Rich Gelfond - CEO Joe Sparacio - EVP and CFO Teri Loxam - VP, IR.

Benjamin Mogil - Stifel Nicolaus Canada, Inc. Eric Handler - MKM Partners Townsend Buckles - J.P. Morgan Aravinda Galappatthige - Canaccord Genuity Inc. Eric Wold - B. Riley & Co. James Marsh - Piper Jaffray & Co. Vasily Karasyov - Sterne, Agee & Leach Daniel Ernst - Hudson Square Research, Inc. Drew Borst - Goldman Sachs Steve Frankel - Dougherty & Co..

Good day and welcome to the IMAX Corporation Third Quarter 2014 Earnings Conference Call. All participants are currently in a listen-only mode. Following the presentation, we’ll conduct a question-and-answer session. (Operator Instructions) Today's conference is being recorded. At this time, I’d like to turn the conference over to Ms.

Teri Loxam, Vice President of Investor Relations. Please go ahead..

Thanks, Michelle. Good morning and thanks for joining us on today’s third quarter 2014 conference call. Joining me today is our CEO, Rich Gelfond; and our CFO, Joe Sparacio, who will have prepared remarks. Also with us today is Greg Foster, our Head of Entertainment; and Rob Lister, Chief Legal Officer and Head of Business Development.

I’d like to remind you 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 pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements.

Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. During today’s call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission.

Discussion of management’s use of these measures and the definition of these measures, as well as reconciliation to adjusted EPS and adjusted EBITDA as defined by our credit facility are contained in this morning’s press release.

The full text of our third quarter earnings release, along with supporting financial tables is available on our Web site imax.com. Today’s conference call is being webcast in its entirety on our Web site. With that, let me turn it over to Richard Gelfond..

Thanks, Teri. The third quarter further demonstrated our commitment to delivering bottom line results and advancing our corporate goals. During the quarter, we achieved strong operating margins and a record $37 million of operating quarterly cash flow.

These results were driven by our expanded network, margin expansion, and strong global performance on hit movies such as Guardians of the Galaxy and Transformers 4. We generated a $169 million in global box office in Q3, a 28% increase over the same period last year with 64% generated from international markets.

A solid box office performance was partly a result of stronger indexing across several titles in the United States and international markets and in -- especially in China. We were particularly encouraged by the domestic performance of Guardians of the Galaxy.

The film has generated just over $60 million in global IMAX box office to date with over a half generated from the domestic market. This strong domestic performance helped drive a 12% year-over-year increase in our domestic per screen average for the third quarter.

This demonstrates that the domestic market continues to present robust opportunities for IMAX, especially when provided with content that successfully balances quality and playability, which is what our partners at Marvel and Disney did with Guardians.

Of additional note, for the first time in the third quarter, we released at least one film from every major Hollywood studio. China also continues to shine this quarter. Transformers 4 alone generated a per screen average of almost $160,000 in the third quarter, in China.

We also had a strong success with several of our local language titles in China as well as with Hollywood produced international only films, such as Expendables 3. We installed 13 new theater systems in China this quarter, bringing our China network to 165 theaters spanning 78 cities.

The Chinese backlog currently stands at about 240 theaters with over 30 new systems expected to be installed in the fourth quarter. This will bring the total number of China installs for the year to over 55 theaters, an increase from the 45 China installs that we’ve averaged over the past three years.

The opportunity for us to excel in the Chinese market is very significant. And I continue to believe we’re very well positioned to take advantage of this fast growing media market. Looking at the broader film slate ahead, we’re excited for Chris Nolan’s upcoming film Interstellar, which opens on November 7.

The film will open two days early in North America film based theaters, which will include roughly 40 IMAX locations. Chris Nolan used IMAX cameras to film over an hour of the movie and the film’s world premiere will be hosted at the TCL Chinese Theater, an iconic IMAX location in Hollywood.

In December, we look forward to the final installment of The Hobbit as well as the much anticipated Chinese local language title the Jiang Wen directed Gone with the Bullets, which will be the first local language film ever filmed with IMAX cameras. Gone with the Bullets is the sequel to Let the Bullets Fly which was released in 2010.

And at the time it was the highest grossing Chinese film ever released. Speaking of our IMAX cameras, as many of you’re already aware, J.J. Abrams is using our cameras to film certain sequences of the upcoming Star Wars 7.

In addition, the crew, a Russian local language film, which is scheduled to be released next fall has already successfully completed use of the IMAX cameras for this action based remake, making it the first Russian film to have portions captioned with the world-class IMAX cameras.

The demand for the cameras over the past several years has been robust and there are directors for several additional big blockbuster films that are either currently filming with our cameras or have agreed to do so in future films.

Q3 also represented a strong signings quarter for us with 42 new theater installs -- 42 new theater deals signed bringing our year-to-date signings to 102. Notably signings this year span 22 countries evidence of the continuing global nature of our brand and experience.

We installed 20 new systems in the quarter, bringing our commercial network to just over 750 theaters across 60 countries. Our backlog now sits at a historic high of 439 theaters which provides us with a clear runway for network growth over the next four years -- next few years.

And we continue to see demand for additional theaters for new and existing exhibitors from all over the world. While we often speak about our rapid growth in China, it's important to note that our footprint in many other parts of the world has continued to grow as well.

Our commercial network in Latin America has grown 45% year-over-year with almost 30 theaters installed in that region. Our Western Europe commercial network should reach approximately 55 theaters by year-end, up 12% compared to last year and we continue to see good momentum domestically.

In the third quarter we signed an additional 11 theaters with AMC, and we are seeing many other North American deals in the pipeline, especially in smaller markets where we have seen quite a bit of success. In terms of our laser projection initiative, we are in the final stages of development, and we plan to install our first system in December.

I personally saw a demonstration of the laser system last month, where we saw some footage of Interstellar and not only were the technical aspects of color, contrast and brightness, all amazing. It was a visual reaction that really blew me away.

Off script a little bit just to give you a little color, when we went to see the laser demo, and someone wearing a white jacket with a laser pointer in his pocket was going to show us the differences in the IMAX laser versus the other digital formats, including the IMAX format.

But to be clear, you didn’t need the laser focused on a piece of hair to see the difference. When that image was on screen, it was literally one of the best IMAX images I’ve ever seen and certainly one of the best images I had ever seen..

With regard to marketing, as we mentioned before, where we signed a strategic decision to kick off new brand marketing initiatives.

Given our increased global presence and size, we believe it is important that we dedicate some effort to educate consumers about the differentiated experience IMAX delivers and to standardize our brand and messages globally.

There are some low hanging fruit that we’re targeting, especially in the domestic market, where many people still only associate IMAX with documentary titles and are surprised to find out that we play some of the biggest Hollywood films.

To this end we began the early stages of rolling out a brand campaign with the release of our first print ad in the New York Times and the LA Times, which was aimed at demonstrating the never compromised mindset of IMAX.

We also started working in conjunction with our exhibitor partners to launch a new cross plug trailer whereby consumers in conventional theaters will be shown IMAX specific trailers in an attempt to cross sell them to go to IMAX screens.

We believe initiatives such as these and others that we plan going forward will go a long way to further strengthen the brands presence globally. In addition, we began exercising our share repurchase program in the third quarter buying back a little over 85,000 shares.

We’d have like to have repurchased more shares; however, blackout periods prohibited us from being in the market on several occasions.

With that being said, I could tell you that we were able to buyback a small amount of additional shares since the end in the last quarter and we intend to continue buying under our $150 million program over the next three years. Taking a step back, 2014 has already proven to be a productive year for the Company.

A year that I believe will reap benefits for many more to come. Many important accomplishments have taken place over the past nine months, including the 20% sale of our IMAX China business to two highly prominent investors in China. The establishment of what we believe to be the largest documentary film fun in history.

The signing of multi picture deals with Disney and Universal legendary. The release of Maze runner and the Bollywood title Bang Bang, our first Fox films in some time. The launch of our new brand marketing campaign and the progress made on our laser projection system.

When you consider these achievements, coupled with robust signing activity, ongoing cost control and increased cash flow generation, we believe IMAX is well positioned to benefit from what are shaping up to be great film years ahead. With that, I’ll turn it over to Joe..

As Rich mentioned, in the third quarter we were able to expand margins and deliver strong operating cash flow. On a year-over-year basis, adjusted net income grew 79% contributing $36.6 million in operating cash flow. The highest cash flow quarter in the Company’s history.

Looking at box office figures, IMAX generated $169 million in global box office, up approximately 28% over Q3 last year. In terms of geographic mix, $108.4 million or 64% came from international markets, while $60.6 million came from the domestic marketplace. Our global PSA for the quarter came in at 228,000, which is up 10% from Q3 last year.

Our international PSA for the quarter was 287,000, up 4% versus last year and our domestic PSA of 167,000, was up 12%. Total revenues for the quarter was $60.7 million, up almost 18% compared to Q3 last year, generating total gross margins of 58.4% or 500 basis point increase over the third quarter of last year.

Sales type system revenue was $6.6 million compared to $6.4 million last year, reflecting the installation of six new sales type systems this year as compared to five in Q3 last year. The Company had no upgrade installations this year, while we had nine in the same period last year.

Looking at our joint revenue sharing segment, we generated $15.2 million in revenue resulting in a gross margin of $9.4 million, a 31% increase over the same period last year.

DMR revenue for the quarter came in at $18.4 million resulting in total DMR margins of 73.4%, a significant increase over last year’s 59.1% which was driven by continued network growth, stronger box office and lower DMR costs associated with digital only releases in the quarter.

With that being said, we expect our DMR costs in the fourth quarter of this year to be heightened as a result of film print cost and additional marketing and production associated with Interstellar. Moving to operating expenses, SG&A excluding stock-based comp was $19.9 million in the third quarter.

This includes a $1.1 million FX charge in the quarter largely as a result of the declining Canadian dollar. Despite this, we continue to expect our year-over-year growth in SG&A exclusive of stock-based comp to be in the 5% to 8% range.

Stock-based compensation for Q3 was $3.4 million and our full-year expectation for stock-based compensation is approximately $15 million. R&D expenses in the quarter totaled $4.6 million and we continue to expect our full-year 2014 R&D expense to be roughly $15 million.

With regard to taxes, our lower than unusual tax rate this quarter was primarily due to the reversal of approximately $560,000 of valuation allowances on certain state NOLs which we now believe will be utilized. We currently expect our current -- our full-year 2014 tax rate to be around 27% with an estimated $12 million to $15 million of cash taxes.

At the end of the third quarter we had $20.9 million of deferred tax assets remaining. In the third quarter we also booked non-controlling interest of $439,000, primarily reflecting the 10% interest from the China investors’ minority stake in IMAX -- in the IMAX China business.

We expect the investors’ minority interest to be P&L dilutive by about two pennies for Q4. I’d also like to remind you that the second tranche of cash from the deal will close in February 2015 at which point the non-controlling interest line will reflect the full 20% ownership.

Our adjusted EBITDA for the third quarter came in at $17.6 million, a 19% increase over last year. Included in adjusted EBITDA is a reduction for the EBITDA attributable to non-controlling interest of approximately $900,000 for the quarter.

Looking at cash flow in more detail, operating cash flow of $36.6 million this quarter was 47% greater than the $25 million generated in Q3 last year.

On a free cash flow basis, after CapEx and investment in joint ventured theaters and our new facility in Playa Vista, the Company produced $19.9 million in free cash flow, resulting in a cash position of almost $94 million at the end of September. As an additional note, we closed on a construction loan a couple of weeks ago.

So going forward, a large portion of the cost for the Playa Vista facility will be financed. In terms of our network, we installed 20 new theater systems in the third quarter, with six new sales type systems and 14 joint venture systems of which five were hybrids.

This brings our total commercial network to 751 theater systems of which 422 or 56% are JVs. In the third quarter we also signed deals for 42 systems of which 36 were new systems and six were upgrades. At the end of September our backlog was at a record 439 systems of which 413 were new systems.

About 90% of our backlog is slated to be installed in international markets and approximately 90% of the backlog are new build. Given the majority of the backlogs are for new construction, these theaters are generally in backlog for a couple of years, which gives us good visibility into our installs for the near future.

Consistent with the install guidance that we’ve previously provided for the full-year 2014, we continue to expect to install a similar number of new theaters in 2014 as we did in 2013.

More specifically, Q4 -- in Q4 we currently expect to install approximately 19 to 20 sales type lease theater systems and about 33 joint venture systems of which about 10 are expected to be hybrids. As we look at our installations for 2015, we currently anticipate installing a similar number of new theaters in 2015 compared with 2014.

For modeling purposes, the mix in 2015 looks similar to this year with about one-third sales type and two-thirds expected to be JVs. With about 20 of the JV is expected to be hybrids. In addition, it looks like likely that 2015 installs will have a comparable rollout cadence to what we’ve seen in 2014.

With about 50% of the installation is expected to take place in the fourth quarter next year. In addition, as Rich mentioned, we’ve almost completed development of our laser projection system and we expect to begin the rollout at the end of this year. Laser projection is an exciting advancement for the Company.

Over time, we anticipate it will have a positive impact on theater performance for those theaters getting upgraded. It will also give us the opportunity to sell new theaters to customers who want to have larger screens and higher seat counts than our current digital theaters do today.

In terms of the laser upgrade scheduled for next year, we expect to install 10 to 15 laser upgrades in 2015 which will be incremental to the install guidance I just provided. Several of these upgrades are expected to be JVs, so no margins are associated with those in the year.

For the sales type upgrades, the revenue and cost of goods are quite variable based on screen size with more lasers required as the screen sizes increase. Thus it is difficult to give an average margin per theater. However, for the full-year of 2015, we expect these upgrades to deliver total incremental gross margin in the neighborhood of $1 million.

We are still nailing down the exact laser installation schedule for 2015. We are factoring in laser supply and delivery and the film slate schedule, we anticipate a few theaters to be upgraded in the first half of the year, most likely on the institutional side with the remaining upgrades to occur in the August, November timeframe.

Given the variability in schedule and margins, I’d advice you to exclude lasers from you models and consider it an upside for next year. With that, I’ll turn it over to Q&A..

Thank you. (Operator Instructions) Our first question comes from Ben Mogil of Stifel. Please go ahead..

So a quick question on sort of the (technical difficulty), I guess couple of days ago, they sort of came out with the date for Interstellar and (indiscernible) Madagascar and some other films. And they looked to be much closer today in date than we’ve seen for a while.

Are you seeing as part of sort of their overall liberalization of that market that they’re sort of more a push to same day and date?.

So I’m going to let Greg comment specifically on that issue. But in general I think as we talked about over the years, I think China is a place where there are up periods and there are down periods. But if you chart it out over time, there has been liberalization and it has gotten easier to do business.

So Greg will follow-up and tell you the last, how many movies we’ve applied for have gotten in. But we have noticed the shift over this period of time where it -- they have gone out of their way to be sort of helpful in the way things are scheduled.

I do warn you though Ben that just as an up period, it doesn’t mean -- it does not mean there is never going to be a problem again and a down period doesn’t mean that this is going to be problems forever. China is a place where things change, but in general the answer is yes, I agree with you things are certainly looking better..

The one thing Ben that I can say is that IMAX has the option of releasing virtually every movie that gets into the country via [ph] [quota], because we’re now working with all of the studios. We are on the paperwork for virtually every movie. We can’t play all of the movies, but in China there is substantial screen sharing.

So for instance, over the last several days there have been Guardians of the Galaxy, Hercules, and starting in the next day or two is Lucy. And those are all movies that will be playing in IMAX as it relates to the DreamWorks Animation title, we did really, really well with How to Train Your Dragon Part 2 and that’s a terrific relationship.

But we’ve a long-term commitment to Interstellar and we will be playing Interstellar. Interstellar represents everything that IMAX is about and that’s the title that we will be playing in China when it opens..

So that’s great. Thanks, Greg. And then maybe Rich, one for you or for someone else in the team as well about North America. You’ve talked for a while now included you’re getting that more sort of -- what I call sort of B and C and D markets now looking to add IMAX.

When you go and you look at the zones that some of the existing operators have, is there any discussion about shrinking some of the zone size and on a net basis all the existing operators kind of lose a bit of a zone here, gain a bit of a zone there.

Any kind of movement towards adding more screens in some of the major markets where the zones are just sort of physically quite large?.

It’s really focused where that happens than on dealing with the exhibitor that has the zone. So for example, AMC has a lot of Manhattan because they built it out to a large extent. Now we’ve been discussing with AMC for a while putting one or two more theaters in Manhattan, that will be the example.

So, contractually they own the right to the territory, so we would have to buy it back from them and that doesn’t really happen. The other thing that happens is, between competing exhibitors. So sometimes there are two exhibitors in a certain place and will sort of be an intermediary and will say well we’ll give you exhibitor one.

This zone will give you the exhibitor this other zone, so we kind of act as almost a facilitator to trading locations and trading zones. But no, we have no right to shrink the zones..

Do you think you’re at the level in some of the major U.S.

cities where you can put in a second screen in some locations?.

We’ve been asked that a lot. I think at certain times of the year a second screen would definitely work during some of our blockbuster season. But during those slower times of the year like February or September, it really wouldn’t work. So it’s a complicated question, and I really don’t expect it to happen soon.

We have second screens in Québec where there, one is a French language and one is English language, and they are succeeding. But I think it’s more difficult because of the seasonality of the slate to think about two screens in the same complex..

Fair enough. Thank you very much guys..

Thank you. The next question comes from Eric Handler of MKM Partners. Please go ahead..

Yes. Thanks a lot. Two questions for you. First, with your SG&A I think that was higher than a lot of people we’re looking for and I know you said $1.1 million was -- there was an FX charge due to the decline in Canadian dollar. But was there anything else in there that maybe you pushed forward into 3Q that people might not have been thinking about.

And then secondly when you think about SG&A in the fourth quarter, maybe can you sort of help us think about how much incremental spending there should be for inner stellar above and beyond the normal SG&A expenses?.

So the first part of your question Eric, higher SG&A in the third quarter as you said a lot of it was attributable to the weakness in the Canadian dollar and that was a $1.1 million charge. The other thing is that, associated with Guardians, we believe we had a real winner with Guardians.

And we decided to spend incremental marketing dollars to do that and that translated into the worldwide box office around $63 million right now. So, that was a good investment for us. And as I discussed before strategically when we see good investments we’re going to go them.

In terms of the fourth quarter our guidance of SG&A holds out what we’ve guided to previously. The 5% to 8% range for the year and we expect the fourth quarter SG&A to be lower than the third quarter SG&A. I think Joe would like to add something..

Yes, Eric where you’re going to see the incremental cost for inner stellar will be in the DMR production line and not necessarily G&A. And that’s why I indicated in the script that we expect a heightened level of cost in the fourth quarter..

Right, so can you just give us a sense I mean is it still, should we assume $25,000 or $30,000 of film print times however many film prints you’re going to do?.

No, we’re not paying for any of the film prints, the studios are..

Okay. Thank you..

Thank you. Our next question comes from Townsend Buckles of J.P. Morgan. Please go ahead..

Thanks.

With inner stellar, can you talk more about what you’re doing sort of above and beyond for that? I know you have the film systems going, but if you could talk about your marketing efforts and are you releasing the movie in your institutional theaters like you did for Dark Knight to try to really maximize this one?.

Town this is Greg, and I will take that one. So we’re doing everything that we possibly can. Again the movie represents most everything that IMAX tries to uphold in terms of our brand and the responsibility of the film maker and the quality of the film itself. I’m sure many of you have seen the incredible reaction in social media to the film itself.

Some of the things that we’ve done include, there have been these tastemakers screenings that have been held over the course of the last week all in IMAX locations, one in New York, one is San Francisco, one last night in Los Angeles at the California science center by the way an institutional theater and there’ll be more of them upcoming.

It’s the largest release in the history of our company 770 engagements of inner stellar some of which are obviously most of which are in the commercial side but we also have a more than typical on the institutional side. We know that it’s also getting into China relatively day and date. I think it’s about a week after the U.S.

release which is for all intensive purposes day and date in China. And the effort the global premier is in IMAX. The premier in New York is in IMAX. There’s a huge event at the BFI in London in IMAX. So we’re putting, Chris Nolan is our guys and has been just the most incredible partner and has filmed north of an hour of this film with our cameras.

So again we’re rallying around this movie like we do every two or three years when Chris has a movie and we’ll support it. And we’re obviously extremely excited by the fact that the reaction in the market place seems to be very strong so far..

Good to hear it. And then, on your FOX relationship also good to see you doing business with them again.

Do you feel like you’ve turned the corner on that relationship? Are they happy about how Maze Runner went and any films you have planned on the horizon aside from Avatar?.

The answer is, yes we think the relationship is much improved. FOX is certainly all in, in Maze Runner to the extent we had prior issues, things that didn’t go perfectly. We put them aside and FOX put them aside and I think we both think it went very well.

We were both very pleased with the relationship and there are a number of titles we’re discussing with FOX both internationally and domestically. And as I mentioned in my remarks we just released an Indian film with them. But I think you could expect us to see us do way more with FOX than in the past couple of years..

Great. Thank you..

Thank you. Our next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead..

Good morning. Thanks for taking my questions. Rich, looking at -- listening to some of the comments around sort of the guidance that you gave for the laser projector numbers. Is it fair to sort of characterize that? You are looking -- you’re focusing mainly on penetration rather than trying to make margins on the system sales.

So trying to get the penetration across, and then obviously make money more on the royalty side of things or the rev share side of things.

Is that a fair characterization going by some of the economic guidance that you’ve given on that?.

Slightly but not really Aravinda.

I mean what we’re -- the reason there’s not much margin next year, when we introduced it is really twofold, one is upgrade that’s not new sales and if you remember when we upgraded people the digital originally, you didn’t want to take an existing client where you made a lot of money off him or whatever your margin was and then you’re upgrading them to a new cycle and charge it again.

So you’re going to charge a lower fee to upgrade somebody than you are to someone who’s not in the market. And then the second thing is, we’ve done a number of these upgrades on a JV basis which Joe mentioned.

So we will be upgrading for example Lincoln Square and New York and Universal CityWalk and the Metreon, which are some of our highest grossing boxes in the United States right now and the kind of deal we did with AMC on those is one where they paid a little bit upfront but its more Ohio royalty for us. And those theaters do big numbers.

So I think they will be profitable for us but Joe was just talking about guaranteed profitability and certainly we can't count a higher royalty rate until we know what the attendance is at theaters. But no, we did it to help them have an experience and also to make money.

I think when you see us rollout more than new ones, you’ll see higher margins and us make more money but next year is just a transition year..

Okay, great. Thanks Rich. And then just one more if I may squeeze in. With respect to SG&A sort of longer term, I mean is it fair to assume that you would be stepping up sort of your brand marketing spend as we go into ’15 as well given the film slate.

And sort of given the potential of IMAX, you want to sort of to remove some of those legacy perceptions.

As we kind of think about the trajectory for SG&A longer term, should we expect a little bit more inflation as we kind of look through the ’15, ’16 et cetera?.

I think what you have to look at for ’15 and ’16 is operating expenses. The combination of R&D and SG&A. So I think our R&D will step back as always a product gets out there. Now we’re going to use some of the savings from our R&D and put them into SG&A.

So if you looked at SG&A as a standalone it might be a little more growth than you’ve seen in the last two years. But when you look at operating expenses combined R&D and SG&A I think although we’ll give more formal guidance in our next call and we’re still in the budgeting process.

You’re likely to seen it in the range you’ve seen in the last few years. We’re extremely focused on cost control. We get it. You’ll look at the results over the last couple of years about SG&A growth. We gave a range.

We pretty much come in towards the bottom end of that range and as Joe said, we have every intention of coming in within that range again this year..

Great. Thanks a lot, Rich. I’ll pass the line..

Thank you. The next question comes from Eric Wold of B. Riley. Please go ahead..

Thanks. Good morning. Couple of question; obviously with a big number of installs scheduled for China in the fourth quarter I think you said 30.

Maybe give a sense of what you’ve seen recently in terms of the new installs that you’ve been doing in China to how they have been performing both kind of opening wise and maybe kind of couple of months, couple of quarters after the open compared to what you saw on the past, there’s been any kind of change in demand trends there positive or negative?.

Well, Eric its sort of, this year and China has been surprised to me, because our network has grown tremendously, it’s been 50% and 100% year-over-year in terms of the network and our PSAs are up in China. So I know that was one of the investor concerns was.

[Ph] [GE] in the first batch did you cherry pick all the best locations in Shanghai and in Beijing, and its going to be more difficult after that. But in fact as I said the PSAs are up about 13% year-over-year while we’ve more or less doubled the network. So, I think the new openings have been quite good.

As I mentioned in my remarks I think we’re in 78 cities in China. Someone, one of our investors actually did a commission to study and asked us not to share who it was, who did it. But they asked, if you could see a blockbuster film either in 35 millimeter, IMAX, television or on your computer screen.

How would you want to see it? And over 90% of the people said they wanted to see it in IMAX and this was country wide. So that’s what you have to integrate really into your question, that there’s a tremendous untapped demand and our brand is incredibly meaningful there.

And not only for the Hollywood films but also for the local language titles and during my remarks I was talking about Gone with the Bullets. It’s hard for you to guide us on America to really picture it, but in China that film has the kind of buzz that a hobbit has or more. And that’s also a big reason why we’re doing so well in China..

Thank you. Then the second question, the last question, you mentioned the higher indexing you saw domestically in abroad and China in the quarter.

Anything on your part that drove that and anything that you’re working with the studios or exhibitors back then marketing or efforts around that or is that really just demand based and yours are going to be incremental to that..

We’re not completely sure Eric, because, again its just a quarter and you’ve known us for a while, I try not to say a quarter as a trend, but certainly we were very well with Disney on Guardians. We cooperated and we exchanged things, so we did a lot of things together.

For example before the movie was launched 17 minutes were shown exclusively in IMAX around the world. And when you looked at the tracking it kind of took off after that. So I think because we’ve got this long-term agreement how we’re integrated in the marketing efforts with Disney, they’re better than they have been previously.

So that will be one reason. The second thing I would like to think as you know that we stepped up our brand marketing and don’t just think of marketing as advertising but things in theaters, displays all around the world and I’d like to think we’re getting some return on that..

Perfect. Thank you, guys..

Thank you. The next question comes from James Marsh, Piper Jaffray. Please go ahead..

Great. Thanks very much. Just two quick questions here. First, on the system sale side I was just looking at that trend over the last few quarters, it seems like the pricing has been down put screen install from, it feels like 1.3 or some in the first quarter and 1.2 to 1.1 in the third quarter.

I was just trying to get a sense is this some mix issue? Is it a trend or do you think its just noise. Then I have a follow-up..

Its just noise and that over a period of time we’re going to average in the 1.2 range. I mean if you look at the backlog, you can kind of do the math off the backlog..

Yes, off the backlog it’s pretty consistent with what's it’s been. It just depends on what's being installed for the quarter..

Okay, understood. And then the second quarter just relates to I guess first in closures, it looked like your PSAs were up pretty nicely in the quarter, and I’m just wondering how that was impacted by some of the IMAX auditorium closures. Looks like you had four I guess commercial IMAX closed in the quarter.

Are these underperforming locations? Kind of what regions are they in? Can you just help us understand kind of the back story on those closures?.

James, I don’t know off hand. I know, for example I know one of the closures was in Los Angeles by Cinemark where they decided to put in their XD theater and I know their PSAs now are about half what they were when they had the IMAX theater because they decided to go their own brand direction, and the multiplex is way down.

But I don’t really remember what the other ones were. Whether they -- I think they were more institutional. I think there were institutions were the 10 year lease ran out and they decided for whatever their fund raising, some of them might just took out the theater and put more exhibit space in. Some put less emphasis on the trajection area.

But I think most of them were institutional. But certainly we’ll check offline and see if we can give you any more color on that..

Okay. That’s helpful. Thanks very much..

Thank you. The next question comes from Vasily Karasyov of Sterne, Agee. Please go ahead..

Thank you. Good morning. My question is on PSAs. I wonder if you guys would be willing to talk about puts and takes that drove PSA so far in the first nine months of this year. If I’m doing the math right, global is down 6% for the first nine months and then I think domestic is down 11% and international is down 5%.

So, maybe what drove them so far and what we can look forward for the rest of the year and for the full year and going forward? Thank you very much..

Well what drives the PSAs is the film slate and as you probably know of the 2014 film slate underperformed 2013 on a global basis and the domestic PSA is down 11% in non-IMAX just regular box office basis.

So, that’s mitigated by us to some extent because we do local language films in other markets and the mix is different and they perform differently. But that’s on a world wide basis, that’s really what's going on as how your films are performing.

We didn’t talk about it on this call and we probably should have, but 2015 shapes up to be a very special year in terms of film releases and I know somebody yesterday said to me, in Hollywood next year is always better than the current year until the movies play because its the movie business and that’s a very fair caveat.

You don’t know until the movie plays what its going to do. But as you look into ’15 and I’m just going to single out a couple, but as you know you have Star Wars, you have the Hobbit playing over in January, you have a new bond film, you have Avengers, you have Jurassic World and Fast & Furious 7 and then a number of other films.

So Tomorrowland which is the Brad Bird movie at Disney that we’re extremely excited about. So never going into a year have we had this many blockbusters. Again we’ll see when they come out, but we would certainly expect the PSAs to be better in ’15 and I would say also ’16 given how that year is shaping out than ’14.

The only thing I would add is over the last five years the PSAs every year have been between1.1 and 1.2 except for the year Avatar came out when they are about1.5 or 1.6.

But if you average that and you include this year where I don’t know where its going to come out, you would say every year including the Avatar year if you average it out its been1.1, 1.2 and the film slate will determine where in that range you end up..

Thank you, Rich. But I wonder if I could ask a follow-up question. So, if you remember at this point last year we were talking about how gravity is helping the year but excluding gravity we were also talking about film slate being pretty soft because of despicable need to hook up such a big share of at least domestic market.

So, what were the soft spots this year if you could just help us understand?.

When you’re saying (indiscernible) so one of the biggest -- there are couple of issues. One is if you look at spacing this year it wasn’t ideal. So you had Godzilla and then the next was X-Men. So we couldn’t go from one movie to the other within a week. Next year if you look at the slate, a lot of these blockbusters are three weeks apart.

So that’s really going to help us and our ability to play all them. This year also if you look at one of the biggest things that happened was the pushing of Fast & Furious into next year because of the tragic accident. If you put that movie into this year, with what you had expected it would do ’14 actually wouldn’t be so off of ’13.

But that would be my primary explanation for this year.

Greg, do you want to add anything?.

The only other thing that I would add is the World Cup always does a little bit of a number on every one. And so you have usually from June into early July with grosses that are different than the next three years. You take that and combine that with some of the things that Rich has already said and it wasn’t a spectacular year so far.

With that said it was hardly a train wreck and when you have ’15 and ’16 and even ’17 looking out in front of us you see over the course of the last several weeks some of the big announcements that have been made including the Time Warner analyst day which I’m sure many of you were at and heard probably about their incredible slate including some of the films that are very right for IMAX connections.

And then you combine that with the Disney titles and the Marvel titles and obviously the Lucas Film titles and then go to all the other studios since we’re now working with all the studios. It looks like the long-term on paper because it is the movie business but the long-term opportunities are all there..

Thank you. Very helpful..

Thank you. The next question comes from Daniel Ernst of Hudson Square. Please go ahead..

Yes. Good morning. Thanks for taking my call. Two questions if I might, first what was China revenue’s in the quarter and what was the PSA growth in China. And then second question is a little more longwinded on the issue with IMAX in Crouching Tiger. So, broadly speaking if I look at the type of people that typically pay extra to see a film in IMAX.

If I look at the type of people that bothered to see a foreign language film at theaters as opposed to at home. I would say that both those two group people are film buffs and probably are some of the box offices best and most reliable repeatable customers.

So, with that in mind isn’t the so far decision by the exhibitors to not want to show that film essentially cutting off their best customers and as we go out a number of years I would assume that we see more deals like this, Netflix in Amazon I don’t think you’re giving up on Hollywood. So I think we’ll probably see more windows narrowing.

So, don’t the exhibitors need to be servicing these best customers that still no matter what's going on, prefer to go to the box office rather than stay at home? Thanks..

So, I’ll answer that question first, and then Joe, will answer your China question. I mean our logic was as I think you know that we were going to provide alternative content at a time of the year when there wasn’t a lot of content, and in fact it was one of the slowest weekends of the year.

And we sort of thought we’d give people the opportunity to see it. The exhibitors are appropriately very focused on windows and the importance of windows in film releases, particularly block buster releases in the time of the year and we agree with that and we understand that.

What we thought we were doing was again providing people an opportunity during a slow period, its kind of a very emotional issue for exhibitors and a number (technical difficulty) in saying they are not going to do it right now. I get it. In a way we’re like a family with our exhibitors.

So, would play for a headline for one day but these -- we call the exhibitors and we explain what we were trying to do and they said, we get it. And there’s been no real fallout between us and them. I mean we’re still really good friends. We’re still building out more theaters. We’re still lots of signings.

So I think of it as a dispute within the family. But what you said really is what we were thinking. We were trying to do an experiment and find out how it would do. And despite the statements I think there’ll be some exhibitors in the world that play it and we’ll find out how it does and if it doesn’t work it won't be part of a trend.

But if it does workout then we’ll probably offer the opportunity again. The other thing that was really unique about this one is there are many markets that don’t have Netflix such as China and Russia. And think of the title Crouching Tiger in China. We also have the rights to distribute it in China where there is no competitive Netflix technology.

So I think for IMAX it was a good thing and a win-win and for the exhibitors we’ll see how they feel about it as technology continues to evolve. Joe, on ….

I mean the revenues in Greater China were $42.6 million for the quarter up from $33.1 million last year and on a box office basis it was a very strong quarter for that region..

Well in year-to-year we’re up 13% on a ….

First nine months basis in the PSA..

Nine months on a PSA basis..

Great. Thank you..

Thank you. The next question comes from Drew Borst of Goldman Sachs. Please go ahead..

Great. Thanks for the question. Rich, listening to you talk about the laser projector and the improvement in visual quality. I guess I was wondering if you thought that retail pricing for the tickets might increase for the laser projector theaters..

I don’t think it has to, Drew. Because remember they can have a lot more seats. One reason we did the TCL or we did [ph] [Leicester Square] is they have between 900 and 1000 seats. And even if the cost ends up higher you could obviously amortize it over a much larger auditorium. So I don’t think anybody has really discussed it.

And from a brand point of view, I don’t think we’re going to create a new product called IMAX laser, its going to be called IMAX and I think its going to lift the image and perception of the entire network early on especially with film makers and critics.

And then obviously in time as your network converts over the differential will be even greater between what we’re offering and other people are offering. And price elasticity is always an interesting question and as you probably know the prices are set by the exhibitors, not by us. So we don’t expect that to happen, but I guess, we’ll see..

Okay. Thank you..

Thank you. The next question comes from Steve Frankel, Dougherty & Company. Please go ahead..

Good morning. Rich, you’ve shown some pretty impressive increases in domestic indexing in the phase of a growing base of generic large screen competitors.

Is this a market share momentum something you feel like you can build on in ’15 and then are there any plans for more Guardians like marketing programs in cooperation with the studios that could help you do that?.

The answer is yes, Steve. Two kinds of marketing. One, in cooperation with the studios and two, on our own as I mentioned during my prepared remarks. We think there’s a lot of low hanging fruits and we think there is certainly room to go out. And as I said, when I think of marketing again, you need to think of it broader.

So it maybe signage outside, it maybe special entrance, it maybe up-selling at the theater, there’s different kinds of marketing. But yes, we plan to do more of it. Yes, we plan to do more with the studios also and yes, I expect to have an impact. You mentioned the private label theaters or the PLTs. We’ve done an off a lot of research.

I think I have discussed it before, so I will just give the brief version unless you want the longer version. But we’ve looked at the percentage of a particular multiplex that we did before PLTs were in that multiplex and we looked at it afterwards and it doesn’t appear that the PLTs have really had any impact on our box office.

In fact, really interesting result with Cineplex in Canada where we’ve an IMAX theater and they have a PLT in the same complex, the IMAX does better and the AVX does better which is kind of interesting.

We are not completely sure why and there is a lot of anecdotal evidence, so on Godzilla the first weekend we did like 14% and then the PLTs went to X-Men and the next weekend we get 14%. So it just doesn’t appear that it’s competitive from the consumer’s point of view..

And then maybe some more color on the pipeline in Latin America?.

Well the pipeline in Latin America as I said, we grew the network 45% year-over-year. Last year we were very successful in places like Columbia and I think Peru.

This year we change our strategy a little bit in terms of marketing and we’re marketing not only to the exhibition chain, but to the developers and the developers have sort of realized when you look at how well IMAX has performed, then it’s a really good anchor tenant.

And when they’re putting the specs out, they’re requiring an IMAX theater, kind of that was a key to our growth in China and there is an off a lot of activity going on now particularly in Brazil, which is a place where we’ve under penetrated and I’d expect us over the next several quarters that you would see some tangible progress down in Brazil..

Great. Thank you so much..

So I think that about wraps up the time we have.

I want to thank you again all for being on the call and or either following us or being shareholders and I guess I will just leave you with the thought that as a Company, we completely get the fact about operating leverage and as you grow your top line and grow your network, you need to grow your bottom line and this quarter I was particularly gratified by the $37 million in operating cash flow that we brought in and the margin expansion that occurred.

And I think as we move forward, especially into ’15 and ’16 and have things that will drive our top line growth we will demonstrate that leverage on the bottom line. So thank you all..

Thank you. Ladies and gentlemen, this does conclude the conference call for today. You may disconnect your line and have a great day..