Michael Mougias - IMAX Corporation Richard L. Gelfond - IMAX Corp. Greg Foster - IMAX Corp. Patrick S. McClymont - IMAX Corp..

Julia Yue - JPMorgan Securities LLC Eric O. Handler - MKM Partners LLC Michael Ng - Goldman Sachs & Co. LLC Eric Wold - B. Riley FBR, Inc. Steven Frankel - Dougherty & Co. LLC Aravinda Galappatthige - Canaccord Genuity Corp. Mike Hickey - The Benchmark Co. LLC James Charles Goss - Barrington Research Associates, Inc..

Good day and welcome to the IMAX First Quarter 2018 Earnings 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.

At this time, I would like to turn the conference over to Michael Mougias, Vice President, Investor Relations. Please go ahead, sir..

Thank you, Alicia. Good morning and thank you for joining us on today's first quarter 2018 earnings conference call. Joining me today is our CEO, Rich Gelfond; our CFO, Patrick McClymont; and our Head of Entertainment, Greg Foster, who each have prepared remarks and will be available for Q&A. Also joining us is Rob Lister, Chief Legal Officer.

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 earnings press release and the slide presentation accompanying today's call have been posted to the Investor Relations section of our website.

At the conclusion of this call, our historical Excel model and guidance information will be posted to the website as well. 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 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 morning's press release. With that, let me now turn the call over to Rich Gelfond..

Infinity War, which generated over $41 million on the global IMAX network. While these figures do not include China, which opens the film next week, I'm pleased to note that our presales in China are the strongest in the history of IMAX at roughly $4 million. Avengers also established a major milestone for IMAX.

It was the first commercial release to be filmed entirely with IMAX cameras. It was also the first film to include some of our new marketing materials. For those of you who did not see our marketing materials, the third slide of our earnings presentation includes a look at how we incorporated IMAX marketing into the film's broader IP.

We believe that working with our studio partners to better implement IMAX DNA into their film marketing will be mutually beneficial. To sum things up, there are a lot of exciting developments underway and we're optimistic that these developments, when taken collectively, should increase the earnings power of our business.

In addition, key initiatives such as the launch of IMAX with Laser and our refined marketing approach should further increase the IMAX value proposition in the eyes of directors, studios, exhibitors and customers alike. With that, I'll turn the call over to Greg..

Fallen Kingdom will make its way to IMAX screens. This film also received an early release date in China where it will come out one week prior to the North American market.

In the third quarter, the third installment of China's Detective Dee will hit screens along with a few additional local language titles that we intend to announce in the coming months for the July/August period. In October, Damien Chazelle's First Man, which was partially filmed with IMAX cameras, is being released.

It stars Ryan Gosling and tells the story of Neil Armstrong, which we're already very excited about. On the topic of cameras and aspect ratio, some additional titles over the next 18 months to feature our exclusive DNA include Venom, Wonder Woman 2, Avengers 4, and The Lion King.

It's also worth mentioning that sequences of The Lion King and First Man were shown at the industry event CinemaCon last week and fan reactions were positive. And lastly, we're pleased to announce that we'll be releasing Universal's How to Train Your Dragon 3 this March.

Overall, we remain encouraged by the continued benefits we've seen from our refined programming strategy, and we believe the combination of more differentiated technology, stronger marketing efforts, and a promising film slate strategically position the company for the years ahead. With that, I will turn the call over to Patrick..

Thank you, Greg, and good morning, everyone. 2018 is off to a strong start. During the first quarter, we saw robust signings and installation activity. We achieved healthy box office growth of 16%, and we benefited from increased operating leverage as a direct result of our efforts to reduce cost and spend less on new businesses.

Beginning with network growth, which is detailed on slide 4 of our earnings presentation, we signed agreements for 45 new theatres last quarter. A resulting backlog at quarter end was 524 theaters consisting of 178 (sic) [173] sales type arrangements, 235 full JVs, and 116 hybrids.

Keep in mind, these figures do not reflect the 142 systems we announced last week with AMC and Regal, which included upgrades, conversions of backlog, theatres from xenon to laser and new systems. Including those new systems, backlog is currently at 550.

Turning to installations, we installed 16 new theatres last quarter, ahead of our Q1 guidance of 11, broken out by deal types, our installations consisted of 13 sales type and 3 full JV theaters.

Before I dive into our financial results and the strong start we are seeing on the P&L, I'd like to remind everyone that last quarter was the first reporting period reflecting FASB's new revenue recognition standard for contracts with variable considerations. We've illustrated these changes for you on slide 5.

The overall impact to IMAX is minimal with the most notable change affecting our IMAX systems contingent rent line within the network business segment. This line previously reflected recurring revenue from certain sales-type theaters that exceeded annual minimum box office thresholds.

As a result of the recent FASB changes, we will no longer recognize ongoing revenue on this line. Instead, we are required to present value all the estimated variable revenue over the life of the sales agreement and book this revenue upfront upon installation. This revenue will be reflected in our sales and sales-type lease line.

Effectively, the average sales price we recognize for sales type theaters will increase marginally going forward, offsetting the removal of the contingent rent revenue. In the first quarter, these changes were accretive to our adjusted earnings per share by less than $0.01 per share.

I would now like to turn to our financial results beginning on slide 6. Our performance last quarter reflected the continued benefits from the revenue and cost initiatives we implemented last year. Total revenue for the quarter came in at $85 million, an increase of 24% to Q1 last year.

Total gross profit of $50.7 million was up 42% over Q1 last year resulting in total gross margin of 60%, a 750-basis point increase, GAAP net income of $8.5 million or $0.13 per share compared to $75,000 in Q1 last year. Adjusted net income for the quarter was $13.4 million or $0.21 per share.

This compared to adjusted net income of $3.9 million or $0.06 per share in the first quarter of 2017. Looking at some of our revenue segments, global box office of $247 million resulted in network business revenues of $44.9 million, up 14% compared to the same period last year.

Remember, our network business revenue this year no longer reflects revenue from the contingent rent line. Theater sales and maintenance revenue came in at $35 million, up 50.6% compared to Q1 last year. The increase compared to last year primarily reflects the installation of eight additional sales type theaters in the most recent quarter.

From a margin standpoint, network business gross profit of $31.5 million resulted in gross margins of 70% slightly below last year, partially related to the revenue recognition changes and increased DMR expenses associated with re-mastering of 10 additional films.

JRSA revenue of $19.8 million resulted in a gross margin of 71%, up roughly 400 basis points compared to Q1 last year. Theater sales and maintenance gross profit of $20.5 million resulting in gross margins of 59%, well above the 45% we achieved in Q1 last year.

Margin increase was largely the result of higher average revenue per theater compared to last year compared with our installing one low-margin upgrade in Q1 of last year. Total operating expenses as defined by SG&A excluding stock-based comp plus R&D came in at $27.3 million, down 9% year-over-year.

This primarily reflects reduced investment in new businesses as well as certain marketing activities that will now happen later in the year than originally anticipated. Our resulting operating income of $17 million compares to the loss of $291,000 in Q1 last year. Our global tax rate last quarter was 27% and reflected several discrete tax charges.

For the full year, we continue to estimate an effective tax rate of roughly 24%. Adjusted EBITDA per credit facility attributable to common shareholders increased 70% to $31.4 million, up from $18.5 million in the same period last year. Overall, last quarter's results demonstrate the inherent operating leverage in our business.

We believe the progress we made on the box office front, coupled with our ongoing cost control efforts should be conducive to increasing the earnings power of our business in the future. Before I provide updates on guidance, I would like to take a moment to review the financial impact of IMAX with Laser.

Beginning with cost, as Rich highlighted, we were able to produce our IMAX with Laser system at a modest incremental cost to xenon. Moreover, under our full JV agreements, we are depreciating the cost of equipment over 10 years to 13 years, thus the incremental depreciation expense on an annual basis is nominal.

We are also pleased to note that we anticipate upfront margin dollars associated with sales type and hybrid theater installations of our new laser systems to be comparable to new xenon installations. And for full JV and hybrid JV theaters, we anticipate that IMAX with Laser will command higher take rates compared to that of xenon.

Furthermore, we are optimistic for stronger box office generation in theaters upgraded to laser which, in many cases, includes updated seating, portals and branding. Turning to guidance, as Rich mentioned, we anticipate installing roughly 180 total systems this year. Of this, we expect roughly 155 new system installations.

Broken out by deal type, we expect 55 STLs, 75 JVs, and 25 hybrids. This is roughly in line with the guidance for 2017 we have provided on the Q1 call last year. We also anticipate upgrading roughly 25 JV theaters to IMAX with Laser this year.

For the second quarter, we expect to install roughly 34 new theater systems, consisting of 9 STLs, 21 JVs and 4 hybrids. With regards to new business, which primarily consists of our VR and home initiatives, we now expect a pre-tax loss of $7 million to $8 million compared to our previous guidance of $8 million to $9 million.

The reduction in new business spend reflects our scaling back of certain segments of our home initiatives as we do not see it producing adequate returns. We took a modest write-down of $420,000 in the quarter in connection with closing certain aspects of that business.

The balance of our guidance is consistent with what we laid out on our Q4 call in February. A full breakdown of this guidance will be posted on our Investor Relations website at the conclusion of this call. Overall, our focus this year is on improving the earnings power of our core business.

We believe the launch of our exciting new IMAX with Laser experience, coupled with our refined marketing approach and continued emphasis on cost controls, should enable us to generate more operating leverage and enhance the earnings power of our business going forward. With that, I'll turn the call over to the operator for Q&A..

Thank you, sir. We'll go first to Julia Yue of JPMorgan..

Hi. Thank you. The IMAX with Laser agreement that you announced included the sound systems, rockers, redesigned entryways, and branding.

Do you plan to sign all the new commercial laser deals with these features as well or will it be more dependent on the specific exhibitor? And then also, given the broader rollout of rockers with these new laser systems, could you talk a bit about the ones that are already installed and how they've been performing in terms of attendance and maybe a box office list?.

So, the answer, Julia, is it doesn't – it's not a standard package and that will be a deal-by-deal negotiation. It just happened with Regal and AMC that all of that was included, but we're going to separate out the pieces, and the exhibitor could decide which ones they want.

However, it's important to us that sort of what we call internally IMAX 3.0 be released that way. So, we pushed for that result and we're going to push for that result. But in certain areas of the world where there are margin pressures, we'll decouple the package. Your second thing is rockers.

We put them in, in a number of locations around the world today – trying to see if I have the number..

30..

About 30. And the preliminary results are encouraging. There is a pickup in box office attendance when we reseat..

Great. Thanks so much..

We'll go next to Eric Handler, MKM Partners..

Yes. Thanks for taking my questions. Good morning. Two questions for you.

First, Patrick, with the commercial laser systems now out, is there any impact on the P&L, on the R&D line and how does that change anything for this year or next year? And then secondly for Greg, since you opened the door with sort of some vague commentary, are you looking to change your role within IMAX or what are you thinking there?.

Sure. It's Patrick, Eric. Good morning. The commercial laser project is pretty much what we anticipated in terms of the timing and the spend. So, there's no change in the R&D guidance for 2018. And then for 2019, we'll talk about that. We'll figure it out internally over the course of this year and talk about it early next year.

But you shouldn't expect any change to this year's R&D. We're right on schedule..

And for me, it's a little bit of graduation in a way. I've been here for 18 years, and I think this is a really good time to sort of step back and decide what's best to do, not only for me, but for the company. Rich and I are going to do this together. Rich, I don't know if you have anything to add, but I love IMAX.

And I'm sure that there'll still be a role here in the IMAX family. And we'll try and figure out what it is. But after 18 years, I think it's time to sort of take a step and look at it..

I think Greg said it all. We're both on the same page, and we just think after doing much the same thing, although Greg's been a tremendous asset and his role has changed, we should just explore what it should be going forward..

Thank you..

We'll go next to Michael Ng of Goldman Sachs..

Thanks for the question. I just have one for Rich and then one for Patrick and one for Greg, if I could. Rich, could you just talk a little bit more about what you see as the long-term market opportunity for laser? I think for AMC, the current deal represents about 40% to 45% of their U.S. footprint.

Is that a good proxy of where you see laser penetration going across your network now? And if you could comment about any opportunities about laser in China, that'd be great. Thanks..

Thanks, Michael. So, I think that long term, laser is going to be the standard product for IMAX. If you recall, we had created a laser product for very large screens that we released several years ago.

But that was really a temporary fix because it wasn't a digital solution for those large screens, and it didn't really have market-wide potential because of its cost. We've now engineered a cost-effective laser system, which over time will likely replace all xenon theaters and become our standard product.

In the short run, I think, especially for developing markets, we'll still offer our xenon product, but that will transition in different ways. And I think over time, you'll see most of the network convert that way. The second part was....

China laser opportunity..

Oh, China. Under our deal with Wanda, once our commercial laser product was available, Wanda has agreed to take laser delivery in lieu of xenon delivery. So, some of our installs in China this year will be laser -- IMAX with Laser and the take rate to us increases on those theaters at the time they're installed..

Okay, great. Thank you very much. And then, Patrick, I was just wondering if you could talk a little bit about the cost outlook for the year. You guys did a good job of managing cost down in the quarter. I think it would suggest that we see a little bit more of acceleration and cost growth in the back half or later in the year.

Is that just the timing of marketing or is there something else in the mix that you're planning for?.

So, the way that we're thinking about it, Michael, is, yeah, we did take down the new business cost by $1 million, so we know that that's kind of locked in. The other costs, some of them I know are timing. And so, marketing, for example, we will be ramping up and I think we're going to pretty much end up where we anticipated.

There's other cost and some of this show up in cost of goods sold, some of them show up in SG&A where I think we've made really good progress. I'm just not, at this point, this early in the year, willing to say we're going to bank all of that.

But clearly, the goal is to keep the cost under control and as we get deeper into the year, we've got more confidence that we're going to be able to bank them. We'll certainly let people know. It just seems a little bit early in the process right now..

Michael, we're also continuing to look for ways to further reduce cost. So, for example, earlier in the year, we look at our sales commission plan on a worldwide basis and won't necessarily show up in a quarter, but over time, you'll see the reductions in that plan flow through our P&L..

Great. Thank you, both. That's very helpful. And then lastly, Greg, I was just wondering if you could comment on the domestic and global opening weekend? And next thing that we saw on Avengers, was there anything that would have perhaps meant negatively affected that to say anything that you could talk about would be great? Thanks..

Yeah. I actually thought our indexing was terrific considering that the movie did $258 million. Remember, we're a single screen company. So there's not 10 IMAX locations in a multiplex, there's 1. So, we did remarkably well, I thought. I think we were $57,000 a screen, domestically, and over $50,000 internationally.

So, I feel very positive about how we did $41.5 million and if we had – if China – so, Russia is opening this weekend. So, it wasn't a part of it. And by the way, it's opening four days early in IMAX. China was not a part of it. That opens in about 11 days now.

If those two countries had been a part of the opening, we almost, for sure, would have grossed north of $50 million which would have been either right at or a record. So, I actually felt quite good about how we did..

Okay. Great. Thank you very much..

We'll go next to Eric Wold, B. Riley FBR..

Thank you. I guess two questions. I guess, one, is there a way to kind of look at China and kind of talk about how some of the theaters installed maybe one or two or even longer ago are performing relative to the average.

I'm trying to get a sense of kind of pulling out the recently installed screen, however you want to define a recent installed screen, get a sense of kind of relative performance between the two to gauge how the market is performing and how it might kind of ramp up as some of these younger screens continue the season?.

We don't have that data right now. Certainly, we can dig into it for you. However, you saw the 27.5% – 27% increase in box office in the first quarter and that wasn't accounted for by only new screens opening.

So, whether maturing was a part of it, or whether the film programming, where we do two or three films at a time was part of it, or I only briefly mentioned on my comments about China earlier. We're starting to do more in the marketing area with some of the ticketing platforms, some of the online – 85% of the tickets in China are bought online.

And that's a place we weren't very active, and then playing around with it in a little bit, we've had sort of results that are too incredible to even talk about. It's about a 25% return on our targeted audience which is never going to keep up. But we made a lot of progress on theater performance, and I think we'll continue.

We have a way to go there, but I don't have the breakout the way you want it..

Okay. Fair enough.

And then second on the 155 new screens being – or new systems being installed this year, what is the general breakdown by region or if you have it kind of by existing locations versus new builds?.

Well, China continues to be the biggest market for new builds. That's a bit north of 100. And then we've got the balance of it is mostly Rest of World and then a limited number here domestically. So, it's very consistent with our pattern over the last couple of years..

Okay. And then final question, Patrick, around the laser. So just to make sure I understand. So, you come in and install a new laser system, similar install cost to xenon. So, somewhere in the mid $100,000 range. But given that all development costs including Kodak patent acquisition were kind of already in the numbers being advertised.

So, that's really the only kind of incremental costs. The couple hundred basis point increase in take rates on your side, that's going to have a fairly meaningful improvement in margins even if you assume the box office is unchanged for these laser installs, which you'd hope it actually does increase..

Yeah. And as Rich said, it's comparable but it's a modest premium to the cost of xenon system. And so there will be incremental depreciation that will somewhat offset the premium we'll have in the take rates. The way we look at this is it's a product that works for our exhibitor partners from a cost standpoint.

It's a premium product where we're going to get better terms. And then most importantly, we and our exhibitor partners believe that this is going to drive incremental box office. This will be the best product in the marketplace..

Especially, Eric, when you package it with the enhanced auditorium, better sound system, upgraded seats, portals, I think it would be surprising if you didn't see a lift especially given my answer to a previous question was that we've seen a lift where we've done some of that without the laser..

Perfect. Thank you, guys..

We'll go next to Steven Frankel of Dougherty..

Good morning. Patrick, could you talk about what efforts are ongoing to pull more costs out of the DMR process? I know at one point you were working on electronic distribution, for example..

Yeah. As we've talked about on these calls before, the DMR process is a – it's a combination of technology and human value-add. It's evolved over the last 10-plus years. What we're doing now is we're looking at – and it's a complicated process that manages the asset from the moment we get it from the studio until it shows up on the screen.

Last year, we spent time looking at some of the big workflows within that and introducing new technology based solutions that have created some process efficiencies. This year, we're spending a lot of time looking at the rendering component of it and trying to come up with ways to create even more efficiencies to take costs down.

But this is a long-term project. We're not going to have, in one particular quarter, show a big change because it is such an important process, and importantly, it really matters to our filmmaking partners. They come in and they collaborate with us.

We have to design something that gives them the flexibility that they need, give them the user experience. So it's a long-term process. We've already made meaningful progress, more to come. But I think it will be slow in showing up in the numbers..

Okay. And for Greg, in China, you talked about a lot of these changes you're making on the big holiday weekends.

Kind of in the day-to-day business, is there anything you can do to cater better to the Tier 3s and Tier 4s?.

I think it's flexibility of programming having – as we learned over Chinese New Year and it's not just in the New Year. Having more than one option is very important because a Tier 4 or Tier 5 city is a completely different universe than a Tier 1 or Tier 2 city.

It's one of the things that the task force that went to China confirmed from their point of view too. They might as well be completely different countries. By the way, it's no different than the various provinces in India as well.

So that's what we're looking for, and that's why being able to do more movies at once is a very critical element of our strategy, and we'll continue to be the case in China and others..

And a quick follow-up to that.

Maybe an update on the China Film Fund?.

I think we're – we just recently closed it. There were a lot of approvals required, Steve, and in the last couple of months. And I think we're looking at a number of opportunities.

The total amount is about $100 million, I think, and we're looking to make 5-ish to 10-ish investments in two to three films a year, and leverage our position as providing our technology and releasing the film into attractive returns..

And given the political situation, I assume the renegotiation around take rates for the industry is indefinitely stalled?.

I wouldn't say indefinitely. I think there are – have been even recent negotiations. But obviously, it's not going to be accelerated until a lot of issues are dealt with. I should add people have asked about the impact of our – the trade issues on our Chinese subsidiary, but I like to remind everyone that's why it is a Chinese subsidiary.

It's not an American company. And also, IMAX, to remind everyone, is a Canadian company. So we don't really see any backlash coming from that..

Okay, great. Thank you..

We'll go next to Aravinda Galappatthige from Canaccord..

Good morning. Thanks for taking my question.

Just to touch on some of the potential variations to the deal structure that was introduced with Jinyi deal that, Rich, you alluded to in your prepared remarks, sort of that – the flexibility in that deal structure that we saw, should we kind of look to see that sort of structure installed into perhaps the backlog and maybe some revisions to sort of the existing contracts that are out there and, obviously, going forward as well?.

Well, since we had our last call, we've been meeting with our clients, as we mentioned, and the backlog remains completely solid. There's no changes to it. So, could it happen in certain circumstances? I never rule it out. But I think we're comfortable with the way our backlog is now..

Okay. Great. That's helpful. And then, with respect to – I guess a question for Greg on the second half slate, obviously, we're in a – the Q2 slate looks extremely rich and obviously started off well.

Based on discussion around the second half slate sort of being a little bit mixed, particularly Q4, which is a seasonally important period, I wanted to get your thoughts on the slate and potentially the ability to kind of strengthen that with the local language titles..

So, we'll definitely have an abundance of local language titles in December in China and, as Rich pointed out, the Indian title, Thugs of Hindostan in October for Diwali. Last week at CinemaCon, I think everyone felt way more positive after looking at a lot of the footage from the titles in the second half of the year.

There's definitely more of a frontload. There's no doubt about it. We all know that. But at the same time, there were some nice surprises at CinemaCon. Certainly, First Man was extremely well-received. A Star is Born was extremely well-received. And I think that there are many, many more. I could go through a lot more, but I'm not going to do that.

But I hear your point, but I think that you have to look at it as it sort of smoothes its way out over the course of the year. And while the first half is going to be incredible, the second half is going to be just fine, I think..

Okay, great. Thank you. I'll pass the line..

We'll go next to Mike Hickey, Benchmark Company..

Hey, guys. Thanks for taking my questions and congrats on a strong quarter for you. I didn't hear much on VR.

Just curious if you could update us on how your VR centers are performing and maybe how we should think about the segment's contribution, I guess, over the medium term?.

So, as you know, last year, we launched seven VR pilot centers, underlining the word, pilot. Our strategy was to open test sites and explore whether VR was; A, a good consumer proposition; and B, provided the economics where we should invest more resources and roll it out on a broader scale.

I think the consumer reaction was extremely positive, but the numbers just weren't there. And of the seven centers, which are out there today, one has top-line numbers that would meet our parameters; the other six don't.

So, we've decided to test different things in them, different models of payment, do you package them, do you do one at a time, how to market them. We're not investing in additional pilots at this time. The strategy is kind of to stay close to the hoop. We like the business.

We like our position in the business, but we don't think the economics are attractive enough at this time to warrant additional investment..

Okay. Good. Thank you. And I guess just real quick on – back to the slate. Curious your perspective sort of during the blackout period in China, call it, July/August, what you're seeing. From a film perspective, I guess, there are always a challenge, I suppose, to pick the right film and I think you've obviously adjusted your model to have several films.

But if you're getting any indication of perhaps where the strength will be and obviously working off an easy comp, but just your thoughts there would be appreciated. Thank you..

So for sure, Detective Dee 3, which comes out, I believe, July 27 is the date. There's also a title called Dying To Survive that our team has seen that we have big hopes for. And one of the things that we do is, instead of just picking movies based on titles, we look at them. And our group, in Beijing, is looking at many of them.

They actually looked at some Qingdao last week, and they're looking at more of them this week. So, we're going to make informed decisions, whereas in the past, we would base them purely on the title and the company. Now, we have the opportunity to actually look at the titles and we'll make our decisions based on that.

But there's always an abundance of local language film, as you know, from basically July 10 until the middle of August. And you can be sure that we'll pick, when in doubt, more rather than fewer to give ourselves the hedge..

All right. Thanks, guys. Best of luck..

We'll go next to Jim Goss of Barrington Research..

Thanks.

Following up on Mike's question a little bit, is there any chance that the multiple release approach you've used in China provide a potential means to at least partly access the dark period with some of the American films to the extent that you might do more of the Chinese language films in periods you'd otherwise use some of the Hollywood product?.

So I think, Jim, you have to separate it out. The multiple releases mean in a non-blackout period, you might be able to supplement Hollywood films with local language films because definitionally both are allowed in. During a blackout period, no international content is allowed in. So, no, you couldn't mix Hollywood films during a blackout period..

No, I just was wondering if that relent on the blackout period at all, but apparently not. The other issue, you're clearly over indexed with blockbuster content, but you've also likely under-indexed in the smaller periods.

How do you think it's acceptable to you to balance this out over time like you should – I assume you feel you should be able to deliver some increment over the rate of growth of the domestic and international film product as a whole? What would be your expectations or aspirations?.

So, Jim, if you look at the last several quarters, we've had an extreme divergence. The box office for all movies has been down and the box office for IMAX has been up. When you look at blockbuster specifically, more studios are doing blockbuster content. The mid-level movies are less and less and blockbusters are going more and more.

I mean, look at the results we reported today and look at Avengers over the weekend and look what's coming up, Deadpool, Jurassic World, Solo, that's where the world is going. And if you look at seven movies in any given year will be 75% to 80% of our box office.

So, yes, we can supplement a little bit by shorter runs, different studios, alternative content. But the name of the game for us is blockbusters. And I think we're sitting in the right spot in the ecosystem and that's what we're going to focus on..

Okay. And one last thing.

Is there any seasonal timing of installations and variability by geography you'd want to point to as you've gotten a larger number of installs?.

The pattern is going to be the same this year as it has been historically, which is really ramps up in the fourth quarter. And that's pretty consistent around the world..

All right. Thanks very much..

That does conclude the Q&A portion of the call. I would now like to turn the call over to Rich Gelfond for closing remarks..

Thank you. So, I mean, just to put a pretty book -- briefly, this is a quarter where we checked every box that we possibly could. Cost control, check; box office, China differentiation, check; top line, bottom line, check. I don't want anybody to confuse us with getting comfortable.

But I think every possible way we could have moved IMAX forward in the quarter financially and strategically, we did. And I think it's just the beginning. We've got a lot of great film slate which we talked about and we've got China where I think we can still make more improvements. And we've got our marketing launch.

So, I'm feeling very good about the business. Thank you all for joining..

That does conclude our conference for today. We thank you for your participation. You may now disconnect..