Afternoon and welcome, everybody, back to our conference. We're very happy to have Rich Gelfond, CEO, and Patrick McClymont, CFO of IMAX, joining us now. Hi, Rich. Welcome as well.
Great, Jess. Happy to be here.
Thank you for coming. It's always great to have you. Let's start with IMAX's positioning. You've evolved over time and become highly integrated into the fabric of the entertainment ecosystem with over 1,600 theaters in 81 countries. How do you think about the positioning of IMAX today in the overall landscape?
So we're very privileged to be in the middle of not just the North American ecosystem, but a global ecosystem. And what that means is we're a premium experience for consumers. We're a premium offering for our exhibitor partners. We're a premium release window for our studio partners. And we've become kind of a global curator, in certain respects, of blockbuster content. So today, if someone wants to release a blockbuster pretty much anywhere in the world, whether it's Korea, Japan, China, and certainly Hollywood, IMAX is a partner they want to have. And that privileged position enables us to have a kind of a disproportionate amount of influence for a relatively small company.
So in the middle of the reopening now around the world, we've been consulted by the directors, studios, exhibitors, on how to reopen, on what the slate is in any given year, and conflicts, and how to order the slate in a reasonable way. We're in the middle of that. So our place in the ecosystem is very central to making blockbusters work around the world.
Great. So as a truly global company, IMAX has a unique perspective into the course of the pandemic. Can you give us an update on where you stand in terms of reopening screens around the world and the demand trends that you're seeing?
Yes. Around 85% of our screens, about 1,250, are open now globally. We're open in about 40 of the 80 countries we're in. And where we are open, there are limitations on box office, on capacity. So in places like China, which are the farthest open along, it's around 50%. And places like the United States, it's probably in the 30s when you average it in. In Canada, it's only about 50 people for theater. So it's been opening.
And so far, it's gone very well. And not surprisingly, where the capacity restrictions are the highest, I got it backwards, where you have the highest capacity and where the disease is at its lowest point, you have as close to normal as you can get. So in China, opening weekend, first blockbuster, The Eight Hundred, we get around $115 million. The rest of the world, Tenet opening weekend was $53 million.
The United States was a little more challenged this past weekend when Tenet opened. The reason for that was people don't even know which theaters are open and which places, New York and LA, are not open yet. For IMAX, we did extremely well, 14% of the box office, but only two of our top 10 theaters for Dunkirk were open at this time. I think that's all going to even out as people get more open. For now, the better results are where they've been farther along through the crisis.
Right. I mean, you have a great perspective. You're so much ahead of most of the other companies. So you mentioned China and you mentioned Tenet, both of which have been, China's open, Tenet's been released. Let's go to Tenet now. How much have capacity restrictions limited attendance for Tenet? Are you seeing any signs that attendance is becoming more spaced out during the week due to either new showtimes or increased weekday moviegoing? And what other strategies can you implement to spread out moviegoing activity to take advantage of whatever capacity you have?
So Jessica, we're still learning. Again, the U.S. only opened a week ago as a practical matter. But what we saw in China a few weeks ago was there was more spreading out. On Friday nights and Saturday nights, kind of with a reduced capacity of 50%, those were pretty much sold out, those shows. So no change from history. Friday and Saturday nights sell out. What was happening, though, is the weekday shows were doing better as a percentage of capacity than you would usually expect. And I think that makes sense if you think about it, which is not everybody wants to go to the theater at the most crowded time. A lot of people still aren't back at work yet. A lot of people are spread out from their homes. So on a natural basis, we see more attendance during the week than you would naturally expect.
Again, to put this in an interesting context, IMAX last year, 2019, was our best year ever. And our capacity utilization was around 10%. And for a multiplex operator, a traditional exhibitor, a very successful multiplex is 20%. So in itself, a 50% capacity restriction isn't a big deal. But if you can spread it out, it's a peak period. So we're looking at things like discounts to get people in at other times, as well as, as I said earlier, the natural course of things, which will spread it out.
Right. Will new safety protocols implemented by your exhibition partners create incremental costs or impact margins for you?
So I'm glad you used the term exhibition partners. I'll remind everyone that IMAX is not an exhibitor. We're a technology provider. We provide it to our 1,600-plus theaters around the world and our hundreds of partners. So they license IMAX technology. They provide the experience. So whatever incremental costs there are because of the COVID protocol is absorbed by our exhibition partners. However, because of our position in the ecosystem and with our partners, we're extremely involved in trying to ensure that the theaters are safe. So we played a leading role with NATO and the U.S. and other exhibitors around the world in trying to make sure that masks were required, that there was cleaning protocol, the circulation systems, and things like that. Another thing about going to the theater, which isn't widely discussed, is movies are a respiratory passive experience.
It's not like you're at a restaurant or a bar or a live event where you're talking and screaming. You're sitting with your head facing the back of someone else, and the screen is silent. And again, there's social distancing required in a lot of places. So many people who have gone in the past few weeks, including some of my personal toughest critics, like my stepson, who said, "Rich, I'm never going to go to the movies. It's not going to feel right." Went to see Tenet, and he called me back. He said, "It was amazing. Once I was there, I felt extremely safe." And that's been a feedback we've heard from a lot of people.
What still needs to happen to open up the rest of your theaters that are currently closed, and which markets are these theaters even in?
So there are a number of countries where there are theaters closed, such as in South America and other countries that have very few open because they're just emerging. India's theaters are closed at this point. But the most important ones for us are probably in New York and in California. And California, as you know, the incidence of COVID is still relatively high. However, that's been opening piece by piece. So I think today, Orange County opened, and some other counties opened. San Diego opened over the weekend, and there are some others. New Jersey just opened last weekend. New York is a little bit of a head-scratcher for me, Jessica, because New York has opened bowling alleys, and it's opened casinos, and it's opened gyms and parlors. And there's no question going to a theater is a lot safer experience than any of those things. So I'm hopeful.
And both Connecticut and New Jersey have opened, and usually they act in tandem. So I'm optimistic that that'll open soon. And one of the interesting points about Tenet, for example, is it plays if you look at Chris Nolan's movies, they historically do a lot of their best box office on the coasts. So the fact that on the last weekends was good, but not as good as it could have been, was largely influenced by the fact that the big Nolan box office territories were closed.
Right. That's probably a good sign that Governor Cuomo said today that indoor dining in New York will happen at the end of this month, limited capacity, 25% capacity, probably good for you. But for places where theaters are open, what are the next steps to achieving higher caps? What needs to be done to increase the capacity?
I think, first of all, it's a regulatory question, right? So it depends on the jurisdiction. As I said, we're in 81 countries. So you could just imagine what a matrix it is in dealing with all of that. I think it's a question of cases going down and the government's feeling safe. So in China, we opened with 25% capacity. After three weeks, it went to 50% capacity. And there are rumors that around October 1st, which is the Chinese holiday, it'll open up to 100% capacity. Because we were closed for Chinese New Year, a lot of the films that were scheduled for then are coming out in October for Chinese National Holiday. So it'd be nice, although I went through the capacity numbers before, it's not a significant negative. It'd be nice if that started to happen.
In the U.S., I'm guessing that it's going to be very similar. It's going to be when places feel that the COVID counts are down and that people are more comfortable, and it's going to be up to local government regulations, not really the exhibitors, to figure it out.
Right. So let's switch gears a little bit and just talk about your company. What's your perspective on the disconnect between valuation and pre-COVID company performance, especially given your strong liquidity profile and demonstrated post-COVID box office success? I mean, what do you think the drivers are of this disconnect?
As you know, Jess, you're probably more of an expert at valuation than I am. But it does surprise me. If you look at IMAX stock over the last five years, it's traded over $20, like almost without interruption during that period of time. And obviously, when the theaters got closed and it was unclear as to when they would open and how broad the pandemic was, I understood the price going down a lot made sense. But now that we've pretty much opened throughout the world and the results are extremely promising. So in China, we looked at it by tiers, first tier through bottom tier. And in every tier for the period we've been open, which is like a month, we're actually performing at the same level or a little bit better than we were pre-COVID. In Europe, there's a lot of positive evidence.
I guess probably the biggest disconnect is North America. I was kind of saying to a lot of the Hollywood executives when they were hesitating opening, everybody's myopic. So in Hollywood, you look at the number of cases there are in California and you worry about the world. But in fact, as you could see from the results of openings in some of these movies, most of the world is really safe. So my expectation would be when people can look out their windows and see the same things people see in the rest of the world, that the valuation will right itself.
Right. I mean, what is your outlook for the remainder of the year in terms of box office? And then how do you think 2021 will shape up for the industry here in the States?
So I'll answer it in reverse. I think 2021 is going to be incredibly strong. And the reason is because you have all the 2020 movies, which didn't get played this year, which are moving to 2021, plus those that are made for 2021. So some examples of ones that moved are Fast and Furious and Top Gun and some of the Marvel movies moved from this year to next year. So you have those that are already done and ready to go. For next year, you have a lot of movies that are already in production, like Jurassic World and just a lot of other movies are back up. So those will be ready, and a number of Marvel movies are back up. So those will go to the second half of next year. So next year's slate should fill in really nicely.
For this year, there are a number of really good blockbusters scheduled. There's Wonder Woman. There is the next Bond movie. There is Black Widow, but a lot of things, a lot of pieces are still moving around, so IMAX is in a very enviable liquidity position. We're in it for the long run. We're quite convinced that 2021 will be great. 2020 started in a very good way so far, and I think the titles are there, but we'll just have to see how they play out in North America. In the rest of the world, for example, I mentioned China earlier. It's the national holiday, and there are tons of movies, so I think the rest of the year in China looks really good, and we do play a lot of local content in other territories.
In Korea, we played a film called Peninsula, which did $20 million its opening weekend. We play Japanese movies in Japan. If you look outside North America, I think 2020 looks very good, and 2021 looks very strong also.
Are you concerned at all about release schedules being too crowded in 2021 and maybe 2022?
Obviously, that's a high-class problem if it happened. Typically, IMAX plays movies for one or two weeks, other than exceptions such as Avengers or a Chris Nolan movie or what I'll call a really mega-mega blockbuster. So I think if you look at one- to two-week playtime, there'll be enough distance between them. And one of the functions IMAX serves is a little bit like the global, as I said, curator earlier of blockbuster films. So I think a lot of films won't be released blockbusters unless the studios and the filmmakers are assured of having an IMAX run. So I think they'll delay them and they'll move their schedules around. Years ago, films used to open on top of each other, but that has happened much less. So I don't really think that's going to be a problem. I think it'll work itself out.
So internally, you said you really are at the center of film releases. How do you think about the slate each year from a planning perspective? And what adjustments can you even make to optimize the slate for 2021 with all these movies moving around? How do you plan?
It's been an interesting year, to say the least, because usually you know your slate at the beginning of the year, and you plan it out, and you talk to different studios. For example, Disney says they're releasing a Marvel movie this day. Paramount says they're releasing Mission: Impossible this day. You say we could do that one, but not this one. That's one reason why it kind of flattens out, because I think the studios want access to an IMAX release that's really important to them. In a year like this one, it's been a little bit like whack-a-mole. Every time you hammer down one release, something else moves. It's been, this is a made-up term, but it's been like 3D whack-a-mole because everything's been coming at you from all directions. I think you have to be just as agile as you can be.
And remember, again, we're in all these countries in the world. There are foreign releases. So our distribution executives are all turning prematurely gray. But we're just trying to keep up in real time with the changes that are going on and trying to fill in things. And again, for us, I think if you look at 2020, we would say the most important goals for us in 2020 were to get the theaters open safely, get people back to the theaters, and prove that blockbusters still have the same allure that they've always had and that people want to come to them. And that, obviously, maximizes revenue. But since we have the luxury of a strong balance sheet, it's been much more important for us to prove out the long-term continued viability of the business model on a global basis and grow our global footprint.
We keep mixing around movies to make sure that happens. Then in 2021, I think, as I said earlier, it'll be an embarrassingly rich.
Right. And then following AMC's deal with Universal allowing the studio to go PVOD, PVOD just 17 days after theatrical release, how much risk does a potential shortening of the theatrical window create for the industry, if any?
First of all, for IMAX, it doesn't create any because we're in the blockbuster business, and even Universal has said that the shorter windows aren't going to apply to blockbuster movies, and even if they do, our movies are one to two weeks by and large, so I don't think it'll have much of an effect on us. That model with AMC and Universal for now hasn't gotten a lot of traction. As you know, no other large exhibitor has signed on, and no other studio has pushed forward that model, and frankly, I'd be surprised if anyone signed on to exactly that model. I just don't think that's going to be the blueprint for the industry.
However, I do think one result of probably the fact that studios own streaming services more than anything else is that the windows, particularly on mid-level movies, will start to compress to some extent. And I also think some of the mid-level movies will be released direct to streaming rather than the way they are now. So I think for a regular exhibitor, there'll be less non-blockbuster films available. Do I think it'll be catastrophic? I don't. And no one's really talked about this, Jessica. There's no time today, but it's an interesting thing for you to explore at one of your many terrific conferences: is will it bring the streaming companies into theatrical? And I think the answer is probably yes. Because one of the reasons that streaming companies have resisted a theatrical run is because they haven't wanted to wait out the 90-day windowing period.
Apple already announced that it's going to respect the windows. In fact, Scorsese brought his new movie, the DiCaprio movie, to Apple and not Netflix, partly because Scorsese said he wanted a theatrical run. Yes, you will lose something, but the unknown question is, what do you gain if the window is different?
I mean, that's exactly what I was really going to ask you because Netflix just bypassed widespread theatrical release opportunities. But in July, they announced another high-budget movie, The Gray Man, which is like $200 million, I think. Do you expect Netflix to get more active in exhibition since the shorter windows were a key factor in previous discussions?
Well, I'll probably get in trouble for saying this, but Netflix was having discussions around The Irishman about releasing it theatrically with shorter windows. So we already know that philosophically, they're open to it because they discussed it at that time. I think they're opposed to the windows the way they stand now. So I wouldn't be shocked if in this new world, there's a different still windowing system. And I should have started by saying the model for blockbusters doesn't really work without a theatrical release because you really can't do any math you want to do. And you cannot recoup the $200 million budget through a streaming release. It just doesn't work. And lots of people have done that. And by the way, the whole direct-to-consumer proposition pay-per-sale has been on a downslope for years. And different direct-to-consumer services have tried this forever.
The answer to that, now you can stream it, is not going to change that paradigm, but I do think it will loosen the windows for certain movies, as I said, and I do think in that time I would expect, and especially competition, so you're going to have Disney streaming, you're going to have Universal streaming as well as doing theatrical, and Netflix is facing competition, and my own guess would be that they'll be more flexible with their model.
Right. Well, that's exactly what Bob Bakish said in the presentation before you regarding Paramount. But let's bring Patrick into the conversation. And you were able to sign new deals in the second quarter, even amidst COVID disruption, with international partners CGV and Wanda adding to the backlog. How do you think about installments in the second half of the year and heading into 2021 to keep up with demands for your backlog?
Sure. Hi, Jessica. It worked great. We actually were pleasantly surprised with the level of dialogue that we maintained with our clients throughout this. It would have been normal to expect that things would have slowed down and people would have paused. That really didn't happen. In the first half of the year, we installed about 15 theaters. So far, Q3 to date, we've done about 14. It typically does ramp out over the course of the year, and that will continue as we head into the fourth quarter. And so our installation pace, it won't get to where it was the last couple of years, but it is on a nice recovery path. And our backlog has held together. We're at 533 systems. Our clients continue to want to grow with IMAX. The dialogue has continued to ramp up.
They think about their business in terms of decades, and they want to grow their business, and they want to do it with us.
And then while I have you, Patrick, I'll just ask you another one, and then I'll come back to Rich. But with $390 million in cash, a monthly cash burn of under $10 million in an almost zero revenue environment, and an amended credit agreement, how do you think about your liquidity positioning today and how that sets you up for the future?
We're in a good position. We were able to answer this with a very strong balance sheet with no funded term debt and plenty of liquidity. On our last call, we talked about our cash burn in a zero revenue environment being a little bit less than $10 million. Now our revenues have come back, and the nature of this business is we get back to break even and then positive cash flow pretty quickly, and so we're on a very good track, a very good path where we've reduced that cash burn and we'll head towards positive numbers in short order, and we think we're coming out of this in a position of strength. We've got an ability to drive our business and make sure that we're doing all the right things from a marketing standpoint.
We've continued to look at ways to continue to grow IMAX over time. We think that we've weathered the storm quite strongly.
Actually, let me just ask you one more thing, then I'm going to go back to Rich to wrap up. But some of your partners, AMC and Cinemark, recently enhanced their liquidity profiles. AMC just completed a bond exchange offering, and Cinemark issued $400 million in convertible notes. What's your view of investor demand for these offerings? And do you have concerns about the health of these partners going forward?
We're certainly encouraged that the markets have rebounded, in particular for the sector. The folks you just mentioned are very important partners, and so we're glad that they've taken a lot of steps, in some cases, raised capital multiple times and reduced their expense base, and from where we sit, that's all good news. We're in business with these folks for the long haul, so we want to make sure that they're in a position of strength. Clearly, at a minimum, they've pushed out any concerns they may have, and as the business recovers, we think that they'll be in a much better position, so we keep very close to our partners as they do with us, and we're encouraged about the steps that they're taking.
Right. So Rich, back to you. The deals you signed with CGV and Wanda included theaters and systems in some higher growth regions in Asia, China, South Korea, Indonesia, Vietnam, as well as Turkey. How much runway do you think is left for growth in these markets? And what makes them so attractive right now?
We've announced we have something like 3,300 zones we've identified on a worldwide basis. We have about 1,700 now. We have about that we have a backlog of over 500 theaters. We're approximately 50% of our worldwide footprint. Again, it took us over 50 years to get here, although the last 10 years, obviously, growth has been a lot faster. I think it's a testament both to our brand and to macro trends. IMAX makes money for our customers. A lot of the deals that we signed that you referred to were with existing customers. In Korea, it's one of the highest grossing markets in the world for us. Our partner, CGV, opted for, I think it was 8 or 10 more theaters because it was successful. The second thing is definitely a macro tailwind.
The tailwind is people want to experience entertainment in a premium way. That flows through all kinds of industries, whether it's gaming or concerts, special seats. People are willing to spend more for better experiences. If you look at the reopening of theaters, so IMAX in China for The Eight Hundred, we did 6% of the box office in the country, whereas we usually do 1%-2% in regular times. For Tenet in China, we did 18% of the box office on 1% of the screen. Think of that. One in five people in the country of China. Even this weekend in the U.S., with the reopening of Tenet, we did 14%. That's just been the IMAX box office, if you go before COVID, has been increasing. I think people just want something they can't get in the home, something really different.
What is your outlook for local productions in some of the key local markets like China, India, and elsewhere? What is production activity currently stands in these markets for locally created films?
It's starting to reopen. It's been closed for a while, and it's starting over the last couple of months. In England, Pinewood, and a lot of the studios are open in China. They've started local production again recently. They've resumed. Korea local production is back again. I even heard this morning on the radio that New York is reopening production. But I think, as you see the box office increase around the world, and China is now over 10 billion, by way of example, I think you'll see trends towards more local production. Because obviously, you could amortize the cost of your movie over a larger base than you could before.
So I think that's probably a trend that we're going to see is interrupted now, but over the next five or 10 years, which is a lot more local production, even in the Middle East, which has been growing very rapidly. There are a couple of companies starting up with local production there.
Are there other international markets that we haven't discussed that are still appealing to you?
I didn't specifically mention Saudi Arabia, but that's a place that we have two theaters open now. With half capacity, we did 55,000 a theater for Tenet on opening weekend. We have contracts for over 20 there, but I think the territory could support 40 or 50. That's a very good one. Japan, where we have 30 or 40 very successful territory, could do more for us. We were just opening some places in Western Europe that are strong. India has always had great promise. The theaters we have there do very well. I think we could do a lot more there.
Can you talk a little bit about some of the new ventures you're working on, like IMAX Enhanced and IMAX Live, and how they fit into IMAX's overall strategy?
Sure. So IMAX Live, which we've played around a little bit with, we did a Kanye West concert, and we did a Thom Yorke concert with Netflix and some other things. The idea is alternative content could be music, could be esports, and you deliver that to the IMAX network primarily on days of the week where the theater isn't full, or you can target it to places that are really popular. So it is not a lot of content in the U.K., and we just did a concert in The O2 in the U.K. for a band that was based in the U.K. So the idea is really to supplement and use IMAX's position in the ecosystem as kind of an experiential place where you escape and you see things like you're inside them in a way you couldn't otherwise do it. So that idea is with other content.
Obviously, this year has been difficult because theaters have been closed. But next year, we think we'll make some progress on that. And then Enhanced is a tool that we have that uprezes content for larger devices, like larger TV sets. And it could uprez streaming content. It could uprez film content. And as people get bigger and better screens in their home, and by the way, when you make an image larger, it loses resolution. It doesn't look as good. And even if you look at some of the streaming services, like Netflix is charging a premium for better content and Warner is talking about the same thing, WarnerMedia. We're hoping to create while we have tools and hoping to create more that could take advantage of that and allow the public to experience the best possible experience in the home.
All right. How do you balance the different types of deal structures that you implement between sales-type lease arrangements, hybrid structures, traditional joint ventures in order to balance growth as well as capital efficiency?
It's interesting. There are two ways. One, they're largely financial calculations, and the other way, they're relationship calculations. So just like people on this call would do an ROI analysis on looking at different investments. So when we look at a certain market, if it's a risky market with not a great return, we prefer to do a sale deal there. If it's a market where we're comfortable with the political risk, the economic risk, we'd be happy to do a joint venture there. And as a matter of fact, we refine that approach in China. So we'll only do joint ventures in higher-tier cities and places where the dynamic works better. The other thing would be who your partner is. So if you've got 10 great theaters with someone and they want to do an 11th theater as a joint venture, that would definitely factor into your thinking.
We have one question from the audience. Given all the liquidity and comments and valuation, how do you view stock buybacks now?
It's so funny to ask that question, Jessica, because we've been in a zero revenue environment for the last four months or so. So I'd say we bought back stock in the first quarter of this year.
36 million.
$36 million. We bought back stock in other years. I'd say let us get everything open and get through it, and then we'll give that some thought.
Right. There was another question about Mulan. I'm not exactly sure what the question is, but how did it perform in China?
It hasn't opened. It opens this weekend. So there's no track there.
Expectations there?
So because the dates all change, we're largely committed to Tenet in China. We would have played it if it was scheduled at a different time. But we don't have a lot of room in our network to play it. So I don't really know what the expectations are. I know it had a pretty decent buzz in China. But the one issue that I worry the most about is the piracy issue. Because obviously, if it's been streamed elsewhere in the world, you'll have a perfect version of it. And in China, that's always been an issue. But I think it has a good buzz, and how that will layer in with the piracy, I think we'll find out.
Right. Okay, great. Well, with that, we're actually out of time. But thank you guys so much for joining us today.
Okay, thanks, Jess. Always enjoy your conference.
Thank you.
Bye.