Hi. Good day, and welcome to the IMAX China's full year 2017 earnings conference call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a question and answer session, at which time you will be requested to press star one to ask a question. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Michael Mougias. Please go ahead.
Thank you, Vicky. Good morning, everyone, and thank you for joining us on IMAX China's full year 2017 earnings conference call. Joining me today is our Chairman, Rich Gelfond, CEO, Jiande Chen, 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 U.S. dollars unless stated otherwise. Furthermore, the financials we provide 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 that they pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements.
The full text of our full year 2017 earnings release are available on our IMAX IR website at 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.
Thanks, Mike, and good morning, everyone. Last year, we made efforts to refine our programming strategy, reduce costs, and facilitate greater operating leverage throughout our business. These initiatives, coupled with record installation activity, resulted in adjusted net income growth of 22% to a record $46 million. SG&A, excluding stock-based compensation, was down 19%, facilitating adjusted net income margin expansion of 460 basis points compared to 2016. Our resulting operating and free cash flows last year were $35 million and $11 million respectively. In light of our strong cash position and our confidence in the company's long-term growth and cash flow prospects, I am pleased to announce that IMAX China's Board of Directors recommended the approval of an annual cash dividend in the amount of $0.04 per share, or the equivalent of HKD 0.31 per share, or $14 million at the current share count.
We believe this announcement represents one of the key components of our creating long-term shareholder value. Overall, our earnings and free cash flow growth underscore the inherent operating leverage that exists in our business. It also reiterates the value in taking an asset-light approach to the cinema business. We are often compared to our exhibitor partners. However, it is important to remember we have entirely different business models and financial structures. In our view, continued signings and installation momentum, coupled with our streamlined cost structure and refined programming strategy, whereby we will remaster more Chinese titles, should position us well for 2018 and beyond. In fact, we have already seen encouraging results, not just in the second half of 2017, but particularly over the most recent Chinese New Year.
For example, last week we exhibited three local language titles during what is arguably the most important box office week of the year in China. Our box office over the opening four days was a record $18 million, up 60% compared to the prior year's holiday. More importantly, our performance relative to 2017 only continued to improve throughout the holiday period. Through the seven-day Chinese New Year period, we grew box office 74% to $27 million, largely the result of our having multiple films. For example, Monster Hunt 2 started out the strongest. However, Operation Red Sea quickly gained ground, while Detective Chinatown held steady throughout the holidays. The varying performance of these films over the course of Chinese New Year highlights the significance of our multi-film strategy in China.
Had we had just one film playing, as we did in 2017, we do not believe our performance would have been nearly as strong. Diving into some of our recent initiatives in more detail, beginning with the programming. We are remastering an increasing number of Chinese titles, specifically during bigger box office weekends or weekends where there is no single dominant film. We believe providing our exhibitor partners with optionality will increase the revenue power of our network and enable us to be more nimble in our approach to content. Again, the benefits of this strategy were on full display last week. Remastering more Chinese content is also important given the nature of our footprint expansion. Our 544 IMAX China locations now span nearly 180 cities in Greater China. This is almost twice the number of cities that were in our network when we went public in 2015.
Given the diversity in demographics across different cities, it is important that we tailor our content to better appeal to diverse consumer preferences across different markets. For instance, Tier 3 and Tier 4 cities tend to prefer local Chinese content over Hollywood content, and as a result, we look to play more local language films in those markets. Last year, 54% of industry box office was generated from local language films, compared to IMAX's 24%. In essence, we believe a shift to more local films, which are also subject to higher IMAX take rates, could facilitate more box office. In addition to our revenue initiatives, we have continued to streamline our cost structure, and we believe this effort has already had an early positive impact on our ability to drive operating leverage. Our gross margins came in at 61.2% in 2017, roughly 300 basis points higher than the prior year.
SG&A, excluding stock comp, came in at $12 million, a 19% decrease compared to the prior year. Our efforts facilitated strong margin expansion across virtually all of our key operating segments. As we look to 2018, we intend to maintain a disciplined approach to cost management. Turning to network growth, we signed agreements for 95 new theaters last year, the majority of which came from existing partners looking to further expand their IMAX footprint. We think that the signings activity is particularly impressive considering the record year we had in 2016, where we signed 238 new theaters. As a result, our backlog now sits at 309 screens across 34 different exhibitor partners. This backlog mix across different cities is also similar to that of our existing network.
With regard to installs, we installed a record 120 new theaters last year and entered 20 new markets in China, resulting in a year-end IMAX footprint of 544 theaters in Greater China. The IMAX footprint in Greater China is now bigger than any other market in the world for IMAX, including the U.S. As I mentioned earlier, our network in China spans nearly 180 cities, with roughly 15% in Tier 1 and 45% in Tier 2 cities. Overall, growing our footprint while maintaining the premium nature of our theaters is the company's foremost priority. We believe a bigger footprint is essential to guarantee more box office and ultimately more earnings long term. Nevertheless, it is important to recognize the impact that our growing presence across different cities has had on metrics such as per-screen averages.
For instance, the average ticket price in a Tier 3 or Tier 4 city is going to be much lower compared to that of Beijing or Shanghai. Also, as more theaters have been added in various cities, there is inherently more competition between exhibitors, which can also impact ticket prices. IMAX's average ticket price in China is roughly $8, which has come down in recent years, along with the industry prices, due to the increased competition generated from additional screens in the market. While smaller cities clearly present us with different economics, we continue to view them as attractive opportunities to grow box office, regardless of the potential impact on PSAs. Remember, box office, not per-screen averages, drive revenues. Our focus as an organization is on generating more box office.
If we are effective at maintaining a modest cost structure, every additional box office dollar we generate should come with little incremental cost. This is particularly true given the various deal structures we offer to clients. For example, sales-type lease and hybrid arrangements, which represent nearly 57% of our backlog, come with little to no upfront investment. Thus, the ongoing contribution margin is almost entirely incremental, regardless of box office. When analyzing full JV opportunities, which do require IMAX capital, we carefully weigh the potential ROI against our cost of capital for each location. If we believe we can produce an ROI in excess of our cost of capital, we will pursue that investment. You'll also note all of our signings in China last year were either sales or hybrid arrangements, which require little or no upfront cost of capital.
Before I turn it over to Jiande, I would like to highlight a new initiative. We recently signed an agreement with Huawei to license the IMAX brand on one of their new virtual reality headsets. We believe this will leverage our brand awareness and association with a well-established technology player. We are undertaking this initiative on a pilot basis, and the initial economics may not be game-changing to IMAX China in the near term. However, we believe a strategic relationship with a leading telecommunications company could provide us with additional strategic and economic activities down the road. Overall, we remain encouraged by the continued signings and installation activity. Both exhibitors and studios continue to come back to IMAX due to the value proposition and means of differentiating their theaters and films.
Moreover, we believe refinements to our programming strategy, coupled with cost containment efforts, should have positive impacts on our ability to generate free cash flow and operating leverage in the future. With that, I would like to turn it over to Jiande.
Thank you, Rich, and good morning, everyone. IMAX box office was up 8% in the second half of last year, led by the hit titles, including "The Foreigner," "Never Say Die," "Thor: Ragnarok," and "Justice League." We continue to believe adding more Chinese titles to our slate will lead to stronger box office generation across our network. In fact, we remastered a record 14 local language titles last year, and we intend to remaster more this year. So far, this strategy has proven beneficial in its earliest stage. For example, we recently played "Monster Hunt 2," "Detective Chinatown 2," and "Operation Red Sea" during the Chinese New Year. Through the seven-day holiday period, we generated a total of $27 million in IMAX box office across the three films.
Overall, we grew Chinese New Year box office 74% over the Chinese New Year in 2017, where we only played one local Chinese film. All in all, we believe the combination of stronger content, more Chinese titles, and a growing network should facilitate box office growth in the future. With that, I will turn the call over to Jim.
Thanks, Jiande Chen, and good morning, everyone. As Rich highlighted, we delivered record net income last year, underscored by a combination of stronger box office in the second half, reduced SG&A, and robust installation activity. Gross and net income margins were up 270 basis and 460 basis points, respectively, and free cash flows were $11 million. We continue to look for ways to optimize our business, and we believe that the initiatives we implemented last year, including programming refinements and streamlining costs, will afford IMAX China with long-term benefits in the form of stronger box office and greater operating leverage. Looking at our results in more detail, we installed our 500th theater in the second half of last year. For the full year, we installed a record 120 theaters, resulting in a year-end network of 544 screens across Greater China.
Wanda, our largest partner in China, accounted for 57 of these installations, which was well ahead of their targeted rollout. Of these 120 installations, 65 were full JVs, 14 were hybrid arrangements, and 41 were sales-type arrangements. Keep in mind, under the two latter arrangements, IMAX is not required to put up any upfront capital, thus the ongoing contribution margin is almost entirely incremental, regardless of box office. With regards to full revenue share arrangements, which do require IMAX capital, we continue to weigh the potential returns of these screens against our cost of capital. To quantify our approach, if we assume our cost of capital is around 15%, we estimate a full revenue share theater needs to exceed roughly $500,000 in annual box office to achieve a return in excess of our cost of capital. We are often compared to our exhibitor partners.
However, it's important to remember, we have an entirely different business model and financial structure. We believe our asset-light network growth approach is attractive, particularly as we refine our programming strategy to maximize local box office and continue to streamline the cost side of the business. Turning to our signings, we continue to see healthy activity. We signed agreements for 95 new screens last year, a figure we think is particularly impressive given the record signings we had in 2016, whereby we signed agreements for 238 systems headlined by Wanda's 150-theater deal. More importantly, the majority of our signings last year were with existing partners, which demonstrates the continued value proposition we afford our exhibitor partners. It's also worth noting that we are now partnered with virtually all of the top exhibitors in China. As a result of this activity, our IMAX China backlog currently sits at 309 screens.
It's worth highlighting that the breakout of our backlog with regards to the tiering of cities is representative of our existing network, with roughly 15% in Tier 1 and 45% in Tier 2 cities, and the balance in Tier 3 and below. On the programming front, we exhibited 44 titles in China last year, which included 14 Chinese titles. As Rich mentioned, we intend to remaster an increasing number of Chinese titles going forward. The combination of our diverse network and the fact that Chinese content continues to improve in quality underscores the importance of increasing the prominence of Chinese content in our film slate. In the near term, we still anticipate Hollywood films to represent the bulk of our box office. However, you can expect us to meaningfully increase the number of Chinese titles we play.
It is also worth noting that we receive a higher DMR fee, 12.5%, on local language titles. All in all, we believe programming more Chinese titles and being nimble in our ability to swap between films is important to maximizing the box office productivity of our network. This was clearly demonstrated the most during the recent Chinese New Year. Moving to our financial results, we generated total revenues of $126 million last year. Network business revenue was $47 million, and theater business revenue was $80 million. Gross profit of $77 million resulted in gross margin of 61.2% in 2017. This compares to the 59% we achieved in 2016. Overall, the cost reduction exercise we implemented in June of last year had a notable impact on our margin profile. SG&A, including stock-based compensation, came in at $12 million, a 19% decrease compared to the prior year.
Stock-based comp came in at around $2 million, in line with the prior year. Adjusted EBITDA for the year was $67 million, up 23% compared to 2016. Our resulting 2017 adjusted EBITDA margins were up 15.7% to 53%. Our effective tax rate in 2017 was 21.7%. As I mentioned, we achieved record adjusted net income of $46 million last year. This was a 22% increase over the prior year. Free cash flow for the year was around $11 million, resulting in a year-end cash balance of $117 million. Keep in mind, we delivered record earnings last year, notwithstanding our only remastering, "Wolf Warrior 2," the largest film ever in China in its third week. Had we been involved in this film from the beginning, we believe our box office results for the year would have looked quite different.
We believe our strategy of remastering more Chinese titles will mitigate the risk of us missing potential hits in the future. Looking ahead, our overarching objective is to drive more box office through our network while maintaining a modest cost structure. We believe the combination of our programming and cost initiatives have positioned IMAX China to take advantage of prospective box office growth in the market. In fact, we have already begun to reap some early benefits, as demonstrated during the recent Chinese New Year. As a result of our robust cash position and strong prospects for future cash flow generation, we announced today that IMAX China received board recommendation for the payment of an annual dividend in the amount of $ 0.04 per share, or the equivalent of HKD 0.31 per share, or roughly $14 million .
At current stock price levels, the yield on this dividend is in excess of 1%. As Rich highlighted, this announcement reflects our strong earnings results, optimism in the future of IMAX China, and our goal of driving long-term value creation to our shareholders. Turning to guidance for 2018, we expect to install 105 new theaters this year. This is slightly below the levels achieved in 2016 and 2017, however, well above anything we achieved prior to that. With a backlog at near record levels, the 105 installs this year reflects timing of contractual install dates and the fact that several exhibitors, such as Wanda, installed more theaters than anticipated last year. Of these installs, we expect roughly 55 to be full revenue share, 13 to be hybrid revenue share arrangements, and 37 to be sale arrangements.
SG&A, excluding stock-based comp, is expected to grow roughly 9% compared to last year, primarily due to specific targeted marketing initiatives. To close, the continued signings and installation activities is encouraging. Our studio and exhibition partners continue to come back to IMAX. While box office got off to a slow start in 2017, our ability to generate strong earnings amidst lower box office growth highlights the inherent operating leverage of our business. Looking ahead, we believe the combination of our programming refinements coupled with our more modest cost structure will have positive benefits on our ability to generate operating leverage and greater free cash flows. Our announcement to initiate a dividend is just one example of the optimism we have in the company's future outlook and our desire to drive future shareholder value. With that, I'll turn it over to the operator for Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one 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. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. I will take our first question from Marcus Yang with Macquarie.
Thanks for taking my question and congrats to the solid results. My first question is regarding, can you give more details regarding CNY performance? Can you give some sense regarding box office growth by tier of cities? I understand that recovery of box office in PSA is quite okay during CNY. But I guess that is partly driven by return to hometown demand, which I'm not quite sure how sustainable that could be throughout the rest of the year. Thanks.
Chinese New Year really validated our programming strategy because of the way each of the three films played. "Monster Hunt" started off really strong, and it dropped very quickly in the early days and really never gained back that momentum. "Detective Chinatown" kind of started in the middle and kept that level. "Operation Red Sea" started slow, and then it went up very much as time went on. In fact, even through the end of Chinese New Year and through yesterday, it's continued to perform well. That's why the change in our programming strategy is so important, because if not only did we not miss one of the movies, but if we had played any one of the three rather than all three, we wouldn't have captured such a significant share of the box office.
We had similar results last year in the blackout periods in October and December, and we think this is definitely a change that we are going to continue doing, and it is going to maximize box office. Do you want to answer the other part of his question?
Yeah, and I think as we have talked about on the call, the strategy of us going into lower-tiered cities is we have looked at our programming strategy going forward, and we are focusing on Chinese titles going forward. I do not think it is unique just simply to the Chinese New Year timeframe when people have gone back to their hometowns. I think overall, we are looking at programming more Chinese films over the course of the year to cater to those particular tiered cities and those particular customers, and we think we are going to reap the rewards from that going forward.
Great. Thanks.
We will go next to Wayne Wang with HSBC Global Research.
Thank you very much, management, for taking my question. I have several questions. First one is regarding the backlog. Can management add more color on the number of backlog screens across different contracts? For example, how many is sales arrangement? How many is other kind of contract screens? Also, how many screens in the backlog is from Wanda Cinemas? Also, can management add more color on the competition landscape, for example, versus Dolby, versus other format of screens in China? Thank you very much.
Hey, while Jim is looking up the specific numbers on backlog, I will talk about competition. Keep in mind, we have 550-ish screens open, another close to 500 in backlog. I think Dolby has 16 screens open in China, if I am not mistaken. About 16. That is not really providing meaningful competition and their performance on a per-screen basis, given where they are located, is way below ours. The largest competitor in China is China Film Giant Screen, but our network is way more than double what their network is. A lot of their business, they are owned by China Film Group, and a lot of their clients are China Film Group. IMAX is in 180 cities, and our clients are pretty much every major exhibitor in the country. Our per-screen averages are generally double or more those of China Film Giant Screen.
I think we have a very prominent network, a great brand, relationships with filmmakers both in China and in the U.S. and elsewhere. I do not think competition is a significant factor. I think China Film Giant Screen is a solution in areas where there is more commodity pricing. It is not really priced the same way for premium pricing. But given the speed with which we have gotten to 1,000 theaters between those open and are in backlog, I do not really think the competition has been an impediment. Jim, do you want to-
Yeah, sure. With respect to your backlog question, as we indicated earlier, about 57% of our backlog are sales or hybrid arrangements. With Wanda specifically, I think we have just shy of 100 theaters in backlog, probably around 95, 96 at this point in time. We also have full revenue share arrangements in place with Jinyi Cinemas as well. Those are our two big clients in terms of the revenue share side of things. So in total, a backlog of around 309 theaters, and as I mentioned, about 57% of that is sales and hybrid arrangements.
Once again, press star one to ask a question. We will go next to Liang Xu with Goldman Sachs.
Hi. Thank you, Rich, Jiande, and Jim. Again, congratulations on the good results. Basically, I have two questions. The first one is about the remastering cost of the Chinese movie, and we know that each movie would cost around $ 150,000 to $ 250,000, which is charged by the corp. I am wondering whether this kind of Chinese movie remastering cost could be in the future all done in the Shanghai office, so that the remastering cost would be much lower than just being charged by the corp. Secondly, about the new opening. This year we are targeting 105 new opening, which is much lower than last year's level. I am wondering whether this is a kind of structurally declining or just a temporary declining.
On your first question, I do think it is possible over time that DMR costs go down. In fact, we are investing in technology to make that possible. In terms of the location of DMR-ing, I think there will be DMR-ing of local films done in China. I think it is going to be a while until Hollywood films are remastered in China just because of the value of the IP and concerns about IP protection. I think that in terms of openings, our projected level being lower next year. I think given the performance of some of the JV theaters in lower-tier cities, we are going to be a little bit more cautious about the number of theaters and in which cities from a JV point of view will open. Remember, we have different models. So there is the sales-type lease model and the hybrid model.
I think those are really not that affected. But I think we are going to give extra scrutiny to the theaters we open in those lower-tier markets on a JV basis. In putting together this estimate, we wanted to be conservative.
Thank you.
Thank you.
Again, press star one to ask a question. We will go next to Eric Hu with CCBI.
Hi, good morning. Good evening. Thanks for taking my question. I have questions regarding the new theater signings. I noticed you have 95 new theater signings this quarter. Oh, sorry, in 2017, and that is much lower than over 200 in 2016. Also, you cut your new installation plan for 2018. I just want to ask about the new signing progress in 2018 and 2019, and also your projected new installations in 2019 and 2020, if you can give any colors. Thanks.
Yeah. 10 years ago, I think we had 13 theaters in China. Maybe it was 20. Now we have 550, with another 300 plus in backlog. I think we made amazing progress in both growing the backlog and opening theaters. It is not like rice, IMAX theaters. It is not like there is an infinite number you can sign and open. China is a big market, and we penetrated a lot of it, but it is not an infinite market. I think the focus for us is on new programming strategy, new marketing strategy, growing the box office, and continuing to invest and grow the theater network. But I do not think the fact that you have gone from hundreds in a year. Also, the hundreds were because the exhibitors went from none to hundreds. They do not have infinite number of screens and infinite resources to keep opening the market, expanding the market forever.
In terms of our focus, I think it is still going to be on growing it, but growing it in a productive way and increasing the revenues out of the existing networks. I do not think there is a slowdown in trend. Frankly, part of the slowdown from your point of view may be initiated by us, because again, we do not want to over-penetrate the market until the demographic continues to improve to make sure that these theaters can be successful.
Okay, thanks.
Let me just add to that and just re-
Okay.
Let me just add to that and reiterate what Rich was saying. We have 309 theaters in backlog. We signed 238 theaters in 2016. We signed 95 theaters in 2017. We are working with basically all of the major exhibitors in China at this point in time. Again, I think there is no slowdown by any stretch of the imagination. I think this is, as Rich said, it is a cautious approach in terms of looking in terms of how we are going to be rolling out our theaters going forward. It is coming off of record installation years of 2016 and 2017 as well of 120 theaters respectively.
Okay. I just have one follow-up on the PSA. Do you have some projections or thought about the PSA's trend?
No. Again, we are very focused on the box office trend overall, an increase in box office in absolute numbers versus PSA numbers. As we mentioned earlier, we are going into markets that are different markets overall, so we are not going to let our investment decisions be dictated strictly by what a PSA is going to be. Inherently, we have not given any kind of guidance towards box office growth, but from an absolute number, that is what it is that we are focusing on going forward.
Cost control at the same time, so you can increase your revenue base without increasing your cost proportionately.
Okay, thank you. Very helpful.
Thank you.
We will go next to Gary Yu with Morgan Stanley.
I thank management for the opportunity to ask question. Just one question, particularly related to your new Chinese film strategy. How many Chinese films do we expect to convert into IMAX format for this year? Related to that, do we expect more Chinese films even outside of the traditional blackout period in China? Second related question is, I think you mentioned that the Chinese film contribution for IMAX China box office is around 24%. What do we expect it to go in the future, after we adopted this new strategy? Thank you.
Let me answer this question. In 2017, we have done 14 local Chinese movies, and we convert them into IMAX format. For 2018, we plan to do more. We definitely will do more than 14, somewhere in between 15-20. That's the target we are going to do.
Yeah. Just talking about. Hi, Gary, it's Jim. Just talking about the Chinese film contribution. We're not working towards a particular percentage, but as you know, we're at 24% overall. The market's at 55% overall. You've seen sort of what percentage of box office we've generated thus far this year on Chinese films. So there is definitely room to grow that number. So we're just going to be working going forward on getting the best films in the best slots, and we'll see sort of where that percentage shakes out at the end of the day. But we definitely see it expanding from 24%, and we think we've got room to grow, like I said, because the market overall is at around 50%+ .
Okay, thank you.
We'll go next to John Choi with Daiwa.
Good morning, guys, and thanks for taking my question. I have a couple questions here. First of all, on PSA, I know that you guys are more focused on the box office in general, but if you look at 2016 and 2017, it was a record years of screen installation. As you go into this year and next year, probably that pace will likely kind of slow down a bit. At the same time, the existing screens probably will likely be more mature. In that perspective, should we be expecting more of a kind of a recovery of the PSA in the coming quarters? That's my first question. The second question is that we noticed that also, I think Rich also mentioned that you guys are more focused on cost control.
This year, I think 2017, the OpEx seems to be pretty well managed. How should we think about the OpEx side into 2018? Thanks.
I'll answer the first part about PSAs. You're right, there are a couple of things going on at the same time. First of all, there's our new film programming strategy, more local films, as well as multiple titles. Second of all, there are improvements we made on the marketing side, which I think are starting to show some results coming out of that. There's the factor you pointed out about more maturation of theaters. I think another one would be trying to be more careful in bottom-tier cities about the kinds of investments we make. All those would suggest a higher PSA. On the other hand, the backlog doesn't roll out evenly, and you don't know which theaters and which tier cities are going to roll out when. The averages are kind of misleading.
I don't think you can really draw a conclusion as to where they're going to go because of these crosscurrents. But the plan and the hope is that the box office increases while keeping costs contained, and that would lead to better financial results. Jim?
Yeah. Hey, John. We gave guidance earlier of SG&A growth of around 9% next year. We are definitely focused on costs, and that growth is specifically targeting certain marketing initiatives that we are looking at going into Tier 3 and lower cities and with Chinese content and Chinese programming. So we are controlling our costs so we can definitely deploy our resources in an area that we think is going to translate into long-term benefits for us, which is specific to the Chinese programming.
This concludes the Q&A portion of our call. I would like to turn it over to Chairman Rich Gelfond for closing remarks.
I would just like to quickly summarize. There are really three inputs into IMAX's results. One is the size of the network, and the network keeps growing. As I said before, even if it is not the same install pace, I think it will be in a very strategic way, and we are filling it in. Number two is the programming we put into the theaters, and I think we have come up with a very good strategy in terms of more local title and more numbers of films at the same time during peak periods. I think number three would be cost containment. I think during the second half of last year when we started to put some of that in, you see those results flowing through in our earnings.
We think the year has gotten off to a promising start with Chinese New Year, and we are hopeful that we continue to bear the fruit of those strategies. We thank you.
That does conclude today's conference. We thank you for your participation.