Jessica Kourakos - IMAX Corp. Richard L. Gelfond - IMAX Corp. Greg Foster - IMAX Corp. Patrick S. McClymont - IMAX Corp..

Stan X. Meyers - Piper Jaffray & Co. Eric O. Handler - MKM Partners LLC Steven Frankel - Dougherty & Co. LLC James Charles Goss - Barrington Research Associates, Inc. Eric Wold - B. Riley & Co. LLC Julia Yue - JPMorgan Securities LLC Matthew Brooks - Macquarie Capital (USA), Inc. Benjamin Mogil - Stifel, Nicolaus & Co., Inc..

Good day and welcome to the IMAX Fourth Quarter 2016 Conference Call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. And at this time, I would like to turn the conference over to Ms.

Jessica Kourakos, Senior Vice President of Global Investor Relations. Please go ahead, ma'am..

Thank you. Good afternoon and thanks for joining us on today's fourth quarter and full year 2016 earnings conference call. Joining me today in our Los Angeles office is our CEO, Rich Gelfond; our CFO, Patrick McClymont; and our Head of Entertainment, Greg Foster, who will each have prepared remarks and will be available for Q&A.

Also joining us is Rob Lister, Chief Legal Officer and Head of Business Development. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call.

In addition, the full text of our fourth quarter and full year release and the slide presentation accompanying today's call have been posted on the Investor Relations section of our website. We also provide quarter-to-date box office results on the IMAX Investor Relations website every Friday with a one week lag.

We also have an Investor Relations Twitter account using the handle @IMAX_Investors that includes this box office disclosure as well as other items that maybe of interest to the investor community. Finally, I would like to remind you of the following information regarding forward-looking statements.

Our comments and answers to your questions on this call as well as the accompanying slide deck 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 reconciliations to adjusted net income, adjusted EPS and adjusted EBITDA as defined by our credit facility, are contained in this afternoon's press release. With that, let me now turn the call over to Rich Gelfond..

Return of Xander Cage] (13:15) is doing quite well for us in China too. And the excitement around Vin Diesel should continue as we get closer to the opening of the next installment of Fast & Furious later this year. As we look forward to 2017, our slate is comprised of more established movie franchises that has significant followings in China.

As I just mentioned, we have Fast 8, as well as Transformers 5, both of which are sequels to two of our biggest films ever in that market. And that's just a taste of what's to come. With that, I'll turn it over to Greg to provide more detail on the film side of things..

The Last Jedi, which will also feature our cameras. And I forgot to mention Blade Runner 2049 in October, which we're also very excited about.

And that franchise title momentum continues into 2018 and beyond with titles including Marvel's Black Panther, Steven Spielberg's Ready Player One, as I mentioned, the Avengers movies, Han Solo, Incredibles 2, Jurassic World 2, and DC's Aquaman, which is being directed by James Wan, who also directed Furious 7.

With that Rich, I'll turn it back over to you..

the first is our new content initiative, and the second is our virtual reality business. On the content side, as I mentioned earlier, we entered into a ground breaking partnership with Marvel and ABC to launch Inhumans franchise on our global IMAX theatre network.

The two-episode pilot will be made into a roughly 75-minute experience and will be filmed entirely using IMAX cameras. We expect to launch it exclusively in IMAX theatres on a global basis in early September.

The first season has already been picked up by ABC domestically for the fall 2017 season and hopefully soon thereafter will be sold for global syndication, SVOD and other syndication windows as they emerge.

This is a meaningful deal for both of us in the television industry as it will be the first television show to be launched via a global theatre network.

This not only provides a very unique way to experience the launch of a Marvel franchise, but also facilitates swift global awareness of the television series given our global distribution network, which will hopefully enable quicker and more profitable international syndication.

When you consider that over 500 scripted original shows released in 2016 alone, studios are looking for new ways to differentiate their content, especially among global SVOD and syndication buyers. By having an IMAX release window, the launch content globally, this strategy could become increasingly attractive to content creators.

We're optimistic that this content initiative will help diversify our business, provide a new revenue stream for us and potentially offset some of the cyclicality in box office. Also this release in IMAX is exclusive to IMAX, so it adds another reason for people to be in the IMAX business and expand their network.

The other area, where I'm spending a lot of my time besides the core business is on VR. As I mentioned earlier, we view virtual reality as a natural extension of IMAX, given our loyal base of fanboys and our association with immersive entertaining experiences.

As many of you know, we launched our first location early this year, and has been met with strong enthusiasm from customers and partners alike. We don't have much to share in the way of economics at this point. However, the prices of our experiences are roughly $1 per minute and most of the experiences last 10 minutes to 15 minutes apiece.

The centres themselves cost roughly $250,000 to $400,000 to create. And while, it's too early to talk specifics right now, we're very encouraged by the early reactions to the site with the overall attendance and occupancy rates coming well ahead of our internal expectations.

We hope to present more information at our upcoming Investor Day, which we are planning for May 11 at our Los Angeles headquarters. And as an added incentive to attend, we will bring everyone to the IMAX VR Centre, as party of the event and share more details about our rollout. We look forward to seeing many of you there.

I hope you agree that there are lot of exciting things going on at IMAX. The network is growing at the fastest pace we've seen in many years. Signings activity continues to be robust. We're entering 24 months filled with potential blockbusters and we've launched two very exciting new ventures in content and virtual reality.

When it comes to the core business, we fully appreciate the importance of operating leverage and remain focused on cost control. When our new business initiatives move past their startup pace, we believe IMAX will emerge as a stronger company.

We hope you can all see the potential value they provide and share our enthusiasm to bringing IMAX to the next level. I'll now like to turn it over to our CFO, Patrick McClymont.

Patrick?.

Thank you, Rich, and good afternoon, everyone. As Rich discussed in his opening remarks, our core business continues to benefit from strong global demand for IMAX theatres. During the year, we installed a total of 166 new theatres, exceeding the midpoint of our original 2016 guidance by approximately 40%.

If you turn to slide 4 of our earnings presentation, you'll see the breakdown of our 166 new installs in 2016 by type. Additionally, we upgraded 16 existing theatres during the year, primarily for our laser GT systems.

I'd also like to point out that across our 1,100 screen commercial theatre network, almost 60% of the screens are joint revenue sharing arrangements, which allows us to increasingly participate in recurring box office economics. From a geographical standpoint, China led the charge this year with 116 new IMAX system installations.

We also installed 43 new theatres in other international markets in line with 2015. Regions producing notable signings and installations momentum include Continental Europe, Japan and India.

Going forward, we believe that the consolidation in the industry should increasingly play to our favor, given that our biggest global partners are the key consolidators in this space.

For example, Wanda Cinema acquired Hoyts in Australia and AMC acquired Carmike in the U.S., ODEON & UCI in Continental Europe and most recently Nordic Cinema in Scandinavia, which includes some of the highest performing theatres in Western Europe.

We look forward to working with these partners and others in our efforts to bring new IMAX theatres to more of the growing footprint around the world. Now moving to our financial results, I'd like to begin by reiterating the importance of looking at our business on both a core and a new initiatives basis, a framework we discussed during the Q3 call.

As a remainder, our core business consists of our network business, which includes all box office sharing revenue from exhibitors and studio partners, theatre sales and maintenance, as well as other businesses like distribution and post production.

New initiatives primarily consist of performance from our original content strategy, virtual reality startup, TCL Home and IMAX Shift businesses.

As many of these new initiatives are still in the seeding phase, it is important to provide investors with visibility into the fundamental economics of our core business, which drive the economics of our consolidated results.

Using this framework, let's start off by reviewing some of the key results and highlights within our core business for the fourth quarter and full year of 2016. Our core business JV and DMR revenues came in at $24.5 million and $27.6 million for the fourth quarter and generated margins of 61.8% and 60.8% respectively.

For the full year JV and DMR revenues were $91.4 million and $106.4 million and generated margins of 65.4% and 65% respectively. Results reflected weaker box office, higher DMR cost, increased depreciation as we grow the network and FX headwinds.

To quantify the FX closure, in 2016, our international box office was down roughly $26 million or 4% as a result of currency devaluation primarily from the Chinese RMB, British pound and euro. Much of the box office decline last year came from China, which faced several headwinds as Rick's laid out earlier.

Our strong installations performance of JV theatres yielded higher upfront marketing and launch costs, which are generally in the neighborhood of $50,000 to $60,000 per theatre. We incur this expense on installation regardless of whether a theatre is installed at the beginning or the end of the year.

And given our installations tend to be back-end weighted, we are recognizing upfront marketing and launch costs without the benefit of the theatre having time to generate meaningful box office revenue. To quantify this issue, we incurred $4 million of these launch costs in 2016 or $0.04 on a per share basis.

As these JVs move into subsequent year of operation, they will cruise (28:46) a full year of revenue with just the ongoing depreciation expense.

Before moving on to operating expenses, it is worth noting that we incurred an asset impairment charge of $1.8 million in the fourth quarter and $3 million for the year related to our film distribution business given a more conservative view of expected future profitability of certain documentary titles.

This impairment was included in cost of goods and impacted core gross margins by approximately 80 basis points for the year. Fourth quarter and full year 2016 core operating expenses, which is R&D and SG&A excluding stock-based comp was $27 million and $104 million respectively.

The primary driver of R&D in 2016, core R&D, was the strategic decision to accelerate the development of our commercial laser product. As you can see on slide 6 and 7, our core business continues to produce healthy profits, even in the face of a weaker box office.

Adjusted core EBITDA for Q4 and full year was $45.1 million and $152 million, bringing EBITDA margins to 42.2% and 40.4% respectively. Core adjusted EPS was $0.30 and a $1.02 for Q4 and the full year of 2016.

Turning to new initiatives, the negligible amount of revenue and cost of goods sold in Q4 and full year of 2016 came primarily from our Shift studio, which was only operational for part of 2016 as well as some VR costs.

Total OpEx from new initiatives was $1.7 million and $6.5 million for Q4 and fiscal year 2016 respectively, and came in a bit lower than expected. The biggest expenditure was in R&D for the development of home theatres' digital distribution system, which we also used to distribute content in the core business.

Our consolidated results include minority interest in IMAX China. Please note that Q4 was the first quarter in which we had a true apples-to-apples comparison for this metric as our ownership of IMAX China was reduced to approximately 68% after the IPO in October of 2015.

Operating expenses of a $110.5 million on a consolidated basis were within the guidance levels set on our Q3 earnings call and grew by 4% versus last year. Net income reflects a Q4 and full year tax rate of 35.5% and 28% respectively.

The higher than anticipated tax rate was primarily due to weaker box office revenue in lower tax jurisdictions such as China as well as some one-time tax expenses. Consolidated adjusted EBITDA was $36.9 million and $121.9 million for Q4 and 2016 respectively. Now turning to the balance sheet, we ended the year with $205 million of cash on hand.

Throughout 2016, we demonstrated our ongoing commitment to both strategically investing in our business for a number of new initiatives while also remaining focused on returning significant value to shareholders.

During the year, we invested $116.5 million repurchasing over 3.8 million shares under our buyback program, which leaves us roughly $45 million left under our current $200 million program. That concludes our fourth quarter and full year 2006 (sic) [2016] (32:10) results. Next I'd like to go over our financial outlook for 2017.

We expect to install approximately 150 to 155 new theatre systems in 2017, which is roughly in line with the elevated levels of installations we delivered in 2016. Of the new installs, we expect approximately 50 to be STLs, 78 JVs and 25 hybrid.

With regards to timing, we expect to install roughly ten theatres in Q1, of which we anticipate 3 STLs, 7 JVs and one hybrid JV. Moving to costs, we estimate DMR costs in a range of $40 million to $41 million in 2017. Core operating expense is expected to grow mid single digits on a percentage basis in 2017.

Total operating expense including new initiatives is expected to grow 10% in 2017. Partially offsetting this OpEx growth are $3.5 million to $4 million in development credits that will hit the P&L above gross margin. As I mentioned previously, our new businesses remain in early investment stage.

These initiatives, reflect a number of promising new opportunities such as VR and content, as well as some earlier initiatives, which are still under evaluation. We project the OpEx investment in new initiatives will be in the $16 million to $18 million range in 2017.

We expect the majority of this investment to be in VR and Home with a lesser expense coming from our Marvel deal. To add some additional color to the $16 million to $18 million range, roughly $5 million of that investment is related to our Home initiative. This business produces robust signings activity.

However, the installation activity is lower than anticipated. Along with our JV partner, TCL, we're actively considering bringing in new third-party capital to finance Home's ongoing wrap-up.

With respect to VR, most of the incremental investment relates to opening five additional VR Centres, as well as the investment in our cinema-grade VR camera and ongoing partnership with Google.

These investments allow us to increasingly leverage our relationships with filmmakers, exhibitors and studios, and should help drive our VR business to the next level. With respect to the Marvel deal, we expect to see our portion of revenues from Marvel's Inhumans box office and licensing fees impact new initiative revenue in Q3 and Q4.

Production and marketing costs will primarily hit in Q2 and Q3 new initiatives' cost of goods sold. The revenue in cost of goods sold from these initiatives will hit the distribution line on the P&L.

In summary, we expect a modest loss this year as is typical in television, assuming additional seasons of Inhumans, the economics get increasingly attractive. All-in-all, we'll remain disciplined in our approach to new business expenses.

We believe these businesses have the potential to provide us with substantial returns and provide IMAX with alternative revenue streams not tied to box office. Wrapping up the 2017 outlook, we currently anticipate full year of 2017 stock compensation expense of approximately $26 million, down from $30.5 million in 2016.

Lastly, the effective tax rate is projected to be in the 23% to 24% range. A full breakdown of core and new initiative cost guidance will be posted on our Investor Relations website at the conclusion of this call.

Next, I'd like to briefly touch on some recent changes to our communications with investors, as well as other enhancements still to come in 2017. In the third quarter, we implemented weekly box office disclosure on our IR website. This appears to be a welcome addition by the investment community, and as such, we'll continue to provide these updates.

Please note that our Twitter feed, Twitter handle is IMAX_Investors and website will become increasingly important tools for us in 2017, and we may make additional material disclosures through these platforms in the future. We encourage everyone to checkout both as they offer useful material as you analyze our company.

I'd also like to mention that beginning next quarter, we'll be implementing a new reporting structure that will recast certain line items in the segment breakout in our MD&A and how we present our results to you on these calls. Please note that we're solely reclassifying some of our line items and there's no change in the company's operating segment.

The biggest change is that upfront revenue recognized in hybrid sales, will now be included in the systems sales line as opposed to the joint venture line. These segments will become part of our theater sales and maintenance business. We believe this will be a lot more straight forward given this upfront revenue is in no way correlated to box office.

We also plan on simplifying the disclosures to enable you to see a clear correlation between box office and actual IMAX revenue. We'll be combining our joint venture revenue line with our DMR revenue line, which will provide a clear picture into our straight box office sharing revenue. These two items will comprise our newly created network business.

Our hope is that you'll find this significantly more straight forward versus how it's laid out today. The change in reporting structure will likely go into effect during Q1. And coinciding with the reorganized financials, we will provide a historical model on our website prior to the Q1 earnings call.

Before I turn it over to Q&A, I would like to provide a brief update on my initial impressions during my first six months at IMAX. First and foremost, the entrepreneurial spirit and dedication by the team to making IMAX successful impresses me each day.

I really appreciated this during my ramp up phase and as I work with the various business units to ensure we are doing the best we can from a finance perspective to enable their success. There've been no surprises for me on the core business side, it's a model that produces a lot of cash and the cash flow will grow with the network.

Clearly there's lot of runway on that opportunity going forward. On the new initiatives side, our partnership with Marvel and our VR business has picked up real momentum since I arrived. So, I've seen first-hand how these are on strategy and have real potential as differentiated business lines.

Although Home and Shift predate me, I'm directly involved with both businesses and I'm working with their leadership to ensure we are disciplined as we see if these businesses can establish momentum. I believe along with Rich and Greg, there are tremendous opportunities to both expand the core business, while also extending it to new exciting areas.

My goal as CFO is to provide the team with the resources to pursue growth, while also ensuring we are disciplined as we use our capital and we continue to focus our efforts on effective cost controls and efficiency generation. It is a fascinating time to be at IMAX with many opportunities to pursue.

At this time, I'd like to turn the call over to the operator for Q&A..

We'll take our first question from Stan Meyers with Piper Jaffray..

Thank you. Rich, I wanted to congratulate you on your new three-year deal with Disney earlier this week. No doubt a great partner to have. I guess, two areas I wanted to focus a bit more and get some clarity. First on the camera use.

I was wondering if Disney increased its commitment to use IMAX cameras in future films relative to what you guys have disclosed previously? And second in the press release, I believe you mentioned that under the new agreement both companies will work together to create more marketing materials, does this sort of imply increased marketing dollar commitment from IMAX, and potential pressure on the DMR margins going forward.

Just wanted to see if you have any more details around that? Thanks..

The Last Jedi was probably filming a year-and-a-half ago, and we didn't announce the camera use until this week. So, yes, cameras are an important part. We have announced the Marvel side with Avengers and Marvel has been – Marvel Studios is an incredible partner in terms of using our cameras.

Inhumans as we've announced on the television side is using our cameras. So we do plan on that being a broader initiative of ours.

As for the marketing side, we've always tried to have increased and enhanced exclusive marketing and we will be having more, but because of the framework of the Disney relationship, it will be the same economics as we've already had, we're going to devote a little bit more money into social media kind of a pool between the two companies, but I would not in any way call it material, that it's going to change our DMR margins or economics in a significant way at all.

It's also about investing back into the product, and Disney and Marvel in particular are on an incredible roll, and that's exactly where we'd like to invest..

Thanks..

And, we'll take our next question from Eric Handler with MKM Partners..

Thank you very much for the question, actually two questions. First, Patrick, I appreciate the help instead of laying out some of the expenses in 2017 from the new initiatives, wondered if you could sort of give us some detail in, how we might think of revenues or at least if not revenues, EBITDA line.

Is it a breakeven year, is it a headwind of $20 million, $10 million just so we can sort grasp what would be considered a range that you would consider successful or disappointing or break it out some way that we could sort of figure out how to track this?.

Sure. It's a good question. That was what we're trying to accomplish on the call. So, I'll try to clarify. The $16 million to $18 million we talked about as an operating expense investment, that's best described as the net number, right..

That's it. Okay, okay..

We expect there to be some modest revenues, but we're still very much in investment phase in these initiatives, and so when you look at it on a – instead of a net number, it's that $16 million to $18 million is what we're currently estimating..

Okay. Great. I appreciate the clarification. I am a little slow sometimes. Secondly, for Rich, a couple of months ago you guys put out a press release saying that you have reseated the AMC theater on Broadway and 68th or AMC reseated it for the IMAX screen.

I happened to notice that there was also very nice recliner or rocker reseating done in your New Rochelle, IMAX screen as well, how many screens have actually been reseated with these nice leather recliners – very comfortable by the way – and how many of your facilities do you expect to reseat over the next year or two? And has there been any positive impact from those reseats?.

So, Eric, as you correctly stated, it's the exhibitor that does the reseating and not us. I think we have about 25 reseated so far. Again we don't have a layout, a plan from each of the exhibitors, but I would just guess that at least that number probably would be done again this year.

So, there's different kinds of reseating, there is recliners or there's rockers you enjoyed in Lincoln Square, New Rochelle. The data, it's early, but the data on the rockers is pretty positive, it looks like there's been an uptick.

The data on the recliners, is a little more controversial because as you know we did so well on the opening weekends that the seating capacity which you lose by going to recliners, they will offset your ability to capture that amount of people. So, I think, based on the data today it's quite encouraging.

I think it's an opportunity for higher box office and, I think, hopefully we and the exhibitors will go in the direction of the rockers which, I think, maximizes the returns..

Thank you. Appreciate it..

And we'll take our next question from Steven Frankel with Dougherty..

Good afternoon. Greg, maybe I'll start with you.

Could you give us some color on the upcoming U.S.-China trade negotiations and what the likely impact might be on the industry and IMAX in particular?.

So I'll give you that, at the moment, because I've spent a fair amount of time on it. The answer is I feel fairly strongly that the impact on the U.S. side, which includes us, will be positive.

Remember, the WTO ruling was a number of years ago and the last go-around was a five-year term and this one is set to negotiate that term to get in compliance with the original WTO ruling.

So my own opinion is the question is how much better does it get for the studios and does it get for IMAX? Unfortunate I don't the answer to that, but directionally, I think it's highly unlikely it will get worse and much more likely it'll get better..

And do you think this is something that will come into play by the end of the year or we should think about the changes impacting 2018 rather than 2017?.

That one's harder to predict because I know the negotiations haven't started yet. They are scheduled to start in February, but obviously, that's not going to happen. So I just don't know..

Okay. Let me shift to Inhumans. A lot of TV productions these days play internationally on the same timetable they do in the U.S.

You seem to imply that a channel like Disney was going to do Inhumans U.S.-only in Season 1 and the syndication happens in Season 2 or did I just mishear you?.

No, it's going to be syndicated before the opening of the IMAX release. It's just they're not going out and start syndicating it for a while now. But it's going to run internationally when it runs in the U.S..

Okay.

And will it play in China at least on the film side?.

It's interesting. We hope so. We're working hard to make that happen. But in China, there are very complex regulations about getting movies in and getting TV shows in and getting video content in, and we're in the middle of navigating it. So we're hopeful, but we can't predict..

Okay. Let me sneak one more in. You talked a lot about getting more IMAX DNA in the films. And it does impact your market share, but it also seems to me like the average person still doesn't get it.

How do you take advantage of what is a great experience and make sure that the incremental person who isn't a fanboy knows what's going on and goes to you rather than a PLF?.

Well, this is Greg. I think it's harder to do when you have fewer titles per year. So one of the strategic reasons why we've doubled the amount of films with specific IMAX DNA is to capitalize on exactly what you just said. We have to condition and keep repeating the process and make sure that movie goers know about it.

And doing so with a concerted strategic plan with our partners on the studio side and our partners on exhibition is exactly what we're going to do. I think we've already started to do that.

You've seen, Steve, that on movies like The Force Awakens and some of the Marvel movies, obviously Chris Nolan's movies and the Transformers movies, what happens to our indexing.

And we see those results as well as the studios and exhibitors, and we're going to just keep pounding that and make sure that people know that when they come to an IMAX theater, they're getting an experience that they can't get anywhere else..

Okay, great. Thank you..

As a reminder, please limit yourself to one question. We'll take our next question from Jim Goss with Barrington Research..

Thanks. I was wondering related to some of the programming.

You've gone back and forth with regard to kids programming and I'm wondering what are the considerations that are going into such a decision for either Greg or Rich? And with the blockbusters, are the studios onboard with letting you let your winners run and make that decision, more of a game-time decision? And that's it..

On the family-oriented movies, Jim, the sort of ask/bid on the whole thing is how are we going to do, right. There is no point in doing it just for the sake of doing it.

What we've noticed is that when a movie does $200 million or $300 million at the box-office and while we probably will do a smaller percentage of that box-office, I'd rather have 7% of $300 million than 15% of $50 million, and that's really the question mark. Obviously, we also want to be able to give an incremental advantage to the experience.

If it's something that we – whether it's through sound, whether it's through marketing, whether it's through the picture, we can provide something that's additive, then we have to consider that.

But we think, for instance, with the movie like Beauty and the Beast, which has an expanded aspect ratio in IMAX and is a true blockbuster, that's a great title to be a part of. The other question in terms of what happens with the length of play. We make commitments and we stick by our commitments.

And as you know, we have only one screen in 99% of the complexes that IMAX exists. With that said, if there is a movie that just doesn't perform in anyway whatsoever, in the spirit of partnership, we will go and talk to our exhibitor and our studio partners and usually the right things happen. But with that said, we do make commitments.

We take those commitments very, very seriously and we'll never turn our back on our commitment..

Thanks..

And we'll take our next question from Eric Wold with B. Riley..

Thanks. And maybe I'll call this a 1.5 question. I guess one real quick housekeeping and accounting. How many titles hit the DMR cost during the quarter for this quarter and then for the year ago? Then I have my main question after that..

The year was 51 titles I believe..

52 titles..

In the quarter?.

I think he means for the quarter versus last year's quarter..

That we'll have to come back on that. (52:22)..

Okay. So I guess the question is, if we think about the VR Centres, I know it's relatively early. You talked about the $400,000 cost to get these open.

As you kind of think longer term and assuming these five centres or whatever the number they'd be end up doing well and you decided to move forward beyond that, how should we think about that business model eventually morphing? Is this something that would be more like a core JV where if it's in a movie theater, that movie theater operator would contribute to the upfront cost? If there is a separate side door out to the shopping center, would the developer contribute to the cost? So is that kind of something you're thinking about kind of longer-term where someone would run with it either in that way or could it be even larger where someone may kind of take it as a franchising model? Someone would, so to speak, kind of eat all the costings (53:15) upfront and you basically participate more as a licensing kind of revenue share on that front?.

We're hoping long-term, Eric, but judging by the first results, which again are very good but early, I think this is a business at the moment we plan on participating on in JV kind of way. I don't think if someone came to us today and said, I'd like to buy X territory, and by the way people have in different forms, we've said no.

I think this is a enormous opportunity for us. But as it unfolds and we look at the amount of capital that's required and the IRRs and we'll be open to anything..

Fair enough. Thanks, Rich..

Okay. Thanks..

Eric, I found the answer to your question. So for the quarter, we released nine films in 2016 versus seven in 2015, and for the year, it was 51 films in 2016 versus 44 in 2015..

And we'll take our next question from Alexia Quadrani with JPMorgan..

Hi. Thank you. This is Julia Yue on for Alexia.

As you mentioned, IMAX has had such a strong installations momentum over the past couple years, at this point, how much visibility do you have into the 150 installation to 155 installation guidance that you gave for the year? And could this end up increasing a bit given how much the 2016 installation target moved up from the beginning to the end of the year?.

The answer is yes, Alexia (sic) [Julia] (54:50). We try and give guidance to a number that we expect to achieve and things happen during the year. And I think we have built in for slippage, so if things move or for more signings or not and we base those on past years.

But our environment right now for new deals is surprisingly strong even though we had such strong signing year. Last year I personally expected the pace to slow down a lot, and it's still quite a healthy pace right now. So we're telling you what we think, but yes it's possible.

Operator?.

And we'll take our next question from Matthew Brooks with Macquarie..

Good afternoon, guys.

Can you just make a comment were the 7,000 people who attended paying customers, because you could already be annualizing $0.5 million in sales in winter (55:54)? And can you say anything generally about what you're assuming in terms of revenues from these new initiatives in 2017?.

Yeah, more or less, they're paying customers. I mean, there were some promotions that came in, so I don't want to mislead you, but more or less, they're paying customers. In terms of revenues for this year, it's still early to try and predict that because it depends how many centres we open, what parts of the world they are, can't do that.

But as I said a couple times, it's extremely encouraging. I don't know how many of you got to see the press coming out of our press conference here in Los Angeles, but it's been really well received. We've taken about 100 exhibitors, real estate people, talent through the thing and the reaction's been very, very positive..

Thank you..

And we'll take our next question from Ben Mogil with Stifel..

Hi, good afternoon. Thanks for taking my question.

So just one on sort of the Inhumans deal as it relates to China, does this end up being part of the existing film quotas? Does this get a carve-out because it's TV product and cannot play in the theaters there?.

Yeah. Those are all good questions, Ben, which I'm not sure. I mean as you know, we have quite a sophisticated management team in China that's been working to answer those questions. And in fact, Greg went over to Beijing for a few days to help them out.

We've had meetings with the relevant government authorities and private enterprise, and we're still sorting that out..

Okay. Fair enough. Fair enough.

On the VR front, I know it's very early in terms of revenue models, but do you envision the revenue model to be more of a licensing model or more of a transactional one when you've sort of all said and done?.

I'd like it to be transactional, but I think there is a huge opportunity there. But we'll see. It depends how big and how fast the rollout is. So people wanted to roll out a very large territory in very short order. For a lot of money I suppose we'd consider it.

But at the moment, we're thinking of it more as a kind of along the lines of our joint ventures..

Okay. And then lastly, one, for Patrick. The $4 million launch cost for sort of first year JRSA as you mentioned for 2016.

What was that number in 2015?.

I'll have to come back to you on that. I don't have it in front of me..

(58:40)..

Or maybe alternatively, like, is it a similar number for 2017 so that this is really just kind of a wash from a net annual basis?.

Say that again, Ben, I apologize..

So is the number you look at, early days obviously, but for 2017 kind of a similar launch cost number so that in reality the year-over-year change is kind of negligible?.

We've talked about what we think we'll do in terms of installs this year. Any of those that are JV deals, we're going to have this $50,000 to $60,000. So that tells you what we expect it to be for this year, but it could bounce around depending on the timing of those installs.

Because of the ramp-up in 2016, it was obviously a bigger impact in 2016 versus 2015..

Got it. That's great. Thank you very much..

All right, we'll....

That concludes today's question-and-answer session. At this time, I'll turn the conference back over to our speakers for any additional or closing remarks..

Yeah. So thank you very much for joining us on the call today. I mean, like you, we know 2016 was not the greatest box-office year we've ever had. On the other hand, it may have been one of the greatest strategic years we ever had.

And we had our board meeting today, and what I said to my board was, given the alternative having a great box-office year or a great strategic year, I'll take the strategic year all the time.

Because we've set the stage with the growth in the theater network and the growth in the backlog and the growth of the installs to hat really produce long-term, meaningful revenue growth.

Box-office is a wonderful thing and it has ancillary benefits, such as getting more people in the IMAX business, but in the long-term box-office was in a range and it's noise. In 2016, it was not such good noise. In 2015 it was wonderful noise. But one thing that's not noise is how we grow our network and how we expand our business.

And you add to that the new businesses and the encouraging start we've gotten off to, I think we're in a pretty good place and all-in-all I think 2016 was mostly a satisfying year. Thank you..

This concludes today's call. Thank you for your participation. You may now disconnect..