Good day ladies and gentlemen. And welcome to the IMAX Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Heather Anthony. Please go ahead Heather..

Thank you, Lisa. Good afternoon everyone and thank you for joining us on today’s fourth quarter and full year 2019 earnings conference call. On the call today to review our financial results are Rich Gelfond, Chief Executive Officer; and Patrick McClymont, Chief Financial Officer.

Megan Colligan, President, IMAX Entertainment; and Rob Lister, Chief Legal Officer, are also joining us today. Today’s conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after this call.

In addition, the full text of our fourth quarter earnings press release and the slide presentation accompanying today’s call, have been posted on the Investor Relations section of our website. At the conclusion of this call, our historical Excel model will be posted on the site as well.

I would like to remind you of the following information regarding forward-looking statements. Our comments and answers to the 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 non-GAAP financial measures, including 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 Mr.

Rich Gelfond.

Rich?.

Far From Home on IMAX Enhanced, made it the first Marvel title ever to be available in IMAX exclusive standard aspect ratio for the home. As we capitalized on the in-home opportunities created by SVOD, we’re also looking to capitalize on the out-of-home opportunity created by skyrocketing experience economy.

IMAX is among the broadest out-of-home distribution platforms in the world. We believe there’s an attractive opportunity as consumers, led by millennials, increasingly value and choose to spend on out-of-home experiences over material goods. Market researcher firm, Euromonitor, estimates the experience economy will grow to $8 trillion by 2030.

We are increasingly using our platform, which boasts more than 0.5 million seats across 81 countries and territories worldwide to explore unique experiences from esports to exclusive music events and beyond that leverage our scale, technology as well as the strength of our brands and our relationship with creators.

In conclusion, IMAX delivered very strong results in 2019 and our continued ability to deliver is a result of the unique privileged position we built in the ecosystem. Consumers seek out the IMAX experience for immersive blockbuster experiences.

Studios value IMAX as a mark of a must-see film and a powerful partner in marketing and driving box office for their biggest releases. The world’s best filmmakers and now creators more broadly are increasingly using our end-to-end technology to bring their creativity to life.

Exhibitors rely on our theaters to provide a premium experience that drives ticket pricing, volume and differentiation. And finally, streaming services offer strong new opportunities for us to bring new event content to our theaters and bring the IMAX experience to home and entertainment.

With the global scale of our network, we believe that we are well positioned to capitalize at the change at hand in the entertainment industry. And we’re confident in our ability over the long-term to continue to drive our overall financial performance. With that, I’ll turn the call over to Patrick..

five new installed – five new installations, presale and two JV, and five JV upgrades to IMAX’s Laser. Of the total 10 total installations, five are already complete. SG&A related stock-based compensation is expected to be around 22 million for the year. We also anticipate our full year effective tax rate to be approximately in line with 2019.

To close, we are pleased with the positive momentum we have witnessed over the past couple of years. Our strategy and execution in 2019 position us to capitalize on the IMAX centric 2020 slate and what looks to be an extraordinary content slate in 2021.

With that I’ll turn the call over to Rich for concluding thoughts before we open up the call for Q&A..

Well, let’s just open up to questions..

Thank you. [Operator Instructions] We’ll take our first question today from Eric Handler, MKM Partners..

Thank you very much. Hope you can hear me, okay. I’m at an airport, so I apologize for excess noise. But, Rich two questions for you. First, it’s great to see you guys updating your addressable market.

You said it was three to five years out, so I’m just curious, what was the prior baseline that we’re using for North America, China and the rest of world? Just so we’re – I believe your prior guidance was for 10 years, so now like its three to five years..

No, no, no. It’s always three to five years. Eric, the reason is because the economies changed, so it’s the same basis as the last one was prepared. While you ask your second question, is that the number? It was about 2850..

It’s about 2850. Perfect. Thank you, great. And then secondly, with IMAX Enhanced, obviously you have some interesting data points to share here.

Is there, have we reached some inflection point with this new business that maybe we start seeing revenue ramping a little bit more aggressively in the coming quarters or is this still a very nascent, don’t put a lot in there in that line-item business?.

I would say for this year it’s still a nascent, don’t put a lot in there, line item basis. But we’ve been making some strategic progress and again, if we follow through on these things we’ll let you know. But I think we are close to a tipping point where it could be a business that contributes in the years going-forward, but not this year..

Okay. Thank you very much..

Next up is Alexia Quadrani, JPMorgan..

Hi, thank you very much. I think it’s first on the coronavirus, has it impacted, do you think the movie going sort of behavior or experience or just traffic in general in Asia, ex-China, sort of looking at your other markets outside of China within Asia? And then a sort of a second question, sort of staying on this topic.

I guess, how should we think about the piracy risk or maybe more middle interest in going to a Hollywood film that has a delayed release in China sort of later in the year, well after it was already released here in the U.S.?.

So to your first question Alexia, we haven’t really seen any impact outside of China and any in fact that’s we said in our scripted comments, the rest of the world and the domestic market separately are very close to what our budget was at the beginning of the year, so there hasn’t been really a noticeable impact.

The second thing would be the piracy risk. Look, it’s hard to gauge as we looked at after SARS happened in Hong Kong, the first half of the year was extremely weak, but the second half of the year was really very strong and that’s really the only measurement we have to go by.

I think your point is well taken that in fact some films clearly won’t be able to be day-in-day, because they’re not being released right now. But I think you’re condensing a year’s worth of movies into however many months it is – that it’s open.

So I think you’ll have a lot more Hollywood movies in a shorter period than it would have been, but for this. So when you blend it all out, it may affect some movies. But I would expect there would probably be shorter play times, because there are so many more movies out there in that period of time, but it’s premature to quantify it..

All right. Thank you very much..

Our next question will come from Eric Wold, B. Riley. .

Thank you. Good afternoon. Two questions, if I may. I guess, first off, Rich, on the increase in TAM from [indiscernible] plus, maybe kind of dive into that a little bit deeper and kind of maybe park to where those markets or screen opportunities came from.

When you do small markets that clearly couldn’t support a screen, but now it can because of reduced cost of entry? With a market now developing in terms of overall movie going demand, maybe where that demand came from?.

Yes, I think the main markets, Eric, are the Middle East and specifically Saudi, which obviously didn’t exist before last year as a market, Southeast Asia, India, Japan, maybe a little bit South America.

Again, just to remind you of the methodology, we do a bottoms-up approach every couple of years, and it’s done in combination with our field managers as well as our central sales staff, and we look at what’s happened to the number of theaters in that country, the addressable market, ticket prices.

We zone it out, things like that, but that’s kind of our best guess..

Okay.

And then, Patrick, on the – when you think about China and kind of the delayed release of the titles in that market, I guess, both for China only local language titles as well as maybe Hollywood ones being released in that market, how is the timing or delayed releases or even cancellations, so to speak, if there are, impact DMR cost recognition?.

Well, for the local language titles, we’ve done the work for the Hollywood titles. And so we’ve already had those expenditures, but we won’t actually amortize that until they get released. And so we just push it out until deeper into the year, once those get scheduled.

And for Hollywood, it will be – probably titles that we’re leasing around the world, we’ll continue to amortize those as they’re released. But we’ll push some amortization deeper into the year, once they get released in China. .

So I guess the question was, assuming the plan was not released theatrically, these expenses, when do they eventually hit a bit to you?.

Well, if something were truly canceled, and we haven’t yet spent anything on the DMR, then it just – it would come out of our numbers. If something gets canceled that we’ve already done the work on, than once it becomes canceled, we’d have to just run that through the P&L. But keep in mind that the way it works is, the DMR work is done here.

China pays us for that. And so as those things unfold, there’d be an impact on the China P&L and a small impact on the core P&L as well..

Got it. It’s helpful. Thank you, guys..

Welcome..

Up next, we’ll hear from Vasily Karasyov, Cannonball Research..

Hello, good afternoon. Thank you. A couple of questions.

First, wanted to ask you to talk a little more about the drivers of the strength in international ex China box office in 2019, which was, in dollar terms, I think, is the largest driver of year-on-year increase? What you’re seeing by territory in terms of PSAs because I think there was a concern that as you expand, PSAs will drop.

And so wondering if you could give us some color on that? And the second question I’ll ask right away. How – is it different for you now to be dealing with five Hollywood studios, major Hollywood studios than with six? Just curious how it changed your business, the acquisition of Fox by Disney? Thank you..

So your first question, International ex China. I think it’s driven by a lot of theater growth in high-performance markets. So our Japan market, we become much more penetrated, and we have extremely successful theaters there, and we’re growing those fairly rapidly. The Middle East would be another area I would identify growing.

India is another market that’s been growing well. Europe. So I think the expansion of our network particularly in higher ticket price markets, Germany would be another one, has really driven that. The second part was your PSAs. I don’t have that by region off hand. But I can tell you that last year worldwide IMAX’s PSAs were up 2%..

Right.

And then the six versus the five major studios?.

We haven’t really seen an impact at present. We have a wonderful relationship with Disney. And as has Fox has gotten integrated, we’ve released a number of the Fox movies through Disney, and I don’t really think there’s been a change..

All right. Thank you..

Up next, we’ll hear from Mike Hickey, The Benchmark Company..

Hi, Rich and Patrick. Thank you for taking my questions. Congrats on the quarter, guys. It looks like the coronavirus is driving an impact on your stock.

Just curious, your thoughts on your buyback moving forward? If you think you’d be more aggressive, if you’d be buying in the quarter? Any part of that would be helpful?.

We have a buyback authorization in place. We’ve said before that we’ll be opportunistic and we will be. And that’s about all I can say right now..

Okay, good.

Are you hearing anything, I guess, encouraging from China in terms of, any of your theaters are going to start opening up again, if it’s going to be all at once? Or rollout? Or any positive signs coming from the region?.

I mean, it’s very hard to predict when the theaters will open up, because there are a lot of issues. It’s not just the slowdown of the infection, but there’s also getting infrastructure back and what government policies are. And certainly, we’re not smart enough to predict that.

There have been, over the last couple of days, some small positive signs such as number of cures has exceeded the number of new infections and things like that. And I think if you focus on some of the Tier 1 cities. Clearly, it hasn’t been close to as dull as it has been in Wuhan and the surrounding province..

If the closures extend further, do you have concerns that you may see some of the state migrate to streaming like we saw with [indiscernible] in Russia?.

I’m sorry; it got garbled at the end..

Streaming, from the....

Not – yes, I got it. Not really.

I mean, there was one film that went to streaming during Chinese New Year, but that was a unique situation where a particular service had a relationship with a director and the movie had some financial issues where it needed to recoup in a period of time, and that issues where it needed to recoup in a period of time, and that has not been very well received by the Chinese exhibition or studio community.

So I don’t think we’ll see that..

Okay. Thank you very much. Best of luck..

[Operator Instructions] We’ll go next to Jim Goss, Barrington Research..

Thanks. You have a number of motivations in terms of various markets in which you can expand your franchise that you’ve been outlining.

Does this situation in China make you veer towards some of these other potential growth markets, just to sort of balance out the risk? Or does the bottoms-up approach and growth in China, do you expect will return? Keep your efforts in that area as it has been?.

Hey, Jim, in China, we created $1 billion business in terms of value. And it’s there’s been a black swan event that’s happened. I don’t regret doing that. And we’ll be doing business in China for a very long time. And I don’t think a black swan event is going to change that, and we’ll explore all opportunities through our – globally.

But despite this obvious short-term setback, we remain, long-term, as excited about China as we’ve ever been..

Okay, fair enough.

And to the extent that this silver lining might have developed and that some of these movies that were going to be focused on Chinese New Year are going to spread over the rest of the year, I’m thinking back to the greater usage of the entire calendar domestically for Hollywood, do you think you might want to push that issue more in future years, just to take advantage of more of a calendar than you have been? And how much can you influence that process?.

So we certainly, in general can influence release dates, but I think the Hollywood studios have a fair line in the sand about not sharing screens, and I don’t think we have the ability to influence that policy. In China, even before this, they’ve been open to screen sharing in multiple titles.

And as a matter of fact, we were going to play multiple titles during the New Year period. So I don’t think this sad event has affected that one way or the other..

Okay. Last question. You noted the new growth levers, streaming partnerships.

Is there any conflict with the exhibitor stance in terms of those issues that might require some adjustments or negotiations or do you think that can be finessed?.

I don’t think it’s going to be an issue, Jim. We played a short-form piece for Anima, a project film shot by Paul Thomas Anderson. And it was released by Netflix very close to when it was released and the exhibitors didn’t have an issue with that. I think their issue is – we’re doing around traditional movies. So I don’t think that will be an issue..

Alright. Thanks very much. Appreciate it..

And everyone, at this time, there are no further questions. I’d like to hand things back to Mr. Gelfond for any additional or closing remarks..

Yes. Thank you very much, operator, and thank you, everyone, for joining our call. Obviously, 2019 was a very strong year for us. As Patrick said in his script, we outlined for you all on what we hope to accomplish financially, and we met virtually all of its goals.

During the year, we expected to use that momentum into this year, but unfortunately, the sad events in China around the coronavirus have made it a tough start.

But when we look at the film slate this year, we look at the film slate next year, we look at the growth we’ve delivered and our expanded view of the markets we can penetrate once we get past this period, we think we’ll resume the kinds of things we demonstrated in 2019. So thank you all for joining our call..

Ladies and gentlemen, that does conclude today’s conference. We would like to thank you all for your participation. You may now disconnect..