the surge in COVID across China for much of the first half of the year and the resulting closure of many of our highest grossing theaters, IMAX China had a challenging first half of 2022. We essentially operated at break-even through the first six months of the year with our asset-light business model and strategic cost control initiatives offsetting the soft box office. Notably, this is in stark contrast to the rest of the world, where a strong resurgence in moviegoing, driven by a formidable slate, is demonstrating the power of the IMAX platform and the continued pent-up demand for moviegoing globally. While the environment in China remains challenging, we are beginning to see some early signs of encouragement. Today, I'll discuss the reopening of our network and our position in the market.
Edwin Tan will provide an additional update on our network growth, content portfolio, and new growth initiatives. Jim Athanasopoulos will then review our financial results. First, reopening. Close to 400 of our theaters, or half of our network, were temporarily closed at the peak of the pandemic in late March. As of today, 91% of our theaters have resumed operation, including most of our sites in Shanghai and Beijing, which had been closed for the majority of the second quarter. Shanghai ended its two-month lockdown in early June, and theaters started to reopen on July eighth on a rolling basis. Along with Beijing, these theaters are now operating at a 50%-75% capacity. In Hong Kong, theaters opened in late April with a capacity restriction that was eased to 85%.
As we've seen in and around the world, a consistent cadence of releases is critical to getting audiences back in theaters, and the pipeline of local blockbusters in China is beginning to accelerate with an increasing number of local films featuring IMAX DNA. The upcoming local language pipeline includes the highly anticipated Moon Man, releasing today. The title is also the most anticipated summer release, according to the Maoyan platform. Warriors of Future, scheduled for release in IMAX on August 12. Home Coming, a Filmed for IMAX title. The Outcast, also filmed for IMAX, and The Wandering Earth 2, a sequel to the highest-grossing IMAX local title of all time. Scheduled for release in Chinese New Year 2023, this movie will feature 45 minutes shot with IMAX-certified cameras. Movies empowered by IMAX DNA contributed over 40% of IMAX's box office in 2021.
We've been doubling down on this effort and deepening our partnership with top directors who are the driving force behind billion-dollar franchises. We've also seen incremental progress in Hollywood movies gaining entry to the Chinese market. Most recently, Jurassic World Dominion became the first Hollywood film in more than a year to gross over RMB 1 billion in box office, and IMAX theaters accounted for 19 out of the top 20 locations during the opening weekend. That comes on the heels of The Batman, Fantastic Beasts, and Ambulance, all gaining China censorship approval. Hollywood films on the 2023 slate that we hope to see released in China include top grossing franchises Fast & Furious, Transformers, Mission: Impossible, Aquaman, and the sequel to the highly acclaimed Dune. We believe two developments should help clear the way for more Hollywood films to gain entry.
First, the failed experiment of day-and-date streaming releases for blockbusters has been abandoned, a misguided effort that unleashed rampant piracy in China. Second, the backlog of Chinese local films that built up throughout the pandemic is now running its course, which should create more space for Hollywood content in the slate. We are encouraged by the mix of local and Hollywood films anticipated to hit the Chinese IMAX network through the end of the year, whether it's the current crop of local language summer films, the always lucrative October national holiday period, or Avatar: The Way of Water, which we feel has a good chance to gain entry to China, given James Cameron's and the franchise's history in the market.
The original Avatar still stands as IMAX's highest per-screen average release of all time, generating $24 million U.S. box office on our initial footprint of only 14 IMAX screens in China. When the film was re-released in early 2021, we indexed a powerful 31% of its opening weekend box office. To conclude, we're optimistic the situation will continue to turn as lockdowns fully lift and consumers are free to get out and enjoy out-of-home experiences. We see similarities now to the position we were in at the end of the summer of 2020, when COVID restrictions began to ease in China, and we ultimately saw local blockbusters like The Eight Hundred open to record-breaking business. We've been in business successfully in China for more than 20 years.
We've seen up years, and we've seen down years, and we remain confident that these recent setbacks are only temporary, and we can start to see a vision towards normalcy. With that, I'd like to turn the call over to Edwin.
Thanks, Rich. Despite the challenging operating environment caused by the resurgence of COVID, we are glad to see consumers continuing to choose IMAX China as the go-to premium theatrical destination. More and more local filmmakers are seeking partnership with us to differentiate their content with IMAX DNA, while exhibitors continue to engage us as they plan for network expansion and upgrades. For the first half of 2022, we completed 10 installations as development activities were adversely impacted by the Omicron outbreak. Conversations have started to pick up again upon theater reopening, and exhibitors look to reinvigorate their business with a differentiated premium offering. Similar to how Avatar served as a catalyst in fueling China's screen growth more than 10 years ago, we believe its upcoming sequel, together with other blockbuster titles in the pipeline, has the ability to drive installation momentum in the second half of the year.
We are also taking advantage of the franchise-heavy and IMAX-friendly film slate to roll out a full suite of laser products, which have been well-received by our exhibitor partners. We believe our premium network would be insulated from the effects of any industry consolidation, given our concentrated footprint in top-performing complexes, with 95% of our box office generated from the top 20% of multiplexes. For years, IMAX technology has played a critical role in helping to achieve some of the most ambitious Hollywood filmmaking projects, such as Avengers: Endgame, Tenet, Top Gun: Maverick, et cetera. We are starting to replicate this strategy in China as we lean into the blockbusterization of local language content. From The Eight Hundred, Detective Chinatown, to The Battle at Lake Changjin, IMAX DNA has been increasingly becoming part of the equation when it comes to blockbuster filmmaking.
Among the top 10 grossing titles of all time, 8 are in IMAX, and 4 of which come with IMAX DNA, a testament to IMAX value, which is increasingly recognized among local filmmakers. For years, IMAX has represented the pinnacle of the content consumption experience. Our brand power and industry-leading technology allows us to further evolve our platform and explore new business opportunities. IMAX Enhanced is our latest initiative to expand our footprint beyond theatrical and into the home. By utilizing our proprietary DMR technology and certifying top-of-the-line consumer electronics devices, our in-home entertainment service allows consumers to enjoy their favorite IMAX content in the most immersive viewing experience on major streaming services, including Tencent Video and iQIYI.
Partnering with leading domestic TV and smartphone manufacturers such as TCL, Hisense, Xiaomi, and Honor, we are also in active conversation with other domestic OEMs and will focus on continuing to grow our content offerings. Like our core business, IMAX Enhanced adopts a technology licensing model and therefore maintains the asset-light nature of our business. We are also exploring opportunity of working with streaming platforms to provide subscription-based services. It has always been our belief that IMAX blockbuster moments should be shared between worldwide fans and top talents across different arenas on our connected network that extends beyond geographical boundaries. Following the success of our IMAX Live events in North America with world-class talents such as Kanye West, Peter Jackson, we will also look into launching live interactive events across our Hong Kong, Macau, and Taiwan network.
We believe the premiumization trend in content consumption and creation coinciding with the tentpole slate will continue to drive our market share and allow us to explore new growth opportunities that will create further value for our fans and partners. To this, I would now like to pass the call to Jim for a review of our financial results. Jim.
Thanks, Edwin, and good morning, everyone. As Rich and Edwin mentioned, extended periods of lockdowns across China, and in particular key markets like Shanghai, had a significant impact on our 1H 2022 business activities. Total revenue for the first half of 2022 declined 39% year-over-year to $32.7 million, largely driven by a 43% drop in box office and a reduced number of IMAX system installations compared to the prior year. That said, our disciplined cost management, asset-light model, and healthy balance sheet helped us navigate through a tough business environment. During the period of prolonged theater closure, we managed our costs proactively by making adjustments to our workweek while maintaining our ability to quickly scale operations as soon as theaters fully reopen and business normalizes. We've also significantly reduced marketing, T&E and other discretionary spending.
Factoring in share repurchases of $1.8 million, we ended the first half of 2022 with a net cash balance of $77 million. While the resurgence of COVID has inevitably delayed our system installation schedule, on-site development activities and conversations on exhibitor signings gradually resumed towards the end of the second quarter and further picked up going into the third quarter. Our installation activity tends to be back-end loaded, and we expect this year to be particularly so in anticipation of the release of Avatar: The Way of Water by the end of the year. With our full suite of laser products, exhibitors recognize and embrace IMAX with Laser as they plan for new locations and system upgrades. Our total network stands at 788 theaters as of June 30.
Our contractual backlog of 208 includes 71 full sales and sales-type leases, 96 hybrids and the rest full revenue sharing arrangements. We'll maintain a balanced capital allocation strategy and continue to invest in network expansion, pursue network growth opportunities while maximizing shareholder returns. Based on our current 50% payout ratio policy, our board approved the payment of an interim dividend of $0.001 per share or the equivalent of HK$0.008 per share. Though the absolute level of the dividend was significantly impacted by the COVID closure disruption of the first half of 2022, we remain firmly committed to continuing our policy, reflecting our sound financial standing and confidence in the long-term outlook of our business. Now let me go through our financial results briefly.
Limited Hollywood content and the Omicron outbreak significantly impacted film programming of our theater network in key markets, including Shanghai and Beijing being temporarily closed for the most part of the second quarter. As a result, total revenue was $32.7 million, down 39% year-over-year. IMAX technology network revenue dropped by approximately 46% due to the loss in box office. IMAX technology sales and maintenance revenue was down approximately 34%, driven by a reduced number of sales and hybrid installations. In the first half of 2022, we installed 10 systems versus 23 in the same period last year. Operating expenses excluding stock-based compensation were approximately $9.6 million, which includes approximately $1.1 million in foreign exchange losses due to the depreciation of the RMB to the U.S. dollar in Q2 2022.
Excluding that, adjusted operating expenses would have been approximately $8.5 million, down 14% year-over-year. In addition to the above, we include a one-time $4.5 million fair value loss on a previous film investment and recorded a $0.6 million provision associated with receivables and other assets. Despite the extended business shutdown, we managed to deliver an adjusted net profit of $2.1 million as a result of the cost actions taken. To close, our first half results once again demonstrate our financial resilience and solid operating capability. We're encouraged by the early signs of recovery and look forward to the IMAX DNA-empowered slate ahead. With that, I'll now turn it over to the operator for Q&A.
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Xueqing Zhang from China International Capital Corporation. Your line is open. Please go ahead.
Hey, thanks, management, for taking my question, and good morning. I have three questions. The first one is related to the box office outlook.
As you mentioned before, we have seen that the epidemic has been stable recently and some films have been released also such as Moon Man. Just wondering, how does the management view the recovery of the box office in the summer vacation and could you give us some ideas about the outlook of the box office this year and the next year? My second question is related to the IMAX Enhanced business. The company recently announced that we have acquired the exclusive right to develop the IMAX Enhanced business in Greater China. Can management share more details about the agreement such as what's the company's purpose for developing the business and the possible impact on financials? The last question is about our plan for installation under the COVID-19 resurgence.
It seems that some mall cinemas have closed down due to the epidemic, and mergers and acquisitions have gradually began. How does the company view the system installation plan under this situation? That's all my three questions. Thank you.
All right. Thank you very much for the questions. I think I'll tackle three of them, and I'll tackle the first two, and I'll hand the third one over to Jim. Okay. On the box office, I think you're right. Post-pandemic, we are encouraged by the gradual pickup in release date announcements of both Hollywood and local language titles. I think summer is traditionally a local language window. Going forward, I think we see on the Hollywood front, we can see Minions, Black Adam, Black Panther in the pipeline, as well as Avatar 2. You know that Avatar played a critical role in driving China's movie industry more than 10 years ago. Even during the re-release post-pandemic in 2021, IMAX indexed well above 30% on its opening weekend.
We are excited, and we see Avatar 2 as a catalyst to drive IMAX growth further later on this year. Chinese audiences have continued with a strong appetite for Hollywood content. You can see that with Jurassic World delivering more than RMB 1 billion in box office. I guess IMAX is well-positioned to reap the rewards once the Hollywood slate normalizes. On the local language front, I think we see an IMAX-friendly slate, like you've mentioned, Moon Man, Duxing Yueqiu opens today. We've got Warriors of Future, Yang Jian, and Homecoming and The Outcast, both of the last two titles are filmed for IMAX. During Chinese New Year next year, we will be looking forward to The Wandering Earth 2.
In the meantime, I think we continue to lean further into local language and the IMAX DNA effort, and we are very positive about the box office outlook. The second question that you have is actually on IMAX Enhanced. All right. I guess I'll start with saying that IMAX has always been about the best premium experience in theaters. With IMAX Enhanced, we aim to bring this premium experience out of theaters and into homes, mobile devices, and computers. It is currently available on TCL, Hisense, Xiaomi TVs, as well as Honor smartphones. We have been in conversations and aim to expand this further with more TVs and even into more computers. Content currently is streamed on the major platforms such as Tencent, iQIYI, and Youku.
We are working on the streaming platforms and working with them to eventually have a subscription-based model. All in all, this is a new revenue stream, which ultimately can be a high-margin, licensing-based model that still maintains the light asset model that we currently have. The short of it is that yeah, we're excited about this new business and, you know, we are working on it. Like you've mentioned, we've just signed on the agreement and more to report in the next one. Jim. On installs.
Yeah. Thanks, Edwin. Yeah, your question was about sort of shopping malls closing and how we view that impacting our installations going forward. You know, generally speaking, IMAX is sort of in the top complexes in China. About, you know, 95% of our box office in the top 20% of complexes in China. We're a premium experience. We generally are in those types of locations. You know, we would expect to continue that going forward. We have strong seasonality always in the second half of the year. That's always been consistent.
We've got a full laser suite of products that we're working with, and as Edwin mentioned, in terms of the pipeline of films, it looks encouraging, and obviously it's headlined by Avatar in the back half of the year, which is a movie that we have done exceptionally well with historically. It's sort of very synonymous with IMAX in the China market. We would expect that, you know, gravitating to the premium complexes and, you know, Avatar and the film slate, that's very, very IMAX friendly. Our full laser suite of products should help us sort of as we go into the back half of the year and with our installs in the back half and going forward.
Thank you. Thanks, Jim. Thanks, Edwin Tan.
Ladies and gentlemen, once again, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will now take the next question from Melody Chan from Jefferies. Your line is open. Please go ahead.
Thank you, management, for taking my question. I have two questions. First, management talk about the information on the outlook on box office. Can you also share a view on how it will be for the next of the Hollywood and local film? The second one is about the COVID impact. We see that there is resurgence and some uncertainties in the COVID situation. How is the impact on the film production and the distribution, and how should we think about it? Thank you.
Okay. I think the COVID situation is stable at the moment. Of course, China continues to hold on to this, zero COVID policy. When there's a resurgence, of course, some theaters will close and some theaters are open. At this point in time, we are 91% open, and we expect this to continue and maintain. I guess, on the consolidation side, you know, post-pandemic, we would see that, you know, there will be some lower performing theaters being consolidated. Such consolidation towards, you know, better performing theaters are really an opportunity for us to increase capacity and market share. I think we mentioned that 95% of our box office is generated from the top 20% of China complexes.
You know, within the complex itself, our screen actually represents the most productive one. Of course, on average, we contribute close to 20% for the box office of a theater complex when IMAX is present. For us, I think we have been in strong conversations with a number of our exhibition partners and, you know, we continue to plan for new installs and upgrades.
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