Teri Loxam - Vice President-Investor Relations Richard L. Gelfond - Chief Executive Officer & Director Joseph Sparacio - Chief Financial Officer & Executive Vice President Greg Foster - CEO-IMAX Entertainment & Senior Vice President.

Eric O. Handler - MKM Partners LLC Townsend Buckles - JPMorgan Securities LLC Steve Frankel - Dougherty & Co. LLC Eric Wold - B. Riley & Co. LLC James M. Marsh - Piper Jaffray & Co (Broker) Kevin Hon Siong Lee - Stifel, Nicolaus & Co., Inc. Aravinda Galappatthige - Canaccord Genuity Corp. Matthew Brooks - Macquarie Capital (USA), Inc.

Mike Hickey - The Benchmark Co. LLC.

Good day and welcome to the IMAX Corporation First Quarter 2015 Earnings Conference Call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Teri Loxam. Please go ahead..

Thanks, Michelle. Good morning and thanks for joining us on today's first quarter 2015 earnings conference call. Joining me today is our CEO, Rich Gelfond; and our CFO, Joe Sparacio, who'll 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 would 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 they 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 first quarter earnings release, along with supporting financial tables, are available on our website, imax.com. Today's conference call is being webcast in its entirety on our website. With that, let me turn the call over to Rich Gelfond..

The Force Awakens; not to mention a number of other promising movies. We've also already locked in many blockbuster titles for 2016, 2017 and beyond through our recently announced long-term film agreements with Disney and Warner Bros., in addition to our existing long-term film deals already in place with Universal, Paramount and Lionsgate.

Also of significance, we recently signed an agreement with ARRI Group, the world's largest manufacturer of motion picture cameras, to co-develop a 2D digital camera to support Hollywood filmmakers creating blockbusters in the IMAX format. Demand to shoot with the IMAX cameras has never been higher.

And as part of our end-to-end strategy, this new 2D digital camera will provide the opportunity for additional A-list filmmakers to take advantage of the differentiated IMAX experience and bring tent-pole titles to audiences in the way they were envisioned.

Already, the Russo brothers have announced they'll film part of the next Captain America series with the IMAX ARRI camera. We believe the differentiated IMAX format, coupled with highly anticipated film slates for the next several years, is driving significant demand for new IMAX theaters around the world.

In the first quarter, we signed agreements for 21 theaters and we installed 13 theater systems, more than anticipated, due we believe to theater operators seeking to have their IMAX theaters installed before the release of Furious 7. As we look at our market growth, we've seen a number of recent important developments.

For instance, our new theater in downtown Tokyo, which is our first theater in Tokyo, by the way, with Toho, Japan's largest exhibitor and also a film distributor, recently opened with a combination of Furious 7 and a local Japanese title, Dragon Ball Z 2.

In its opening weekend, the Toho theater impressively generated almost $100,000 in IMAX box office and its performance has continued with strong numbers since. Japan is the third largest box office market in the world. So we're excited by the successful opening, which we believe can be an important catalyst for IMAX in the Japanese market.

Similarly, last weekend, we opened our first commercial theater with Vue in Denmark, marking our first theater in Scandinavia which launched with Avengers 2 and generated an enormous $175,000 in IMAX box office for the extended weekend.

Successful openings such as these are important because, as we know from history, when theaters start out strongly, that bodes well, not just for the theaters themselves, but for a further expansion in the territory.

In terms of other markets, we've been making good progress in the Middle East, a market where we currently have seven theaters open and are generating per screen averages that are well above our international average. You may have seen our announcements a couple of days ago for three new theaters in the Mid East with a prominent exhibitor, VOX.

We also have a new two theater deal signed with a different exhibitor in the Middle East that we'll be announcing shortly, which, altogether, will bring our Middle East network installed, plus backlog, to 18 theaters.

We're also seeing additional interest in Europe, including more in Scandinavia, as well as Southeast Asia, China, Latin America, and many other territories. In the first quarter, we also moved into our new offices in the Playa Vista section of Los Angeles. Our facility, which we built from scratch, truly represents the evolution of our company.

This facility was customized to our needs in terms of space and we've evolved from a film-based to a digital business and puts us in the neighborhood known as Silicon Beach with tech innovators, including Google, YouTube, Snapchat and Electronic Arts.

In addition to being better suited to our business needs, building a new facility allows us to recognize lower operating costs going forward, while retaining the upside of ownership. To close, the first quarter had significant accomplishments and fuel great momentum, upon which we hope to continue to build throughout the year.

We believe we are firing on all cylinders. And we look forward to audiences continuing to get off the couch and get into IMAX theaters to experience this year's anticipated blockbuster films in the way its filmmakers intended them to be seen, in the most immersive format available. With that, I turn it over to Joe..

The Battle of the Five Armies, which was newly released in China in Q1 and also carried over from December for a couple weeks in many markets. Our global PSA was $203,000 in Q1 compared to $197,000 in Q1 of 2014. The domestic PSA for the quarter was $157,000 and the international PSA was $242,000.

However, recall what Rich said about foreign exchange impact on box office this quarter. On a constant currency basis, with the first quarter last year, our international PSA would have been roughly $30,000 higher or around $270,000.

Looking at China in more detail for the first time ever, our box office in China, which was $62.9 million, exceeded that of the domestic market. The PSA in China in the first quarter was $295,000.

In addition to the final installment of The Hobbit, which was by far our largest box office contributor in China in Q1, we also played 10 new titles in the quarter, including the local language titles, Dragon Blaze and Wolf Totem, both of which performed very well in IMAX.

In terms of network growth, we installed 13 theaters in the first quarter, 11 new theaters and two upgrades, one of which was the laser upgrade at the TCL Chinese Theatre in Hollywood. Five of the new installs were sales type installations and six were JVs, of which five were hybrid JVs.

This brings our total commercial network to 820 theaters, of which 457 are JVs. For Q2, we anticipate installing around 28 to 30 new theaters with about nine of them currently expected to be sales type and about 19 to 21 JVs, of which we expect about eight to be hybrid JVs.

For the full year, we continue to expect to install similar number of theaters as last year. And we currently anticipate about 40% will be sales type and around 60% JVs, including about 25 hybrid JVs. In terms of cadence, we originally expected about 50% of the installs for the year to be in the fourth quarter.

However, there is a potential for some of the JVs to pull forward into Q3. We will provide more information on the Q3 and Q4 installations on our July earnings call when we have more definitive information.

In addition, we now anticipate having around 20 to 25 laser systems installed by the end of the year, the vast majority of which are laser upgrades. In regards to signing activity, we signed deals for 21 theaters in the first quarter, resulting in a backlog of 403 theaters at quarter-end with 378 new theaters and 25 upgrades.

About 85% of our backlog represents contracts for theaters in international markets. Moving to the P&L, total revenues for the quarter came in at $62.2 million, up 29% over last year.

This sizable increase in revenues was predominantly driven by our continued network growth, stronger box office, along with two additional sales type leasing installations and four additional hybrid installations in the first quarter versus the same period last year.

Total gross margin in Q1 was 57.8%, up 300 basis points compared to Q1 of 2014, despite having four additional JV hybrids and the foreign exchange headwinds in the most recent quarter.

Revenue from sales type installations for the quarter was $8.6 million compared to last year's $4.5 million, reflecting the installation of five full new sales type lease installations compared to three installations in the same period last year.

The company also installed two system upgrades in the first quarter, one of which was the laser upgrade at the TCL Chinese Theatre. This is compared to two upgrades installed in Q1 of 2014. Moving along, strong film performance resulted in JV and DMR revenues of $15.9 million and $17.7 million, respectively.

The JV gross margin of 66.9% included the aforementioned hybrid JVs. If you back out the hybrids, the JV gross margin was 73.2% in Q1 as compared to 68.9% in Q1 last year, an improvement of 430 basis points. On the DMR side, gross margins were up almost 200 basis points to 74.8% in the quarter from 72.9% in Q1 last year.

This increase was driven by a combination of strong box office, while containing DMR cost of goods. In the first quarter, DMR costs were $4.4 million compared to $4.1 million in Q1 last year. We continue to expect annual DMR cost of goods to be at the lower end of our $20 million to $30 million range.

DMR revenue as a percentage of total box office was 10.7% this quarter, which is lower than the 11% we saw in Q1 last year and reflects the significantly higher mix of China box office this quarter as compared to last year.

In regards to operating expenses, SG&A, excluding stock-based compensation, came in at $22.8 million compared to $18.1 million on the same basis last year. The increase was partially driven by FX exposure, primarily to the Canadian dollar, which resulted in a $900,000 increase in SG&A this quarter compared to the same period last year.

There were also higher staff costs, some additional marketing expenses, higher incidental facility cost compared to last year due to the move to our new Playa Vista's office. Stock-based compensation for the quarter was $5.6 million. And we expect roughly $20 million in stock-based comp for the full year.

Moving onto R&D, our expense for the quarter came in at $4.5 million compared to $3.6 million in Q1 last year, which reflects higher costs associated with the tail end of our laser development. We continue to expect our total operating expenses, as defined by SG&A, excluding stock-based comp, plus R&D, to grow approximately 5% to 8% over last year.

For your reference, last year's total operating expenses under the same definition was $94.3 million. So we would anticipate our total SG&A, ex stock comp, plus R&D, for this year to be in the range of $99 million to $102 million. Our total tax rate for the quarter came in at 26%.

And we continue to expect our full year 2015 tax rate to come in at about 26%, with about $15 million to $18 million of cash taxes. Adjusted EBITDA for the first quarter was $16 million, representing a 27% increase over last year.

Remember, this quarter's EBITDA reflects our Chinese investors' full 20% minority interest as of early February when we closed the second tranche of the investment. The minority interest reduced adjusted EBITDA by $1.9 million this quarter.

Note that we had no minority interest expense in the first quarter of 2014, as the China transaction occurred in Q2 last year. So if we exclude minority interest, our EBITDA grew by over 40% this quarter over Q1 of 2014.

We continue to expect the full year minority interest from the China transaction to reduce EBITDA by about $10 million to $11 million in the aggregate. On the P&L side, minority interest was $1.1 million in the first quarter. And we expect year-end minority interest impact to the P&L to total around $6 million to $7 million.

Our continued developments on our home (sic) [in-home] (23:06) initiative with our JV partner, TCL, resulted in an expense of $400,000 this quarter. At this time, we expect roughly $2.5 million of expense for the full year associated with our TCL joint venture.

With regards to cash flow, we generated $6.1 million in operating cash flow, which was somewhat impacted by a build out of inventory of $8.6 million, which included laser.

In addition, we completed the construction of our Playa Vista facility, in which we invested $16.6 million in the first quarter, with roughly $11.4 million of that financed through our construction loan.

Offsetting this was the $40 million of cash that came in from our Chinese investors in February, at the close of the second tranche of their investment. All in, we generated $33.8 million of cash in the first quarter, resulting in a total cash balance of $140.3 million at the end of March.

Overall, 2015 is off to a great start and we're excited for what the future holds. With that, I will turn it over to the operator for Q&A..

Thank you. Our first question comes from Eric Handler of MKM Partners. Please go ahead..

Hi. Thanks for taking my question. Rich, two questions for you. First, the IPO of Wanda Cinemas in China just has been a phenomenal success. And the stock has just skyrocketed since the IPO. I'm just curious.

In terms of the possibility of you listing in Hong Kong for IMAX China, what boxes do you guys need to check in order to start the process rolling there? And, for lack of a better word, how big of a bottleneck is just the uncertainty with the government giving you the go ahead? And then, secondly, in terms of your deal activity, where are you seeing the most activity right now internationally?.

So on your first question, Eric, as you know, we brought in minority investors last year that own 20% of IMAX China. And part of our long-term plan in China has always been to find liquidity for them through a variety of alternatives, including the possibility of a public offering.

We've been exploring that possibility in terms of – we can't comment on the timing or the specifics of it, many of which are beyond our control. The only things I can add are in terms of boxes to check. There are regulatory processes that are completely beyond our control and we can't predict where they go.

However, the government approval has nothing to do with the Hong Kong Stock Exchange. In terms of deal activity, as I said during my comments, it's pretty strong. There is a lot going on in Japan following up on the Toho opening. In Europe, we've had a lot of signings during the quarter.

And we think there is a lot of promise as we went through the numbers on Avengers. The territory is performing extremely well, especially in Scandinavia. I hesitate to say this. Internally, we kind of laugh about it but Russia and the CIS still remains a good territory for us. There is an awful lot of activity going on.

You have seen a number of announcements in China during the first quarter. And I think deal activity there is pretty good. About the only place I'd say that has slowed down a little bit is probably Brazil and Latin America because of the strength of the dollar there. I still think those will be terrific markets for us.

But I'm not sure they will be the next quarter..

Thanks a lot, Rich..

Thank you. The next question comes from Townsend Buckles, JPMorgan. Please go ahead..

Thanks.

Rich, coming out of CinemaCon last week and your own gathering of exhibitor partners earlier this month, can you talk about the sentiment toward IMAX as it fits in with the expanding number of other premium offerings that theaters are looking at, whether it's recliners, moving seats or some other companies like Dolby trying to follow your model of working with studios and filmmakers? You clearly had a great start to the summer with Furious and Avengers which has to help stand out from the fray.

And you touched on those in your remarks.

But, I guess, would you say – back to your signing activity, whether it's been a pickup from a tougher stretch last year and could we see an acceleration in signings ahead?.

Well, this is the second year in a row, Townsend, that we did kind of a private event before CinemaCon. And we invited, I don't know, something like 35 of the largest exhibitors in the world, the CEO Conference, and we put them together with different industry leaders, whether it's studio leaders or other industry leaders.

And we spent a weekend with them, actually, not so much discussing IMAX, but discussing the future of the industry, things like alternative content, things like the future of the blockbuster.

And it's really become a very interesting, important forum for us because not only are the topics interesting and not only do we learn a lot from each other, but we spend a lot of time networking with our top clients around the world and they spend time networking with each other.

So that would be the place where I got more feedback because CinemaCon tends to be a broader forum where you just get half hour meetings with senior executives of exhibition. You don't really get to sit down and have long chats. And I would say the feedback that I got, both there and afterwards, was extremely positive towards IMAX.

I think the exhibitors understand quite clearly that IMAX is the top of the food chain and IMAX is an end-to-end offering. And there was a lot of buzz about our laser, because some had seen it before. Some had seen it afterwards. But I guess I would say, I thought we were in as good a place as we've ever been with the exhibitors.

And by the time we got to CinemaCon, that was in San Francisco, over the weekend, and then on Monday, we got to Las Vegas. By then, kind of word had spread about a lot of things that we were talking. So people who weren't able to attend our event also had very positive things to say and pretty much on a global basis.

So without naming names, if you look at people that weren't in our business and I gave two examples but they are important ones. The Vue is one of the largest exhibitors in the world and in Europe. And Toho is one of the biggest exhibitors in Japan and one of the biggest content creators in Japan. Those would be really good examples.

So it's not just people who are in our business before, but it's people who have never been in our business getting in our business. And, obviously, you have the tractors and you have competitors and it wouldn't be a capitalist world if you didn't.

But I think, overall, the tone and the mood and understanding our positioning and where we are in the ecosystem and what we've accomplished and what we can add to their change was as good as I have ever seen..

Great. Makes sense. And maybe for Greg, the Hollywood numbers in China is so strong.

Do you expect they will take measures to cool it down a bit through either blackout or double dating films? Are there attractive local titles you can play this summer? And just in general, out of CinemaCon, where you're seeing the most enthusiasm in the slate and, conversely, you don't need to name names, but anything not quite seeing the tracking that may lead to some shuffling or additions in the slate? Thanks..

First on the China front. We only know about a month in advance. And for the titles that we have a month in advance, things are looking good. We know that July tends to have a blackout period.

As you know, Anthony Vogels, who runs our international language titles, is all over China in terms of making sure that we have a great complement of Hollywood films, obviously, working with the rest of our team in China, but has a great eye for the local language films. So whenever there is a switch into Mandarin language titles, we are covered.

So it's too early to tell exactly what the China film import/export position is going to be. But one way or the other, we'll be covered.

As it relates to CinemaCon, what I think was most interesting about CinemaCon is, of course, the big titles that we all expect, were terrific and looked great from obviously Star Wars and the titles that we all know about.

There were a bunch of what I'll call sleeper titles, as you pointed out, that sort of came out of nowhere, at least for some people. And I think we're very, very well perceived. Obviously, Tom Cruise showing up and showing what he did on Mission Impossible 5, everyone loved that and that was incredible.

I think The Walk, which Rich has talked a little bit about in the past, definitely shined a bit. That's the Bob Zemeckis movie that I think people are very excited about. Everest, which is also a fall title, I think, made quite a strong impression.

And a title that isn't an IMAX title, but I can tell you that everybody went crazy over, was the sequel to the Vacation movie, which is coming out at the end of July. And, again, it's not an IMAX title but I don't think that really matters. I would bet on that one. That looked really, really fun. So, there was a lot of great product in CinemaCon.

And I think it bodes very well for what's a trend in the business, which is a lack of seasonality in our industry. It used to be you had kind of five pockets in the year. And it doesn't feel like that's the case anymore. It feels like movies play 12 months a year.

The American Snipers of the world, the Furious 7 doing what it did in April and now these great titles in September and October, I think, suggest that 2015 is as smooth a year without the lumps of certain pockets that we've ever had..

All right. Good to hear it.

And if any of the bigger titles don't quite hit, do you expect to put in others? Do you have some others in the wings or we remain committed on the kind of two weeks to three weeks?.

As I've noted, our pillar titles are pillar titles and we feel very, very good about them. But at other periods of the time, we always have options because of our international business. We go in hoping that we're going to stick with everything that we've committed to.

But if something changes and something doesn't works, as we've shown in the past, we're able to adjust accordingly. But our strong preference is to keep the path that we currently have..

Thank you..

Thank you. The next question comes from Steven Frankel of Dougherty. Please go ahead..

Good morning. So, the last couple of years, you talked about the notion of exclusive IMAX release windows. It looks like this year and next year are so chalk full of big tent-poles that maybe that isn't a possibility.

Or do you think there still are some films coming out that where you might be able to do that? And if you can't do that, what else can you do to differentiate your experience versus the experience in a PLF or a traditional theater?.

So, first of all, the experience itself being – one of the benefits that I have is I am able to spend a lot of time with filmmakers. And when I've watched over the course of the last two months or three months, really important filmmakers watch our laser system.

In the back of my head, the first thing that I've been thinking about is exclusivities, because I can see their eyes light up. We can't declare exclusivity until the actual movies are finished, because you wouldn't really want to have an exclusive window on a movie if the word of mouth on the movie wasn't going to be incredible.

So just because you may not have heard something yet, don't take that as any sign. I think it's likely. I'm not going to promise it. But it's likely that you'll be seeing some over the course of the next 12 months to 18 months.

As it relates to the differentiation, if you really think about it, Steven, the last six months, between the ARRI camera, between the laser system, and between the immersive 12.0 sound system, not to mention the slate and then not to mention also the increase in the theater count, particularly in the markets, as Rich pointed out, that hadn't been IMAX markets, we fortified our chain in a way that we never have before.

So the differentiation is as strong in IMAX as it's ever been. And we really hunkered down as a company to make sure that everyone knows, as an end-to-end solution, we start in the very beginning of the chain and we work our way all the way through.

So I think that we've shown our partners that when they get into the IMAX business, it's not just putting a DCP in a theater 24 hours before the movie comes out. That we're part of these movies from the very beginning to the very end of the process. That includes our new marketing campaign. That includes so many different things..

Great job with the directors that are household names today.

But what are you doing to make sure that if directors comes up into the system that they are equally aware and into the IMAX experience?.

So, we have – part of that is our new building by the way and also our China – TCL Chinese Theatre. So we've created a filmmaker symposium that we do two times or three times a year. We're doing it with CA, the agency that we work with. Phil Groves, who runs our Distribution business, has played a big part in it.

And in that process, we met with young filmmakers like Chris McQuarrie, who by the way is the director of Mission Impossible 5. We've had conversations, for instance, with James Wan, who's the director of Furious 7, who became a big supporter of IMAX.

We have our USC Theatre at the USC film school that has also been an incubator for cultivating new talent. So, again, we're not doing this by throwing things against the wall and seeing if they stick.

We have a really good system in place to nurture and grow young talent with the IMAX DNA, to be able to get them to use our tools to start making movies in the studio system..

You used to talk a lot about the performance of small markets like Sparks, Nevada.

Now that those smaller theaters have been around for a while, have the PSAs held up?.

Yeah, they are. I mean Sparks, Nevada – it wouldn't be an earnings quarterly call if I didn't talk about Sparks, Nevada..

You're welcome..

Sparks, Nevada continues to be a very high-performing theater. It's a competitive zone. They're getting all of the products. The Galaxy, which is a company that we're doing more with, has had a great run there. And there's a series of other smaller markets that have come in as a result of the success of that market.

And it just shows when you put a quality theater in an underserved market people will come and enjoy it. And Sparks remains a fantastic example. But Bill Warren in Wichita, Kansas and Moore, Oklahoma is another guy who does that.

And then some of the markets that we've gone into in parts of Europe, for instance, that have not traditionally been IMAX markets. I mean the fact, again, that we did $175,000 in Denmark on the opening weekend is just absolutely phenomenal. So I think there's more of those. We're not building our business on those small theaters or the small markets.

But when we find the right partner and we find the right market, we obviously go for it. And it's more often than not working..

All right. Thank you..

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

Hi. Good morning. A question for Rich and then one for Greg.

I guess first on, Rich, on China, as you look at the opportunity that obviously you talked about on the last call, the installs now in the backlog already exceed the 400 locations; you previously thought was the market for IMAX there and I'm sure you'll update that on the Investor Day coming up.

But are you seeing more demand coming in from Tier 2 and Tier 3 cities in the region and kind of maybe get a sense of what percentage of your theaters right now are in those two tiers and how do the results compare to what you see in the Tier 1 locations?.

So, Eric, I don't have it broken out by that. But I could tell you that last year, we grew our network by about 40% in China. And our PSAs were constant. And, as you know from what we reported this morning, the PSAs are still remaining relatively constant and, as you know, from reading the box office results.

So we just really haven't – I know that was part of some doubt as thesis at some point and as we expanded into different markets, that the PSAs would drop. And we really haven't seen that. Now in terms of your question about the data slicing and dicing and what is it, we haven't done it that way.

And I'll tell you one of the reasons, because in some of the largest cities like Beijing or Shanghai, you might have a dozen theaters or even more. So, obviously, those cities that have higher populations have more theaters in them. So there is more internal competition.

But, in general, we have not seen a degradation or a pattern related to the tier of the city and the box office..

Perfect. And then, Greg, on the last call, you commented that you had content confirmed this year for 51 weeks, 52 weeks. I want to make sure you got that last week filled in. But I know it's early looking at next year but you've been signing a bunch of long-term deals with Warner and Disney and others.

Can you give us a sense of kind of right now kind of the announced or unannounced visibility into next year's slate and how much flexibility you leave for yourself with that slate?.

Well, as it relates to the September 11 weekend, we've got two options. We just haven't decided which one we're going to take. So we're spoken for, for the year. And we're mostly spoken for, for 2016, with the understanding that there is always juggling. I mean we saw a couple weeks ago that we had Pan coming out in July.

And that movie has now moved to October. So there is always adjustments that are made. And we always make sure that we have the flexibility when an adjustment is made to be able to move something up or move something in. So we have a lot of things. I am, as I've said to you before, genetically predisposed to worrying. And I will continue to worry.

But one thing that I am not particularly worried about is that we're going to have enough films. The quality of the films is always the thing that is out of our control. And we like to think that we do our homework and our diligence enough to make sure that we're picking the highest quality movies. But it's the movie business.

But having enough movies does not look like that's going to be an issue for the next couple of years..

Perfect. Thank you, both..

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

Great. Thank you. Two quick questions here. First, just to follow-up on the potential IMAX China IPO. I realize you're kind of limited to what you can talk about here. But just really wanted to understand how the mechanics of this are expected to work if it is an IPO.

Is it as simple as that China screen performances moves out of consolidated results and then instead you have an investment in a separate entity that's going to be publicly-traded? Or are you going to expect to continue to be able to consolidate that? And then the second question relates to your institutional theaters.

I just noticed that the count went from 115, down to 105 year-over-year, down about 9%. I'm just trying to figure out are these actually closures or are these moving to commercial entities rather than institutional? Thanks..

So, on your first question, James, I really can't comment on the mechanics of something like that. It really wouldn't be appropriate at this time to go into it in any more detail than I did. The second thing, in terms of the institutional theaters, we had a problem in our institutional network, which was twofold.

One, it was film-based, not dissimilar than the commercial network. So, you could only play very few films and you had to play them for a very long period of time. So, a lot of institutions really didn't have a model that worked. And that's why we put a lot of money. And one of the main reasons, not – I shouldn't say main.

One of the reasons we put money into our laser development was so that we could transition these institutions from film-based to digital-based. And we just launched that product, as you know, a few months ago. And we've been showing it to the institutions.

And we have something called an Institutional CEO Council, where we meet with the CEOs of a lot of the institutions to educate them on that transition. And then the second thing would be we raised our documentary film fund. So we could make more of an effort in terms of creating content for the institutions to show.

But there has been a gap period where they didn't have a digital solution. So they couldn't play a lot of movies. And there wasn't a lot of content. And that downtick in the number of theaters is what you're seeing because there was a gap there.

But, right now, where we've launched the laser and we've launched the film fund, we're hoping to address that going forward..

Okay. Great. Thanks very much..

Thank you. The next question comes from Kevin Lee of Stifel. Please go ahead..

Good morning and thank you for taking my question. Just a quick one on the system sale installs/upgrade front.

If we assume that system sale installs ran at the traditional $1.2 million to $1.3 million ASP in the quarter that would imply that the upgrades were around the $1 million range, which is higher than call it the $400,000 that you have roughly guided to.

Is that because of one of the upgrades in the quarter was a laser theater? And are you able to provide any additional details around the economics of laser? Thank you..

So I am going to just transition from the question James asked. I want to add something. And then I'll answer the first part. And Joe will answer the second part. Which is, I should mention on the institutional front, between yesterday and tomorrow, we're opening our first laser institutionals on the Pacific Science Center opened yesterday.

And the Smithsonian, one of three contracted for us, is opening tomorrow. So that's the beginning of the evolution. I omitted that from my answer. In terms of margin on laser, it's a very difficult question to answer. And I don't want to be evasive about it. But it's completely the truth.

Which is that, laser itself, forget our system, is a new product in the market. And it has a cost curve, which you would expect for any new product, which is that it's expensive now. And as it rolls out, not only in theatrical uses, but medical uses and other uses, we expect the cost curve to come down.

So, if you asked us what our margin was, it's going to vary. And we have a backlog of about 70 of them. I really don't know exactly what the margin is going to be over time, although we have forecast based on what we think the likely laser rollout is going to be.

The second variable that makes it difficult to pin down is the fact that the cost of laser varies on the size of the screen. So if it's a 100-foot screen versus a 70-foot screen, it needs more lasers. And it costs more.

So it's not really susceptible to a simple answer, other than I can tell you that the way we've modeled out, we hope to drive margins in laser under a larger deployment scheme, similar to where they are for our digital product. But we're not there right now.

And, Joe, you want to answer the rest of this question?.

Yeah. In terms of the average sale price per unit in the quarter is $1.3 million. And the laser upgrade, again, the deals are going to vary. This particular quarter, it happened to be a unit that had some margin associated with it. But, as Rich said, that's going to vary depending on the location and the install..

All right. Thank you very much..

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

Good morning. Thanks for taking my questions. Rich, you have about $140 million in cash right now on the balance sheet, I think, about $124 million net cash. Just wanted to get your thoughts on how you're thinking about M&A options. I mean you talked about reinvesting back into business. Just want to get a sense of what the parameters are.

How far would you go? Where would you go? Where would you not go? Just wanted your thoughts on that..

Aravinda, that's a really good question. And I am going to give you a two-part answer. The first part is that we spend a lot of time thinking about it. And I would say, at the moment, probably almost half my time is spent looking at options to answer that question.

And the answer to that question is that we're focused on kind of original growth opportunities that we've been outlining and we've been investigating. And then we're also investigating whether there are acquisition possibilities.

And we have certain internal criteria which includes a minimum kind of threshold on IRR, a certain size that would be significant enough to make a difference.

But one thing we're not going to do and this is announce products or initiatives until we're fairly certain that we button down the parameters and we have a high degree of comfort that they are going to work. So the sum of the first part of my question, the answer is yes. We're looking at all kinds of alternatives.

And then the second part is, in Investor Day, which we're having in early June, we hope to be able to outline a more specific criteria for you and maybe even more specific ideas for you laid out in detail. But I don't want to do it until they are further buttoned down..

Great. Thanks, Rich. And just a quick question for Joe. I think I missed the hybrid count in the JV installs in Q1. I was wondering if you can just give me that. Thank you..

Yeah. There were five..

Thanks a lot..

Thank you. The next question comes from Matthew Brooks of Macquarie. Please go ahead..

Good morning, guys. Just want to firstly make a comment that whenever you can make some sort of announcement about the potential growth here in Hong Kong that would be very good. I know that there a lot of investors that's the number one issue they have.

In a more general sense, I think, laser is sort of the key to keeping that competitive advantage that you have.

I mean you can't sort of discuss the cost curves, et cetera, but can you make any comments – can you see any sort of potential uptake in PSAs at some of those laser theaters? And do you have any sort of data? You mentioned a lot of the tech specs which sounds great.

But do you have any data that sort of indicates the consumer experience with the laser so far?.

So, two answers to you. One is that there will be an uptick in PSAs because of laser. In fact, there are theater – the most simple way to understand laser – and it applies to both parts of your question – is we can light screens up to 120 feet to 140 feet wide and we can light screens over 80 feet wide using our laser. Stop, end of story.

No one else in the world can light screens like that or has a product on the shelf that can do that. Stop period. So forget any other aspect or attribute of laser. We can accomplish that. So a lot of the film-based theaters, such as James Marsh's question, about the institutional theaters, they just can't put in a film system because it won't work.

So if you can put in a digital system that can show 40 films a year, that, in a film world, can show five films a year or 10 films a year, the PSAs are going to go up. So that's just a matter of simple math.

Now in some of the situations, like Sony Lincoln Square and the Metreon and Universal, we had an interim solution where we put a digital projector on the screen which showed a smaller image. And that was the case. In the TCL, we weren't filling the whole screen.

Now that we're filling the whole screen, the image is even more overwhelming and the quality is superior. So will that translate into PSAs? I think, even if you don't have golden eyes, I think, it will, because it's just a better experience.

In terms of consumers, I mean, so yes, the consumer will notice that there is a much larger image and that it's brighter. Whether they will know the blacks are blacker or whether they will know the contrast inter-frame is better, which means the blacks and the whites don't bleed together, I can't answer that question.

But, again, they'll know they are having a terrific experience and I think they will know they are having the best experience available. I'll tell you two constituencies we will notice and one is filmmakers and one is studios.

And the fact of the matter is that they are the ones who are going to make the decision, whether to re-master for our laser format. And people who have seen our laser system, the few we have up and running today, are incredibly impressed. And they are re-mastering their movies for our laser system, which provides really superior experience.

So one thing that's going to happen is because it's brighter than film and because there is more contrast, et cetera, I think, the filmmakers over time are going to make films that capitalize on that experience.

And back to the question someone asked Greg about IMAX DNA and making a special experience, I think, the filmmakers understanding that will create more special experience and more place to go. And without belaboring the point, the final point I want to make is the places the lasers are going are the TCL Chinese Theatre.

They are going in Leicester Square. They are going in New York in Lincoln Square. They are going in the Smithsonian. They are going at the most high-profile locations in the world. So in terms of brand glow and brand understanding, they are certainly going to add value there.

So whether the consumer can tell that it looks like better than 4K, I think, that's a micro way of looking and I'm not sure I can. But whether it helps the company in a material way, I have no doubt that it will..

Michelle, I know we're running out of time here. Maybe we can just take one more quick one..

Okay. Thank you. The last question will come from Mike Hickey of The Benchmark Company. Please go ahead..

Hey, guys. Thanks for taking my questions and great quarter. Congratulations. Just curious. I mean outside the quality of the film product this year, it seems like the pacing of films has been very complementary for sort of presumed growth here.

I'm kind of curious why you think this is sort of all of a sudden an awakening, I guess, from the studios in a very mature industry and it seems like a logical assumption.

And then, I guess, if you suspect a continuation, if you will, of just more thoughtful pacing of films of a future slate or is it back to normal?.

I can't articulate exactly what the reason is other than it's very clear that something is taking place.

And I think what's taking place is that there are such huge investments made in these movies that they are realizing that when they see a competitive film go out, they don't want to open up on top of it, because it doesn't necessarily help their long-term viability.

There is also, I think, a degree of IMAX in the middle of it because everyone is buying for our slots, particularly for the pillar titles. And so we've obviously noticed the spacing.

You can just look at the last couple of months where you see Furious 7 and then a month later is Avengers and then a few weeks later is another title and a few weeks later after that is another title. And so it's a very kind of comfortable spacing.

And that continues also into the seasonality factor, where all of a sudden you have fairly big movies opening up in the fall or opening up in January or February, which makes us a 12 month business. So for whatever reason, that's what seems to be going on. And I think it's just happening organically..

Thanks, Greg, and one more quick one here. Just curious on – I know you are limited on how much transparency you have into the release schedule of China.

But perhaps, just generically, if you could speak to how you see Star Wars releasing in the region, potential impact of the Chinese New Year and the sort of blackout period that you historically at least had to work out in early 2016? That would be helpful. Thank you..

I think it's just premature to forecast, for 2016, how release schedule is going to work. A lot of things can happen between now and 2016..

So, with that, I'd just like to quickly sum it up which is, we came into 2015 with very positive, but I'll underestimate the word, realistic expectations. And I think Q1 supported that view from a financial point of view, I think, so as the beginning of Q2 thus far.

But with that said and as happy as I am by all that stuff, I am most proud of the pieces that we put together for the long-term during the quarter. First of all, on the successful openings, which I mentioned throughout the world, which should lead to theater growth. Second of all, the laser performance and the laser premiere. I know it sounds easy.

But it took us three years and we spent about $60 million. And the projector has 6,000 parts in it. And it works flawlessly. I think the growth in the strategic markets, because there are signings. And then, finally, we glossed over and didn't spend a lot of time. But we signed almost 40 films in the last several weeks with Disney and Warner Bros.

And these calls used to be a lot about can you get the films? Can you keep your margins on the films? How to I know you can get the films? And I think it's a testament to where our business has been that there were virtually no questions on the call about our ability to get films or keep our margins on the films.

So I think the quarter really bodes well for the rest of the year. And thank you all for participating..

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