Good morning, everyone. My name is Omar Mejias, and I'm a research analyst at Wells Fargo. Today we have Natasha Fernandes, the CFO of IMAX. Thank you for having us.
Oh, thanks for having us, Omar.
Maybe to start, for those not familiar with IMAX, could you give folks an overview of the business and what differentiates you guys from traditional exhibitors?
Sure. Thanks for the question. I think it's important to recognize that IMAX is differentiated. In our entertainment space, we are the most scaled, technology system provider, with a leading premium brand and a global distribution platform. What it means is we don't operate theaters, and our customers are both the exhibitors and studios and content creators. For exhibitor customers, we provide them a technology-centered premium solution that includes the projector, the sound, the screen, theater design, 24/7 monitoring, and not to mention our brand that has been ongoing and building for decades, and it continues to grow, and so, you know, I think together our goal is that we always deliver the most immersive and premium content viewing experience of what we coined the IMAX experience.
As shown by our signings and installations, demand for IMAX is strong as exhibitors aren't generally building new complexes anymore, but rather they're upgrading their existing locations to improve the experience and their return as well. For studio and content creator customers, we provide them two things. One is a partnership in creating the most immersive, high-quality content through the use of our IMAX cameras, so film or certified digital, and through the remastering of their content, so visual and audio, to ensure the best presentation across our platform, and so the second thing is the distribution across our IMAX global platform. We have over 1,700 commercial locations globally, which is by far the most scaled premium platform, and thus having an IMAX window has become a very important element of a content release strategy.
That was a great overview. This year IMAX has had to navigate through some inconsistency in the Hollywood slate coming off the strike and the shift of some large titles in China to 2025. At the same time, installations have trended to the high end of guidance. Taken together, how do you see box office and installations in 2024 coming out?
We've had some pleasant surprises this year, you know, such as Inside Out 2, Dune, Godzilla x Kong, Alien: Romulus, which did really well in China, and Deadpool & Wolverine. Of course, we've had some content that's missed the mark, particularly around the absence of large, local language type tentpoles in China. In terms of box office, we've seen a notable pickup over the past couple of weeks, and this really provides a nice on-ramp for 2025, especially with our Filmed for IMAX slate. Just consider this past weekend. The domestic overall box office was $420 million, around there, which was 33% above the previous record in 2018 of $315 million. Specifically for IMAX, we registered a record Thanksgiving box office of over $24 million, more than 55% higher than our previous high for Thanksgiving weekend.
We've successfully programmed three titles: Moana 2 in early matinees, Wicked in the midday and early evenings, and then Gladiator in the late shows, and then this next weekend promises to be very good as well, headlined by Moana 2, Wicked, which is continuing to show great legs to it, as well as Interstellar's 10th anniversary bring-back, and so we actually have film locations that are sold out, and we've been adding more digital locations due to the high demand as well. In addition, this weekend coming up, we're augmenting with a couple of local language titles, including an Indian release of Pushpa 2 and a concert film of Laufey. As a result of the recent strength, we expect Q4 box office to be up at least 50% from prior year, which reflects an even higher increase domestically.
For the full year, we now believe we're tracking to come in between $950 million and $975 million, and the strong year-end box office is building good momentum into 2025, where, as you know, we expect strong box office with a record of over $1.2 billion. And I'm sure we'll talk about that a little more, specifically the Hollywood and local language slate that gives us confidence in that number.
No, that was. Go ahead. Sorry.
Oh, no. I just wanted to comment on your comment about installations. And so we do remain confident in hitting the high end of the guidance between our range of 130 to 150. And from a mixed perspective, we're weighing a little more heavily towards the joint revenue-sharing deals in Q4, and overall, which could lead to even greater revenue growth as you look to the out years, for operating leverage and cash flow returns as well, given the favorable film slates that are coming up ahead of us in the next few years.
That was actually super helpful. I think you talked about the guide, being between 950 and 975. Was that mainly driven because of Joker and kind of the weak performance there?
Yeah. I think it's a mixed portfolio over the year and as well as particularly, the performance in China. We've actually done really well in domestic and rest of world regions, and there's just an element of a return in China and the types of content, and mix of genres that's been going on this year.
No, that, that's great. And maybe to that end, you talked about the record performance this past weekend over Thanksgiving. How do you feel about the performance of recent films and consumer enthusiasm for movie-going, particularly as we look forward to the 2025 slate and the opportunity for IMAX to continue to gain share?
We've seen actually a lot of examples this past couple of years of strong box office when there's good films. It really comes down to the quality. Like the past couple of weekends, to solidify that the view that the consumers want to experience is essentially major blockbusters in the most immersive environment and shared experience, right? You want to share it with your friends. I mean, I'm sure you would have seen all the Wicked, you know, snaps and pictures of things going on and people wearing pink and green and just the whole experience around it, right? Something you can't experience in your home. So, of course, that gets me very excited about the film slate before us in 2025 and even in 2026.
Both years, we have much more visibility than we've ever had before at this point in time, as well as we even have visibility into 2027 and 2028, because there's been a fair amount of conversations with filmmakers already. And with that, we believe there's an opportunity to gain more market share, which for us is up 25% pre-pandemic. So consider the positive impact on IMAX market share that comes from us both continuing to grow and expand our platform, as well as the impact of more titles using our technology, our camera technology, coupled with filmmakers and studios really leaning into IMAX as well.
That's a perfect segue talking about demand for IMAX. In 2025, IMAX will have over 14 movies slated to be filmed for IMAX. That's an all-time high number. Can you describe what's driving that increase in the number of films slated to be filmed with IMAX cameras? Is it due to IMAX sales team efforts, word of mouth, or just the recent performance of Dune 2 and Oppenheimer? What's driving that demand for IMAX?
I believe we're in a virtuous cycle, and I mean, all of what you mentioned is likely all contributing towards seeing the increasing demand of both filmmakers and studios all wanting to work with IMAX.
Are you already fully booked for 2025, or do you still have some room to add other films? You talked about visibility into 2025. What's this? Did this prompt your recent guide on GBO to 2025?
Yeah. I mean, we're not fully booked as of now, but there's lots of conversations in play. We've actually had much greater visibility than past years, as I mentioned. Since early in Q2, I think it was around April, we were already booked solid from May till through to the end of August of 2025. And so that's much earlier than any prior year in how many films were slotted in. And then, of course, we've committed to many of the other weeks in 2025. So there's a few, very few slots left in 2025, but consider the slate before us.
It's the final installment of Mission: Impossible franchise, three top-tier Marvel titles, including Captain America, Thunderbolts, Fantastic Four, Superman reboot, F1, of course, a live-action How to Train Your Dragon action title, Sinners, Ryan Coogler film actually done with our film cameras, the next Tron, Wicked 2, which after Wicked 1, you know that'll do well, not to mention Avatar at the end of the year. Then for reference, the last Avatar did for IMAX $250 million at box office, of which $50 million of that came from China. So definitely having this line of sight has given us the confidence to put out the guidance of over $1.2 billion.
So maybe drilling into the guide, what's incorporated into that guidance and what could be some of the key drivers of how performance, especially given some of the recent weakness in China?
We factor into our guidance expectations for the known films. We essentially look at what were the precedents and how did they perform before, and depending on how those films performed, we build up what we believe our IMAX utilization will be. In periods where there's not a dated film, we'll be more conservative, but we always estimate that something will come into the period, and that's an opportunity for us, and then specifically on China, we do expect there to be better performance in 2025. I mean, we already know, for instance, that Creation of the Gods II will be in Chinese New Year, and that did really well for the first one, along with at least one, and potentially even two more major titles to be in Chinese New Year.
That said, for China, we have not built our expectation, our $1.2 billion expectation, that China returns fully to the pre-pandemic levels of box office.
That's super helpful. And maybe let's stick with China here for a bit. What are you seeing there, and are there opportunities for an improved box office next year after the performance in 2024 that you talked about that you guys are encouraged on early signs? But it's the issue there, the economy. Are there structural problems with movie-going? Any color on the state of the China box office and expectations for 2025?
Yeah. So as I just mentioned, we do expect that China box office will return in 2025, but particularly for us, we don't believe it'll return fully to pre-pandemic levels. Next year's Hollywood slate does look more consistent. Next year's Hollywood slate. So that's the first start, right? It's more consistent diversity of tentpoles, franchises that have historically resonated with Chinese audiences. So more opportunity for us from a Hollywood perspective, for sure, in China. And then China's local language slate for next year also looks stronger. I mean, we actually have confirmed titles as of now for next year, which this past year we haven't been having a lot of visibility with lead time, whereas right now we already have Chinese New Year.
So as I said, Creation of the Gods II, and additionally there's a title called A Writer's Odyssey II that's right now I think targeting a summer 2025 release, plus a few others. So I think from a local language perspective and from a large blockbuster perspective for local language, we're already seeing better visibility versus the comedies and dramas that were playing this year in China. And then, you know, when you're, when we're talking about like the economic impact, it's really hard to pinpoint that, but, you know, I think there's been, we know about the economic stimulus package, unveiled to basically boost consumer confidence.
China actually continues to emphasize cultural and entertainment sectors as an important driver of their growth and their, and they've been giving financial support to local film production and festivals and cinema infrastructure, basically trying to boost the local content there. So we've, we just continue to see more positive signs, like even the censorship, when you think about it, like allowing more diverse content to get in. We've seen some rated R movies make it in this year, edgier titles, like Alien: Romulus and even Deadpool & Wolverine, which, and I think even Wicked is due to release this upcoming weekend too. Titles that you would have historically never thought would make it in, but that's essentially we're, you're seeing that they want the box office to return, right?
And so I think that trend suggests that there'll be more Hollywood titles getting in even in the next years. And then in terms of the underlying demand of going to the theater, I believe it's still there. I mean, if you see good quality content come out, we're actually seeing them return. And we saw that with Godzilla x Kong. We saw that with Alien: Romulus in the summer, all of which did really, really well for us, as well as it did in domestic, actually. And so I think we have a real opportunity not only on the Hollywood and local language side, but we also alternative content. And so, I don't know if you, I think you know about the October release of League of Legends Championship that we played at over 150 theaters at about 90% capacity. And Taylor Swift's concert did really well.
We did an NBA Finals earlier this year in Taiwan and Hong Kong, and that had great success, so I think between having the Hollywood releases, which is more consistent next year, some more local language, larger tentpole titles with bigger budgets behind them, and then alternative content, you could see how the Chinese box office could return.
It just sounds like a more diversified slate overall.
Mm-hmm.
Because obviously you have Hollywood as the main driver, but alternative content, local language, and I thought something you said was super interesting about the visibility, which is something you don't see in China. I think folks are used to it here in the U.S., like having, you know, the titles come out like maybe six weeks.
Yeah, yeah, yeah.
A year in advance.
Yeah.
Can you maybe touch on that a little bit about like how typically it works in China and how is the typical lead times that you usually see there?
I mean, this year it could be a week or two out, and then you're suddenly hearing that a title's been approved. And more recently though, we're getting a little more lead time, like, you know, I think we, we knew ahead of time about Gladiator getting in, Wicked getting in, and the dating to have the Chinese titles be dated. And I think they were dated a few weeks ago for Chinese New Year. So that's three months out almost. That's pretty good lead time. And I think if they do that, that at least allows for enough time for marketing and for what you need to do in order to make sure the Chinese consumers know about it as well, right? Because marketing lead time is really important too.
No, that's very helpful. Maybe switching over, I think you talked about before, about, you know, the increased demand for IMAX systems. This is, in our view, has shifted the negotiating leverage that you guys have with studios. Can you talk about how this has strengthened your hand when talking to studios? And I know probably like, you know, take rates are likely unchanged, but as this created better economics, and the potential for better margins going forward?
Yeah, there's no question that studios are partnering more closely and leaning more into IMAX. And that's reflective of the number of Filmed for IMAX titles coming up as well. And it all does translate to better economics. I'm sure you've heard Rich as well speaking about this, but it's better economics for our box office share that it increases and it'll drive higher margins for us. And the studios are essentially developing more bespoke IMAX marketing, which I think you saw really clearly on these Thanksgiving titles that got released more recently. And even the Mufasa marketing that's out there right now is really leaning into IMAX as well. And the studios are partnering with us as well to do more early access shows and premieres.
But I think the point of it is we're all working together to basically build back up the box office and really lean into how do we get consumers back to the theaters in a big way. And I think Thanksgiving was a great example of that. Really great content out there and then a really great experience to see it in IMAX with our louder sound, our better screen, better picture, and colors. It's just the way you want to experience it.
No, that's super helpful. Maybe touching on a topic that we've discussed here, alternative content, but maybe here in the U.S., this year, excuse me, this year IMAX has released, you know, you had The Blue Angels documentary. You talked about the League of Legends tournament in China and the White Out game at Penn State. Going forward, how do you see your alternative content strategy evolving? How do you expect it will impact utilization of the whole circuit and, as a result, margins for the business?
We're making steady progress in programming more alternative content. We're really trying to hone in on it. We made a few changes to the team last year, which we talked about earlier in trying to create synergies amongst our distribution team. And I think we've done a really good job of kind of leaning in and focusing on how to drive higher utilization through alternative content. So slotting it into areas where we see an opportunity to create a better return for ourselves. And you know, a good example of this year has been the monthly recurring midweek bring back series that we've been doing with A24. And so essentially what it is is a mini slate we've done with them once a month on a midweek day, one show where you're bringing back an iconic title.
In that one show time, we're creating higher utilization than we would've had if we did the third week of a title or something, right? So really thinking about how do you create a recurring model and one that is so well in advance, as we talked about before, so you have time to market it and have word of mouth go around about it. I think the other part about it is diversity of content. Over just even the past month, we've shown League of Legends Championship live stream to 150, over 150 theaters in China and Korea, the White Out Penn State game, as you said, in a select number of theaters in Pennsylvania and Washington State, a carve-out launch event of Megan Thee Stallion, their, her documentary, which actually is now streaming on Amazon Prime.
Upcoming this weekend, we have a concert film by a new and popular singer, Laufey. Hopefully I pronounced that right. All of that helps drive higher utilization as well as I think one of the key goals in this is building key partnerships, right? Like if you can build partnerships similar to the way that we built the A24 partnership, then you think about we're building a partnership with the NBA and what does that future look like, particularly as you look at the NBA in China and rest of the world, building a partnership with Tencent where we did the esports or NBC with more special events like the Paris Olympics or other sports that are opportunities.
And so really, thinking about the same way we have partnerships with our studio partners, then you're doing other content creators and now just working with other opportunities that are out there.
I think you've talked about this before. Would you mind reminding folks how, like, the change in utilization impacts margins for the business and just overall revenue as well?
Yeah. Like if you, if we increase our utilization, it doesn't actually cost us anything more. We're just creating, so say you had 20% utilization on a day. If you increase that, it's an extra 10%, it didn't cost us any more money. So that becomes straight revenue to us and then straight to our gross margin, to our EBITDA and to our cash. And so you think about time periods like Q3 last year when we had Oppenheimer. I mean, our utilization was so high that we achieved a really nice flow through to having EBITDA margins of over 45%. And so that's how you can easily see how creating utilization is an opportunity for us.
And as you think about it, utilization can also come from growing your network too as well and getting opportunity there because it doesn't cost us any more to expand the network, to distribute content across the network as the network gets larger as well. And so lots of opportunity on creating that incrementality in the model.
That's very helpful. And maybe switching gears here to signings and installations. IMAX has seen a solid step up in the number of signings in 2024. However, it's not just the sheer number of signings, but also the makeup of these signings. Can you elaborate on this and maybe help us understand how signings and installs are not created equal?
Sure. I think it's a really important point actually because we target to grow our footprint where we see the highest box office potential essentially. And so that's why we actually, we've spent so much time this year talking about Japan, the rest of Asia, Europe, Australia, and basically all areas that have the average per screen that has a runway for growth as well. You know, you just, the goal is to basically put our money in the areas where you have the bigger opportunity, right? Because you can expand into certain regions, but they have lower PSAs or you go into where there are regions where you have the potential to grow that PSA.
No, that's very clear. And maybe going into detail a little bit more on the regions, I think rest of the world, as you mentioned, has seen very strong demand for IMAX systems. What are some other key markets, or maybe within rest of the world, what are some key markets that you're targeting and expect to continue to drive signings over the near term?
There's significant runway for growth internationally when you consider our market share in the rest of the world is less than half of the domestic market share. So, you know, rest of the world is around 2%, whereas domestic is over 4%. And our zones are less than 35% penetrated. And so when you think about it, we've zoned or we believe we have potential zones for over 3,600 locations. We're only at about 1,700 commercial locations today. And so, you know, we have a lot of runway. We have a big to be able to grow out, particularly in the rest of the world regions. And, you know, I think there's about, context for context, there's nearly half our zones, which is about 1,500 or rest of the world regions in that 3,600. And we're only at about 500.
So lots of runway for us to continue to grow. Japan, I mentioned Japan already. Japan, we think we have about 56 currently, but we're zoned for a hundred. And they're actually one of our highest PSA countries. I mean, there's lots of opportunity in Japan because you think about the content variations and diversity too. And then Australia, we have only two currently open, but they're zoned for 39. And we reopened the iconic Sydney location. And we've been able to get some traction since that. The Middle East, one of the highest growth markets. Jen and I were there earlier this year, in September. And then, there's a significant penetration opportunity. I mean, Saudi Arabia has less than 20% penetrated. So we have about 11 open versus 50 zoned. And we just signed a deal with a new partner, Muvi, for four systems.
Actually, Rich is out there in the Middle East right now visiting them right now and plus attending the Red Sea Film Festival as well. Then Latin America is another area of opportunity for us. It's, we're highly underpenetrated in, in that area. I think our sales team is beginning to make some inroads there. Lastly, Europe is one of the top areas too. I mean, we've seen the momentum in France. So far we've signed 11 new systems since early 2023 and with new partners. Then in Germany, there's only 11 locations and we're zoned for 58.
That's a lot of room to run specifically in Western Europe, which you think will be a more developed market, from an IMAX perspective, but it sounds like you guys still have a lot of opportunity there. I know we already touched on the strength of the 2025 slate, but maybe let's go into a bit more detail there. Like I think at the end of the year you have the latest Avatar film that rolls right into 2026, which you already talked about, you know, already having a very solid slate. How's your visibility beyond 2025? And could the prospect of a robust slate in 2026 drive 2025 installs? How should we think about that?
Yeah, our slate in 2026, and even in 2027 and 2028, they're already filling up, which is a phenomenal position to be in, at this point. And as I said earlier, it's significant visibility into the future slates than ever before is where we're sitting. And 2026 is actually, I'm actually very excited about 2026 because they include some mega franchises. I mean, as you said, the Avatar carryover, but then there's the next Christopher Nolan title, which, you know, there's a lot of buzz around that already. The next Avengers and, the Star Wars Mandalorian, the next Toy Story, the Batman, and then potentially, from what we all hear, the next Dune, right? And so, you know, I think you're right that, this should help to continue support in robust signings and installations as, you know, first exhibitors are seeing the potential in, these IMAX-friendly titles.
I mean, Filmed for IMAX that really drives consumers towards wanting to see it in IMAX, particularly when the filmmakers are out there saying it as well and helping with that. And then secondly, they get more flexibility in their balance sheets to make investments too because they're getting more cash flow too. And all of that is very helpful to the business and the ecosystem.
Very, very exciting. If we only knew the title, the name of the title for the Christopher Nolan.
If we only knew.
Well, maybe touching on continued growth and with expectations for continued top line growth, can you describe what's the opportunity for gross profit and EBITDA to grow at an even faster rate, given your asset light model and the operating leverage in your business? And how should we think about the margin progression, as well as cash flow generation of business?
So I slightly touched on this before, but the math on operating leverage as the network expands and box office grows is pretty compelling as there's only modest incremental costs that we incur as box office expands. So we're already spending costs on versioning, so those don't grow. We're already spending the marketing costs. Oh, and if we spend a little more, it doesn't increase at the same rate of growth as box office. And depreciation costs associated with the lease systems, the systems under our joint revenue sharing deals, those are fixed essentially. So our cost base doesn't grow as box office grows. And then, I did mention this already, but as you look back to the correlation, you can look at our highest EBITDA margin quarters are reflective of our highest box office quarters as well.
And so you can kind of see that correlation very nicely. I mentioned the Oppenheimer Q3 example, but also periods of Chinese New Year, like last year Q1 as well with Chinese New Year and Avatar as well the year before. You know, you start to see how that margin expansion also leads to then cash flow expansion, especially as you consider the cash flow on those revenue sharing deals is quite optimal. And so as you think about if we continue to expand in a greater way our network through joint revenue sharing arrangements, you, as we look into 2025, 2026, even 2027 and 2028, with the film slate ahead of us, there's a, you can see the potential for the incrementality kicking in in our model because that's all based on revenue sharing. It's a film rental, right?
You get to have a higher return for that performance.
That's very helpful. And maybe could you parse out how should we think about like the margins of IMAX, domestic and international versus sort of the IMAX China business? I mean, I think that's important just given how that business, the business in China has been a little bit weaker. So how's that ramp up back again? How should we think about the margin profile of the two businesses?
Yeah. I mean, even with China's performance this year, their slower performance this year, they've actually still been profitable. And I think that that's what's key is there's been times even during the pandemic and China has remained profitable. We have the ability there to really make some good decisions on cost, right? And being cost conscious and thinking through where do we spend dollars. So as you turn that the other way and say, oh, well box office is returning to a certain level of historical, that all then becomes very incremental in China because our cost basis doesn't need to increase significantly to support that box office growth.
No, that makes sense. And maybe touching on some comments that have been out in the press. I know you probably can't comment on this, but there's been press reports about Netflix potentially doing an exclusive IMAX release of Narnia. Could you give us some thoughts on the important role that IMAX plays within the ecosystem and the growing interest across filmmakers and actors alike?
You're right. I can't comment on the rumor. However, I think conceptually it speaks to the growing demand for IMAX and the leverage that we have. Consumers are demanding to see films in premium formats. You know, we've all seen that through the Thanksgiving weekend and specifically in IMAX. Our market share is up 25% from over pre-pandemic. Filmmakers and actors want a theatrical release for their films and they want to work with IMAX. They want to have IMAX as part of their release strategy, basically to create that most immersive experience for theatergoers. All studios and streamers want access to our network of over 1,700 systems as well. It's a scale that no one can match and it's a global scale. We welcome working with everyone.
No, that's, that's fair enough. We'll, we'll take that. Maybe we just have a couple minutes left. Just wrap it all together and maybe just give us some thoughts on why should investors be optimistic about IMAX's financial trajectory for 2025 and beyond?
The recent film success proving the continued demand for movie going is one reason. I mean, we have had such success, and really, the IMAX has been more in demand by filmmakers than ever, by studios, and our market share is at a record level. And our growth continues. I think that that's one of the major keys is that our network platform is less than 50% penetrated as we talked about, and the rest of the world is only a third penetrated. So with exhibitors, we have a strong pipeline already, but then there's a lot of opportunity and runway for growth too. And as you know, you look at the box office outlook, it's very strong, not only in 2025, but actually in 2026 could be even bigger.
And as the network grows and mega title hits like Avengers and Star Wars and the next Super Mario, and Chris Nolan, of course, and then Avatar, I mean, all of that coupled together, I think overall it's a great time to be in the IMAX business and I'm excited.
Thank you very much for coming. It's a pleasure.
Thanks so much.