Good day, ladies and gentlemen, and welcome to the IMAX China full-year 2021 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Harriss. Please go ahead.
Good morning, everyone, and thank you for joining us on IMAX China's full-year 2021 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. For the purpose of this call, all financial figures will be provided in US 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 like to also 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 full year 2021 earnings release, along with the 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, Brett, and good morning, everyone. IMAX is a premier global technology platform for entertainment and events. We command a powerful premium theater network and a unique end-to-end technology. We empower visionary creators with proprietary cameras and image enhancement, and we create must-see events around world-class content with unmatched clarity and sound, scope, and scale. Nowhere is that clearer than in China, a market ripe with opportunities for our platform. Chinese filmmaking industry is creating more and more of the world's most ambitious and successful blockbusters. Chinese exhibitors alike are seeking out the most immersive and advanced technology to deliver blockbuster filmmaking, and Chinese consumers continue to demonstrate very strong demand for moviegoing, in particular, the IMAX experience. IMAX China's multi-year strategic effort to strengthen its position in the Chinese entertainment ecosystem continues to be very successful.
Our Chinese local language box office reached $150 million in 2021, a record high driven by our best-ever Chinese New Year opening weekend and National Day holiday. IMAX continues to grow its strong partnerships with Chinese filmmakers and infuse more IMAX technology in content production, an effort that yielded the most film for IMAX Chinese blockbusters ever in 2021. We will double down on this strategy through collaboration and investment in 2022 and the years ahead. These efforts help drive strong financial performance for 2021. IMAX China delivered revenue and earnings of more than 90% of our record-breaking 2019, despite the limited number of Hollywood films, which historically represented 70% of our box office in China. Despite this, we continue to strengthen our position with Hollywood product, with our average opening weekend indexing growing to over 13%, despite maintaining a 1% screen penetration.
We are well-positioned to capitalize on the exceptional 2022 Hollywood film slate, headlined by Avatar. Meanwhile, our network continues to expand across all-tiered cities to over 783 theaters, with our sales and maintenance revenue surpassing that of 2019, including 215 in backlog. Our Greater China network has now reached the 1,000-theater milestone. With the accelerating blockbusterization of the marketplace, tentpole films continue to grow their dominance in box office, and big-budget local productions increasingly lend themselves to the IMAX experience. IMAX China is uniquely positioned to benefit in many ways. Our experience caters to the premium audiences, and more are being converted, as demonstrated by our growing indexing across both local and Hollywood tentpoles. Our network spans across premium locations. 95% of our box office is generated from the top 20% of complexes in China. Our brand is synonymous with blockbusters.
Over 90% of our box office is driven by the top 30 releases in China, and 60% is driven by the top 10. Our technology empowers blockbuster filmmaking from its creation all the way to its presentation. Two out of the top three highest-grossing films in 2021, namely The Battle at Lake Changjin and Detective Chinatown 3, are both filmed in IMAX and rank within the top 10 all-time releases in China. The increased volume, scope, and scale of Chinese blockbusters has made them even more suited to the IMAX experience, and we see a vast opportunity to gain further market share by deepening our partnership with local studios, directors, and talents. For example, Detective Chinatown 3 and The Battle at Lake Changjin shattered multiple records overall and in IMAX in 2021 during the Chinese New Year and national holiday, respectively.
Lake Changjin delivered over CNY 5.7 billion box office, surpassing Wolf Warrior 2 to become the highest-grossing title of all time in China. IMAX accounted for close to 6% of its opening weekend box office. Its sequel, the country's top-grossing film thus far in 2022, was also filmed in IMAX, and we have driven nearly 6% of its box office. As a result of our strategic focus on injecting IMAX DNA into local language films, we set IMAX records in 2021 for local language box office and local language market share. When it comes to creating the most immersive and ambitious blockbuster filmmaking, IMAX is the only end-to-end technology that is increasingly a first-choice partner. The value we create is recognized among top local film talents, and we are taking the opportunity to forge deeper relationships with directors and broaden the application of IMAX DNA.
Edwin will elaborate on that shortly. We continue to grow our market share with Hollywood films as well, with our average opening weekend index now exceeding 13%, up from approximately 11% in 2019. Dune, which was filmed for IMAX, is a perfect example of Chinese audiences' growing demand to see virtual cinematic spectacles, with IMAX contributing to an impressive 24% of its opening box office. With Hollywood relying more and more on franchise films, IMAX China critically continues to grow its indexing with Hollywood sequels. The first Bond movie shot with IMAX cameras, No Time to Die, delivered our franchise best indexing at 15%. We accounted for 9% of the Fast & Furious box office, also highest in that franchise's history. Godzilla vs. Kong did well over CNY 1 billion in box office, in which we indexed 12%.
Our box office market share has continued to grow even though IMAX screen market share of just 1% has remained stable over the last 10 years. The drive towards blockbuster movies in theaters and the growing appetite to view them in IMAX positions us very well going into 2022, which features an unprecedented slate of Hollywood films we are hoping to see gain access in China, including Thor, Doctor Strange, Black Panther, Jurassic World, and of course, the sequel to Avatar, which has an extremely strong brand association with IMAX in China. In fact, when the original Avatar was re-released in China early last year, IMAX captured a stunning 31% of the box office at opening weekend, again on only 1% of the screens.
The huge success of Avatar on IMAX screens 12 years ago, generating $24 million of box office on just 16 screens, accelerated our network expansion in China to become the largest premium entertainment network where we currently stand. We look forward to seeing what our nearly 800 screens could do on the next Avatar in China, as well as the three more installments of the franchise scheduled for release over the next three years. Of course, the inability of many Hollywood films to gain entry into China remains a headwind.
In 2021, there were many factors that contributed to this trend. Factors which include the Hollywood studios' experimentation with hybrid distribution strategies, meaning day-and-date releases on streaming services, and the backlog of local films created by the pandemic. But even as these factors began to lift, many Hollywood films failed to secure release dates without clear insight into the reasons.
The recent release date announcement of Uncharted and The Batman is an encouraging sign that certain genre films will once again start releasing in China. We'll obviously continue to monitor the issue closely as we stand to benefit greatly from a very strong 2022 Hollywood slate full of IMAX DNA and commercially proven IP in the Chinese market. Finally, the unique asset-light nature of our business and strong cash flow generation gives us the flexibility to continue strengthening our core business while investing in the continued evolution of our business as we expand our reach and position IMAX to our fans as the best way to enjoy blockbuster entertainment.
As theatrical entertainment increasingly calls upon differentiated offerings in both content and exhibition, we believe IMAX China, given our unique premium position, is very well placed to capitalize on a strong 2022 slate empowered with IMAX DNA and the continued blockbusterization of local- language films. Thank you for joining us today, and please continue to do everything you can to stay well and healthy. With that, I'd like to pass the call over to Edwin.
Thanks, Rich. Good morning, everyone. As the industry shows consistent progress in recovery, IMAX has helped lead the way in bringing people back to the theaters. The huge success of "Detective Chinatown 3" and "The Battle at Lake Changjin," both filmed in IMAX, has led to multiple industry and IMAX records in key theatrical windows, including Chinese New Year, National Day, and our best-ever local language box office of CNY 957 million , or $150 million for the year, up 30% compared to 2019. The value of our brand and technology has therefore gained widening recognition among local filmmakers. As the quality and box office of local language blockbuster increases, so has the production budget. Being the only end-to-end technology and the representation of blockbuster filmmaking, IMAX is taking the opportunity to further deepen the involvement of IMAX DNA by working closer with directors.
For example, "The Battle at Water Gate Bridge," sequel to "The Battle at Lake Changjin," was released this year in IMAX extended aspect ratio, earning $33 million to date across IMAX screens. The sequel to "The Wandering Earth," fifth highest grossing title of all time, and IMAX China's highest grossing local title, directed by Guo Fan and filmed in IMAX, is also being planned for Chinese New Year 2023. "Mozart from Space," the first installment of a new IP developed by Director Chen Sicheng of the Detective Chinatown franchise, is a science fiction film shot with IMAX cameras and scheduled for release this summer.
In January of this year, we invested approximately CNY 30 million for an equity stake in the film, given its box office potential, how it is tailored for IMAX, and how the director and producers have embraced using IMAX cameras, DNA, and our platform to differentiate the film. We intend to make further local language investment future based on similar investment criteria. Our broadening partnership with top-tier local filmmakers serves as a powerful endorsement of our technology. During the premiere of "No Time to Die," we invited Lu Yang, director of "A Writer's Odyssey," and Cao Yu, director of photography of "The Eight Hundred," to share their experience with IMAX cameras and how it brings their work to the next level. We also invited various local directors to attend our "Dune" screening at the China National Film Museum to experience the power of IMAX cameras.
The feedback from working with local language directors has been overwhelmingly positive, and we expect more and more directors and producers to embrace the IMAX technology to differentiate their films, replicating the sort of creative collaboration we have successfully cultivated for over 20 years in Hollywood. With a broadening pipeline of IMAX DNA and big-budget productions, we believe that there remains much untapped potential for us to grow our local language indexing, currently at approximately 5% for opening weekends, to levels approaching that of what we achieve with Hollywood tentpoles. Despite being the largest premium entertainment platform in China, our network expansion continues to outpace that of other branded offerings, with a total of 57 installations in 2021 and a healthy backlog of 2015 theaters, a strong testament that our partners continue to see the value of IMAX to their business.
Rising consumer demand has reinforced the trend towards premiumization, not only in what is being consumed, but also how it is consumed. We completed 25 new signings during the year and are currently in conversation on deals that could replenish our backlog significantly, including laser upgrades, renewals, and new theaters. While China's cinema screen counts surpassed 75,000 by the end of 2021, its screen density ratio, however, is still far below that of a developed market such as the U.S. In fact, according to the latest China film development plans published by the China Film Administration, total number of screens is targeted to exceed 100,000 by 2025. The five-year plan also advocated government support for local sci-fi and animation movie production, as well as China cinema technology upgrades to enhance movie viewing experience. All of which are positive tailwinds for IMAX.
With 95% of our box office generated from the top 20 multiplexes in China, IMAX network is well-insulated in the event of any industry consolidation and could even benefit from it. In fact, our top five exhibition partners have been commanding higher box office market share post-pandemic, and they continue to expand their network. IMAX has remained as a major part of the conversation. The growing momentum of our laser systems has also helped drive installations, signings, and our sales and technology revenue to levels surpassing that of 2019, in line with our previous guidance. We believe our growing indexing across both Hollywood and local language tentpoles, the franchise-heavy and IMAX-friendly content pipeline this year could serve as a potential catalyst to further drive our installation activities.
To conclude, 2021 has been a key turning point, accelerating the drive towards blockbusters in the way content is created, exhibited, and consumed, setting a favorable backdrop for IMAX China to strengthen our footing in the years to come. With 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. We are pleased to report growing box office share, particularly in local language movies. Pickup in installation activities, including our laser systems, combined with disciplined cost management, has driven our strong revenue and earnings rebound to levels in line with the full year 2019, notwithstanding the limited number of Hollywood releases, as mentioned by Rich earlier. Key results for the second half of 2021 provide us with momentum heading into 2022, leveraging what looks to be an exceptional slate. We generated $59.4 million in revenue, a 30% increase over the same period in 2020 and 91% of what we generated in 2019. Gross margin of $35.1 million was 50% higher than the same period 2020 and in line with 2019.
Gross margin percentage of 59% was 790 basis points higher than 2020 and 440 basis points higher than 2019, demonstrating our strong operating leverage. Second half adjusted net income of $20.3 million and adjusted EBITDA of $33 million represented an 87% and 56% increase, respectively, over the second half of 2020, a period when theaters reopened and were slowly recovering from their six-month closure. More importantly, the adjusted net income and adjusted EBITDA results were 103% and 107%, respectively, of 2019, driven by installation activity, operating leverage, cost control, and record local language box office. Moving to the full year of 2021, we generated $113 million in total revenue, up 116% year-on-year. $42 million in adjusted earnings versus a $5 million net loss a year ago. Now let me go through our full-year financial results in detail.
IMAX technology network business revenue grew 159% to $39 million on the back of box office recovery to $239 million and an increase in take rate to 16%, up 110 basis points year-over-year. We expect long-term upside to our take rate on the back of rising local language contribution to our box office. Network business margin was 57%, up from 0.6% in 2020, benefiting from the inherent operating leverage of our business model. We expect network margin to further normalize as Hollywood hopefully resumes a stable theatrical release pattern. IMAX technology sales and maintenance revenue reached $73 million, up 98% year-on-year and 3% higher than 2019, driven by increased installation activities, higher mix of laser installs, and removal of a maintenance holiday we offered exhibition partners during the times of theater closure in 2020.
For the full year of 2021, we installed a total of 57 theaters, which included five laser upgrades and eight relocations. Of the new installs, 20 were sales, nine were hybrids, and 15 were full revenue share. Of the upgrade installs, four were sales and one was full revenue share. Of the relocations, six were sales and two were full revenue share. Including the four-sale laser upgrade, this brings our total new sale installations to 24, up from 15 in 2020. Sales and maintenance gross margin were 63%, up from 52% in 2020, given larger number of sale and laser installs, resulting in overall gross margin of 60%. Our Greater China network now stands at 783 theaters, up 5% year-over-year and a contractual backlog of 215, 80% of which are sales and hybrid, which does not require our net capital commitment.
We signed agreements for 25 theater systems, 10 of which were sales, including upgrades, five sales renewals, and 10 full revenue share. Moving to operating expenses. SG&A, excluding stock-based comp, increased 19% year-over-year to $13 million as business activity returned to normalized levels and a larger number of films were released versus 2020. This results in operating margin of 45% versus the 16% loss margin a year ago and almost in line with 2019 levels. Capital expenditures for the year were $7.6 million, up from $4.7 million in 2020 as we continue to grow our JV network, albeit at a slower pace than historical levels, as our network expansion becomes less CapEx-driven on rising scalability.
On behalf of the board, we are pleased to announce the recommendation of a final dividend payment of approximately $9.2 million, or HKD 0.217 per share on a 50% payout ratio, compared to 33% in 2020 and prior years. We returned a total of $27 million capital to shareholders in 2021, including $17 million in dividends and $10 million in share buybacks, resulting in a $98 million cash balance at year-end. We remain optimistic in our buybacks and continue to deploy our capital in further building out of our network and exploring other business opportunities leveraging on our balance sheet strength. To close, our full-year results demonstrate the resilience of our business and our ability to advance our strategic initiatives with a much-strengthened footprint in local language programming.
We look forward to building on the momentum as we capitalize on the premiumization trend of China's theatrical entertainment and a multi-year pipeline of blockbuster content. With that, I now turn it over to the operator for Q&A. Before we start Q&A, we would like to clarify the following in our prepared remarks. Our comment that 95% of our box office was generated from the top 20 multiplexes in China should be from the top 20% of multiplexes in China. In addition, we would like to clarify that the final dividends of 2021 approved by the board is approximately $9.2 million or $0.027 per share, equivalent to HKD 0.21 per share. With that, I will now turn it over to the operator for Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from Rebecca Xu at Morgan Stanley. Your line is open. Please go ahead.
Thank you. Thank you, management. Good morning. Thank you for taking my questions. I have two questions. First, what is your view on domestic and Hollywood title box office mix going forward, and how does your view translate into IMAX box office market share going forward? Second question is for theater expansion. Where is the biggest potential, in your view, let's say tier one or two or three lower tier cities? Thank you.
I will answer the first question, which is, I think it is very hard to predict what the mix is going to be between Chinese content and Hollywood content. The reason is that the pattern of Hollywood content getting in has been very uneven over the last year. Again, some Hollywood movies like Spider-Man didn't get into China, and it is very hard to predict what the propaganda office is thinking.
On the other hand, we are very happy that The Batman just got in, and that is predicted to be really very much a global blockbuster. What is the other one that just got in? Uncharted. Uncharted also got in. Uncharted is March 14th and The Batman is March 18th. So, in the last couple weeks, we have gotten a little more enthusiastic about Hollywood films. But it is very hard to predict. Fortunately for IMAX, we have really diversified in a strong way.
Local language films, including our very good earnings that we reported today, have really sustained us in China. Again, I would like to be more specific, but it really could be all over the place. I think I will sum up that answer by saying that I think we will be in relatively good shape no matter how many Hollywood films get in. But if you want sort of a range, I would probably say, at the most, it would be a 50/50 mix, and at the least it would probably be something like 25/75. But again, that is just a guesstimate. On the question of expansion in cities, Jim, do you want to answer that one?
Sure, Rich.
Yeah, I think all of the things that Rich talked about in terms of we have record local language box office this year, all of the injection of IMAX DNA into local language films, those films becoming bigger. We have really continued to expand our portfolio of offerings to drive more revenue and, definitely in lower tier cities, local language films is often preferred and it is the choice of everybody. So, as we go forward and we think about where our biggest expansion potential is, right now we are at about 16% in tier one cities and about 52% in tier two cities in terms of where our network lies. We do still see quite a lot of opportunity in tier one and tier two cities, whether it be via upgrades or new theaters or new locations.
The fact that we're doing all this local language film is making us stronger in lower tier cities as well. We've continued to expand in those cities given that we're in about 200 cities across China. Then finally, the China Film Administration's target of 100,000 screens by 2024 does pave the way for a lot of further expansion. To sum it up, I do think that, given our network is in all tiered cities right now, I would see definitely a similar proportion as we grow forward and our steps in local language film are definitely going to help us in lower tier cities.
Thank you. Very helpful.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one. We'll now take our next question from Xueqing Zhang of CICC. Your line is open. Please go ahead.
Good morning, and thanks for taking my question. I have two questions. The first one is about the past Chinese New Year holiday. Could you share more operating data of IMAX during the Chinese New Year holiday? How do you view the decline in the national box office during the holiday? My second question is about the film production and distribution post-COVID-19. How to assess the current impact of COVID-19 on global film production and distribution, and whether your box office is expected to return to pre-pandemic levels in 2022. Thank you.
I will answer the second question. Edwin, maybe you could talk about your take on Chinese New Year. I think that because there are a lot of films that have been in backlog and not released, and that films have adapted to COVID protocols, that starting pretty much around March 1st with The Batman, the number of films available to release in 2022 will be close to normal or normal. You look at some of the global blockbusters, such as Jurassic World and Top Gun and Doctor Strange, and then later in the year, Avatar and other things. I think even though COVID has definitely been a cost factor and has been a delay factor, I don't think it will really impact this year's slate, including in China, where obviously we just did The Battle at Lake Changjin II. There's Mozart from Space coming later this year.
I think there will be enough content, and that's not an obstacle. Edwin, do you want to talk about Chinese New Year?
Thanks, Rich. I think for Chinese New Year, as we look at the results, and what we've mentioned during our prepared remarks. For The Battle at Water Gate Bridge, we did, to date, $34 million. That is by far one of the better results equal to that in 2018 and 2019. We've also programmed quite a few other titles within that period, and I think it's working out well this year. The potential for 2022 seems to be getting some momentum. A lot of this is based on the fact that we had our strategic effort to infuse more IMAX DNA into the films. The Battle at Water Gate Bridge has been shot with IMAX exclusive elements and our DNA. So we will continue to index well on that.
For The Battle at Water Gate Bridge, we actually indexed close to 5.8%, 5.7%, which is by far the highest in a local language in terms of the Chinese New Year period. Going forward, I think all in all, I think we are growing our market share in the local language box office. As Rich and my colleagues have mentioned, our strong footprint in Hollywood titles. This year seems like it's working out to be a strong Hollywood slate. As mentioned earlier, with the early approval for the releases of The Batman and Uncharted in March, hopefully this indicates that Hollywood films will have improved access to the Chinese market this year.
Thank you.
Thank you. We will now take our next question from Thomas Chong at Jefferies. Thomas, your line is open. Please go ahead.
Hi, management. Thank you for taking my question. How do we see our box office in 2022, and will it be par versus 2019? For IMAX indexing, how many domestic films are we negotiating? Thank you.
Edwin, do you want to answer that, please?
Sure. I think, like I mentioned earlier, the potential for 2022 is looking out to be very strong. It's one of the strongest Hollywood slates that we have. In addition to that, I think we've got local blockbusters in China mentioned earlier, whether it's "Mozart from Space" from Director Chen Sicheng, "The Outcast," which is "Yi Ren Zhi Xia." "Fengshen" by Director Wuershan. "The Interpreter " from Director Rao Xiaozhi. "Moon Man" from Kaixin Mahua, et cetera. All these are slated for 2022. So it's looking like it will work out to be a year with a stronger box office. We continue to strengthen our partnerships with many of the local filmmakers. So you will expect to see that there will be more and more IMAX DNA films. We do index well on Hollywood titles, and we index better on films with IMAX DNA included.
All in all, I think with our growing market share in this local language as well as the strong DNA that we have, we expect to increase our indexing for both local language, and I think Rich had also mentioned that strong indexing on the Hollywood titles, despite the fact that there were few in 2021.
Got it. Thank you.
Thank you. I'd now like to turn the conference back to Rich Gelfond for closing remarks. Thank you.
Thank you, operator. Obviously, there were a lot of challenges in 2021, including the pandemic, the COVID restrictions, a number of blackout periods, Hollywood studios releasing films simultaneously on streaming services, which led to a lot of piracy. I think most of that is in the rear-view mirror. I think we're encouraged that theatrical windows, in terms of imported films, have been set. The day and date of the hybrid release has kind of gone away, encouraged by recent admission of films into China by the propaganda office. Certainly, it looks like the situation is changing for the better. We're also in a number of discussions for theater growth in China, at various stages. We have a backlog of a lot of theaters in China that I believe we'll be starting to install in 2022.
I think the pieces are coming together nicely, and I think as the premium entertainment offering in China, I think IMAX has a very bright outlook. With all that, thank you very much for joining the call.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.