Good day, ladies and gentlemen, and welcome to the IMAX Corporation's Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's call is being recorded.

I would now like to turn the conference over to Jennifer Horsley, Senior Vice President of Investor Relations. Please, go ahead. .

Thank you and good afternoon, everybody. Thank you for joining us on today's fourth quarter and full year 2022 earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; and Natasha Fernandes, our 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 the call.

In addition the full text of our earnings press release and the slide presentation have been posted on the Investor Relations section of our website. At the conclusion of this call, our historical Excel model will be posted to the website as well. I would like to remind you of the following information regarding forward-looking statements.

Today's call, as well as the accompanying slide deck, may include statements that are forward-looking and that pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause our actual future results to occur or occurrences to differ.

Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information, future events or otherwise.

During today's call, references may be made to certain non-GAAP financial measures.

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 loss, adjusted EPS and adjusted EBITDA, as defined by our credit facility, are contained in this press release and our earnings materials, which are available on the Investor Relations page of our website at imax.com.

With that, let me turn the call over to Mr. Richard Gelfond.

Rich?.

Impossible - Dead Reckoning Part One coming on the heels of an incredible IMAX run for Maverick, the new Fast and Furious, a new installment of Transformers, and Indiana Jones and the Dial of Destiny, which we're very excited about.

With our local language portfolio, we expect to program between 30 and 40 titles this year from across China, India, South Korea, and Japan. In conclusion, we are as optimistic as we've been for years about the year ahead given the rapid turnaround in China and the strong performance of the Avatar sequel.

We feel good about our opportunity to drive further global growth in our theatrical network and box office as we carry our strong momentum through the year. At the same time, we will further our 3.0 strategy, evolving beyond blockbusters.

Our unique privileged position at the center of the entertainment ecosystem gives us a great perspective on the landscape which is very valuable in navigating times of change like these. And we've had a pretty good track record lately in calling how things shake out.

We've correctly predicted that the studios would abandon day-and-date releases and the PVOD experiment come back to exclusive theatrical windows for blockbuster movies. We saw a correction coming to the economic model for streaming services.

It's easy to forget now, but there are a lot of folks who doubted Top Gun and Avatar before their releases this year. But we were bullish on those blockbusters from the beginning and we were right. And we've leaned into local language and the increasing globalization of content long before RRR and Japanese anime took the world by storm.

We called last fall that China would begin to roll back COVID-Zero following the Party Congress had it in. And that Avatar would get dated in China and help reopen the gates for Hollywood releases. In our own business, we hit our targets for installs and connected theaters for the year.

And we're seeing the Avatar effect we've long predicted beginning to play out. We're driving record-breaking numbers in our business and we know that our box office has historically thrived in economic downturns. So, our optimism for the year is well-founded and our credibility and track record well-earned.

We look forward to updating you as the year progresses and to creating value for our business our shareholders and the millions of people around the world who invest their time and money in the IMAX experience. I'd like to thank you all and I'll turn it over to Natasha. .

Thanks Rich and good afternoon everyone. As Rich highlighted, we are excited about 2023. We are returning to a pre-pandemic environment with a robust blockbuster slate and we are experiencing a notable positive turnaround in China.

As we look forward, we expect to benefit from a combination of the profit that will flow from a recovering box office, growth in our technology system sales and installs propelled by the record-breaking performance of Avatar, and our overall global momentum, and the efficiency actions and cost discipline we implemented over the past few years.

With that in mind, we are establishing guidance for 2023 including IMAX gross box office back to the 2019 pre-pandemic level of $1.1 billion as compared to $850 million in 2022. With the return of box office in China and a 2023 slate that was made for IMAX screens, we envision it will be a year of market share gains.

Total installations of 110 to 130, which compares to 92 systems in 2022, reflecting growth of over 20%. Our contractual backlog as well as the elevated rest of world deal activity will enable us to reach this target.

We foresee a similar sale and upgrade mix of 2022 with installation timing heavily weighted to Q4 and we expect to realize adjusted EBITDA attributable margin in the mid-30s percent, driven by our box office flow-through coupled with our operating efficiency gains. Now, turning to Q4 and full year results.

Fourth quarter results were in line with our expectations, capped off by Avatar remarkably. Avatar delivered $140 million in box office in the last two weeks of December with 11% market share, making up more than half of Q4's total IMAX gross box office.

Revenue in Q4 was $98 million compared to $109 million in Q4 2021 and adjusted EBITDA attributable to IMAX was $28 million, compared to $44 million in the prior year.

These year-over-year variances were primarily driven by China as that market did not begin to normalize until late December and a one-time release of deferred maintenance revenue in Q4 2021.

Adjusted EPS in Q4 was $0.19 versus $0.31 in the year-ago period and included a tax valuation allowance resulting in a negative impact on earnings of $2.1 million or $0.04 in Q4 2022.

Looking at the full year our 2022 results were significantly above 21%, reflecting the continued box -- recovery in box office, our unique position in the entertainment industry, the strength of our business model and execution. Rich shared our business highlights. And to build on that I will share some financial highlights.

Revenue of $301 million was up 18% despite the fact that China did not begin to normalize until late in 2022. Driving revenue was gross box office from the IMAX network, which was up 33%, which compared to 22% for the exhibition industry.

Overall, domestic box office from IMAX locations were on par with 2019 and rest of world excluding China was not far behind leading to the strong full year performance.

Moving on to installations, system installs were 52 in Q4 and 92 installs for the year, up 23% year-over-year from 75 systems and above the midpoint of our guidance of 80 to 100 systems. For 2022, we earned gross margin of $156 million, which was up 16% over the prior year of $134 million and was 52% of revenue.

Full year adjusted EBITDA attributable to IMAX was $84.5 million or $1.47 on a per share basis, which reflects an increase of 23% over 2021 of $68.6 million. We recognized an adjusted EBITDA margin of 30%, reflecting flow-through on incremental box office and benefits from cost discipline effort.

Adjusted EPS was $0.06 in 2022, up from a loss of $0.14 in 2021. The pandemic contributed to the recognition of tax valuation allowances, preventing the realization of any tax asset benefits. This had a negative impact on EPS of $0.29 for full year 2022 and $0.25 in 2021.

Once profits are realized in jurisdictions related to these tax assets, the reversal of the cumulative valuation allowance of $63 million will have a favorable impact on our EPS in future periods.

As we turn to our balance sheet and cash flows, operating cash flow was positive in Q4 and propelled us to $17 million for the full year, which is up significantly from operating cash flow of $6 million in 2021. Our cash flow generation continues to improve as revenue increases and as our exhibitor customers recover from the pandemic.

We expect this trend to continue into 2023. We ended the quarter with $97 million in cash and $270.7 million of debt, excluding deferred financing costs.

As of December 31st, our available liquidity was $416 million including cash and cash equivalents of $97 million and $319 million in available borrowing capacity under the company's revolving facilities. Our strong balance sheet in 2022 enabled us to execute on both the SSIMWAVE acquisition and the significant level of share repurchases.

In Q4, we repurchased 1.9 million shares at an average price of approximately $14 per share for $27 million. For the full year we repurchased 5.4 million shares at an average price of approximately $15 per share or 9.2% of our beginning share count, spending $82 million.

We continue to capitalize on what we view as an undervalued stock price and the opportunity to return capital to shareholders. As of December 31st, $193.4 million remains available under our share repurchase authorization.

To conclude, we finished 2022 on a strong note with Avatar and that momentum has only accelerated into 2023 with a remarkable continued run of Avatar, the reopening of China leading to our record Chinese New Year results and the strong demand for IMAX technology we are seeing from our partners in markets around the world.

We believe 2023 will be a year where the combination of our unique position in the entertainment industry and our high-margin asset-light technology-focused business model will shine through. This will enable us to realize gross box office similar to pre-pandemic levels to deliver growth in installations and higher adjusted EBITDA margins.

With that, I will turn the call over to the operator for Q&A..

Thank you. [Operator Instructions] Our first question comes from Eric Wold with B. Riley. Your line is open..

Thank you. Good afternoon. Two questions if I may. I guess first off thinking about the guidance for adjusted EBITDA margin in the mid-30% range for this year, which is if I look back to 2019 is within a couple of percentage points of what you reported back then.

I'm not looking for guidance beyond 2023, but maybe that kind of what would you view as kind of the puts and takes in your business what's changed structurally such that margins can go higher from here in the future? Is it still entirely dependent on box office, or do you view that something else has changed as well?.

Hi, Eric. Definitely, we -- it's box office completely like there's a significant opportunity given the incremental box office that we can earn that could create over 30% growth. And as you said, it's proven by the historical years. And all of that flows right through.

As well there's opportunity with SSIMWAVE and other businesses that we're exploring right now too. And so we do think that there's opportunity. And right now as you look at SSIMWAVE and Live that's sort of where our margin is now, but there's only upside there as you start to explore and expand the business model..

Thank you. And then just a second question. You mentioned Rich obviously on IMAX 3.0, you're going to be careful this year in terms of what you planned given how robust the Hollywood slate is.

How far in advance do you feel you need to contract those live events to drive enough awareness and time to purchase tickets? And where do those marketing costs fall for those events between you and the content provider?.

Well, on the second part of the question Eric, it depends on the specific deal. So in some deals the content provider would do more of it and some we would do more of it and in others it will be a shared or allocated.

In terms of the first part of your question, how far in advance do you need to book? And I mean from our point of view the further out the more optimal and now that we have the network in place, I think it gives us the opportunity to program content further out. But you just never know. It's the nature of the business.

It's different than the movie business where it's a fixed timetable. And 18 months or two years after you start shooting, you have a release state way in advance. You could really put it together. The live business is still very much in its infancy.

And I think we're still going to test and do different things whether it's music or whether it's sports or whether it's Q&As around releases. I think it really depends on the kind of event. And I wish we had a fixed model on that but it really is going to be event specific. .

Understood. Thank you both..

Thanks, Eric..

Thank you. Our next question comes from Eric Handler with ROTH Capital. Your line is open..

Good afternoon, and thanks for the question. Just two questions here.

First, as you look at your sort of outlook of $1.1 billion of gross box office this year, how are you thinking about growth in China relative to North America and international rest of the world?.

So I think in China, we think it will be a move towards normalcy and normalcy means sort of 2019 pre-pandemic levels. Again, I'm not going to get into the elements right now, but I think we see that moving towards normalcy.

And I think in North America and the rest of the world, we feel incredibly good about the slate, as we said, during our prepared remarks. And if you look at just very early in the year, as we said, during those remarks, we had budgeted about $42 million for Chinese New Year, and it came in over $60 million.

And I could tell you that Ant-Man, this past weekend did close to our total budget in just one weekend. So early in the year, I think, we're doing very well on all fronts and Avatar was obviously extremely strong. So I think it will come from both places. Eric, I think, a return to normalcy in China and opportunity around this year's slate.

And I also should highlight on the local language films that we do. I don't think investors historically have paid enough attention to that and it's a pretty good reason because they didn't contribute that much. But last year, I think, it was 17% of our box office was foreign language films. And I think, this year there'll be more films than that.

And I think those kind of get overlooked when people look at the company they sort of say well I see this blockbuster coming of this Marvel movie or this DC movie, but they forget there's a lot of money there. In those slots I think it will be all of the above. .

Okay. Great. That's helpful. Next question, it's good to see you updating the addressable market of systems for the world. I think it's been several years since you've done that. I've not been able to find the last time you did this.

So I'm curious how big is 3,300 addressable markets? What was that last time you did a review if you could point out?.

It was 3,300 the last time. We didn't revise it Eric and we specifically -- we do it every three years. We did it in 2019. We didn't revise it because of the pandemic. I'm sure, we'll do it in the next year or two, but that's the guidance we've given before. .

Got it. Okay. Very helpful. Thanks..

Thank you. Our next question comes from Steven Frankel with Rosenblatt Securities. Your line is open. .

Good afternoon, Rich.

Could you start with maybe an update on the camera program? Where are you in creating a pipeline of equipment that could materially expand the number of films that are created with IMAX cameras?.

Well, Steve I think we've already materially expand as the kind of cameras when we did our film for IMAX program and our digital cameras. And I don't remember Megan in this year how many films are in.. .

We have 10 films that are certified through our digital program and we're in the process of developing new films from use of film camera [Technical Difficulty] will be ready in probably 18 months or so maybe two years.

And so those cameras for our film program, but we still have a steady stream of films that are shot with our film cameras, which Oppenheimer we shot with our film cameras. There's a movie that we haven't announced that is shooting in the next couple of weeks. We'll begin shooting and that's shooting with our film cameras.

So those are two different programs, but film for IMAX program has been extremely successful I think at raising our indexing and signaling audiences, intentionality of filmmakers, design these for the IMAX screen and for IMAX sound and to design for everything that our systems offer. .

Yes. So again circling back there are lots of cameras because the digital program there are add-ons to the digital cameras that most filmmakers use. So we're doing the new film cameras just because we can expand the next IMAX releases. But there's no shortage of cameras to film -- the film for IMAX program.

And as you know we're doing a lot of that globally. .

Great. Yes that was kind of where I was going.

So we're going to start to see more of that with the local language content like we have in China over the last year or so?.

Well actually in the last three years and each year the biggest movie in China was one film with an IMAX camera and the film for IMAX program. So we've been hugely successful there, but I think you will see it in other territories as well. .

And then one more question I heard you describe Creed as IMAX sports movie.

Is that a hint of maybe some different content we might see coming in the future?.

Well, I mean, it's a boxing movie. And people have seen it say, it's kind of incredible. And it feels like you've never seen a boxing movie that way in terms of the way the punches are portrayed, maybe even more of the way they received on the other end. But, sure, I mean, we're always looking at new opportunities.

We haven't announced anything else, but there are different sports movies that we're in the middle of talking about. Yes..

Okay, great. Thank you..

Thank you. Our next question comes from Chad Beynon with Macquarie. Your line is open..

Hi. Good afternoon. Thanks for taking my question. Thanks for giving all the guidance. I wanted to ask about the system backlog. You talked about this year 110 to 130. You have a backlog of 450 so great to see that this is increasing year-over-year.

In terms of what's left beyond this year, can you kind of help us think about kind of what the gating factors are? Is this a good number to think of going forward, just given the backlog is this big and now you have local language to help with that, or are there other reasons why that's not a good way to think about it beyond 2023? Thanks..

Well, I mean, the way to think about it is, the world is coming back to normal. And as we mentioned during the call in the first quarter, we signed a seven theater deal in Japan a 10 theater deal in Indonesia. There have been other deals that we signed that we haven't yet disclosed.

The quarter so far is one of the best first quarters we've ever had and we're roughly halfway through it. So people are coming back. And the Avatar effect and the opening of China mean there's demand for IMAX theaters on a global basis.

So the number we gave for install guidance between 110 and 130, some of that will come from backlog and some of that will come from new signings. And it's too early in the year to say how much will come from backlog and how much will come from new signings. But as the year progresses, we'll have a better feel for that.

But your question is about backlog, I'm answering you a little bit about signings. And I'm just saying that, if you go back, even six months, you are a company from a box office point of view, was doing extremely well. And outside China, we finished close to 2019 levels.

But now we're seeing normalization in other areas of our business, including installs and signings and I think we'll continue to see that. .

Great. Thanks, Rich. And then, on the balance sheet and on slide 27, you talk about net debt to EBITDA of 2 times, obviously, given your guidance, that will come down.

How should we think about the right leverage on this business, given the return to stability and then maybe a balance of how you're thinking about share repos versus opportunistic M&A that remains? Thanks..

Sure. I mean, we have liquidity of over $415 million. So I think we're well equipped to be able to make selective decisions that would further our business, like we did with buybacks this year and giving -- and reducing our share count and bringing value back to shareholders, but also the acquisition of SSIMWAVE.

Our operating cash flow was $17 million in Q4, which, the cash flow dynamics improve as the industry improves. And personally, cash flow is a huge focus for me, as you know, Chad, because of just my background from -- coming from treasury and being focused on that.

And so, I think we have -- we are equipped to be able to move forward and we can lever up as needed, but we've made a good acquisition with SSIMWAVE this year. And with buybacks, we're in a really good position. If you think about our convertible notes, they -- with the cap call in there, they're at $37 and we're making buybacks at $15 on average.

It's a great deal that we're sitting at right now..

That’s great. Appreciate it. Thank you, very much..

Thank you. Our next question comes from [indiscernible] with Wells Fargo. Your line is open..

Good afternoon, guys. And thank you for taking my questions. Rich, maybe first on, going back to system signing, you talked about momentum in Q1 being strong and guidance seems to be ahead of expectations.

Can you maybe give us some color on how the tone of those conversations with theater partners are changing? And what's the opportunity of some of the international markets that IMAX is underrepresented? And then I have a follow-up. Thanks..

Yes. So, great question Omar. First of all, we said as I said in my script, records in 50 different markets for Avatar. And coincidentally, many of those markets are markets that were very underpenetrated in. And in January, I went to India with our Head of Sales and Mark Welton went to a bunch of countries in Southeast Asia also with our Head of Sales.

And the attitude was so different than it was even six months ago. People were ecstatic. I mean so 50 countries had records just putting it simply and they were all saying how fast can I get more IMAXs and its parallel after the first Avatar. So, people are excited.

And again, as I said in response to the last question, we have as many signings as we've had since 2019 in this period of time. And the tone is just extremely positive and we feel really good about the number of discussions underway. And it's even places that you wouldn't necessarily think of.

So, for example, in France, we did almost $500,000 of screen for Avatar and that's a vastly under-screened market and there's been a lot of demand coming out of there. In Japan, where we signed the deal with AEON there's a lot of other interest in Japan that we're working through.

So, I think you're seeing a global rebound now where people really want to sign and install IMAXs much more rapidly than in the last couple of years. And while I think China is probably behind that curve because they just opened. I expect within six months to see China moving towards that kind of position. So, feel very good about that. .

That's very helpful. And maybe on the 2023 contents play, it looks very strong as you alluded to.

Just wondering how do you -- maybe can you talk about how do you manage slotting screen sharing and schedules to maximize the 2023 box office? I know there's a period of very concentrated with lots of films and then there's also appears like the back half of the year with low.

Just can you give us some color on how you manage the slotting and screen sharing for your box office?.

Well, the good news for us is that almost every major studio and every major filmmaker wants their film released in IMAX. So, that's pretty much where it starts as they come to us in advance and they say I want the July date or the May date or whatever it is. And if they've used our cameras, we give them two weeks.

If they haven't, we give them one week or more depending on the nature of the movie. So, that's how we sort of start to form our slate than as the year goes on people will say well I want to do my movie that date, we'll say we can do it or we can't do it based on what our commitments were up to that time. And we like to say we can.

But unfortunately, we have to turn down movies because people have booked that data in advance. And it's good when the dates are competitive because you can help facilitate an IMAX release by encouraging them to move to another time. So, I'd call it an art rather than a science.

And you try to do your best in terms of balancing the box office potential for particular film with your expectation of the growth of that film and with your expectation of how it will grow and how it will fit into the IMAX. But unfortunately, this is the good news/bad news story.

There are so many good things going on in 2023 and as far as we could tell in 2024 that most of the way you can program blockbusters sequentially and fit them all in. But unfortunately, there's just too many. And as a result, there are some you can't play, but that's the price of being a content curator like we are.

And we're in a good place to make it work the best at for IMAX, but it's not always going to work perfectly. .

And if I can just jump in and say one quick thing. I think in a post-COVID world, exhibitors have gotten -- both on the exhibition side and on the studio side, there's been much more openness program to ensure that the IMAX screens are as utilized as they can possibly be in.

So, there's been much more flexibility to do, one night only special events, to programs, two movies on a weekend and to be smart about a movie that will program very well during the day and have another movie booked -- playing in the evening. So there are times where we are programming multiple movies in a week.

And we did that very effectively in the back half of 2023. Sorry, 2022 and we were very effective, I think, in making sure that we were utilizing our screens I think to the best of our ability. And you'll continue to see that. I think there's a growing sense that that's -- that we need to be as effective as we can possibly be..

Okay. Thanks guys..

Thank you..

Thank you. We have time for one last question. And our last question is from James Goss with Barrington Research. Your line is open..

The Way of Water and possibly The Wandering Earth 2, in China offer some similar opportunity for coming back to the screen?.

Yes. I think they do Jim. And especially seeing what happens at the Academy Awards and what wins and what doesn't. But you probably know that we brought back Titanic for its 25th year anniversary this year. So I think….

Right..

… films that do especially well in IMAX center suited to the IMAX screens the demand runs a very long time. And I think you will see some of the big films come back again..

Okay. And maybe one other since getting late, in China, I think this the platform is bigger than it was in 2019, but your PSAs have come back as well. I'm wondering if you look at the mix of platform growth in PSA are you looking at that opportunity in China to move beyond what it might have been in 2019.

And what do you think would be the more important source of incremental revenues?.

Well, Jim especially, because we've increased local-language film as a percentage of our slate. And those films do particularly well in lower-tier cities. There's definitely an opportunity for higher PSAs not just in China, but in all the markets in the world we're playing local language films.

And again, if you look at Japan, our PSAs are $1.8 million or double North America. So that's definitely an area of huge opportunity. As you say, we've had platform growth there also. So I think it's a matter of time before we could set records in China again.

I don't want to predict that for 2023, because six weeks ago people locked in their homes with drones flying over their heads and boxes at chicken thrown at their front doors, because of the quarantine.

And given how fast they've come to a record Chinese New Year, I think we're encouraged, but I think we also want to be a little bit measured about changing the world in another six weeks..

Right. Well, thanks so much. I'll leave it over there..

Thank you. There are no further questions at this time. I'd like to turn the call back over to, Rich Gilford for closing remarks..

I think, hopefully it comes through in our presentation and to our answers to our questions. But on kind of every KPI for IMAX from an investor point of view whether its box office, whether it's signings, whether it's installs, whether it's margins we're feeling really good about our business and extremely confident.

And it's not like we only manage our business from a far. Many of us are on the road. And I happen to be in L.A.

right now meeting with studios, and filmmakers, and whatever our constituencies are whether they're exhibitors, they're filmmakers, could be the studios, audiences you look at the box office numbers it just feels like a very good time to be in IMAX.

And we feel that, as you saw in our guidance that that will be reflected in this year's financial results. So thank you all for joining us. And we look forward to the first quarter call..

Thank you for your participation. You may now disconnect. Everyone, have a great day..