Imax Corp Q1 FY2021 Earnings Call

Good day, and welcome to the IMAX Corp. First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brett Harriss. Sir, please go ahead.

Thank you. Good morning, everybody, and thank you for joining us on today's first quarter earnings conference call. On the call today to review 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 the call. In addition, the full text of our first quarter 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 on our website as well. I'd 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 they pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause our actual future results and/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 non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures as well as a reconciliation to non-GAAP financial measures, including adjusted net loss, adjusted EPS, adjusted EBITDA, as defined by our credit facility, are contained in this morning's press release and in our earnings material, which are available on the Investor Relations page of our website.

Thanks, Brett, and good morning, everyone. Thank you for being with us today. Since the onset of the pandemic, there has been speculation about how the world will evolve once COVID-19 is behind us. We believe we can now see the post-COVID future of entertainment emerging, marking the start of a cultural and behavioral shift. Over the last year, two trends have been consistent among global customers. First, they have been confined to their homes; second, they have reflected on mortality. Streaming media was an essential lifeline during the lockdown, and its success is clear. When people are limited to their living rooms, they tend to consume a lot of TV. However, the data indicates that audiences are eager for more. After experiencing lockdowns, we don’t think consumers will be satisfied with staying home. We believe they will seek experiences that allow them to express the personal freedoms they once lost, connect with others, and expand their perspectives beyond their couches. We observe that the experience economy is ready to make a significant comeback, encompassing travel, live music, sports, theater, and yes, films. Movie theaters are among the first forms of out-of-home entertainment to reopen in many regions globally. Cinema is an accessible and affordable yet immersive and communal experience. The premium IMAX Experience remains the largest and most globally recognized cinematic offering available. This leadership has guided the global film industry through the pandemic in Asia and is starting to spread to additional areas worldwide. Despite the challenges posed by the pandemic, we’ve uncovered many strengths of the IMAX business. We are the sole global platform for blockbuster entertainment outside of home. Present in 84 countries and territories worldwide, we’ve leveraged recovering markets and managed through those that remain closed. We have reinforced our robust presence in Asia, where audiences are returning to cinemas in numbers surpassing pre-pandemic levels. In China and Japan, local blockbusters are breaking box office records and boosting our market share even with capacity restrictions in place. After experiencing a successful reopening, we are seeing this momentum further in other markets, highlighted by performances of films like Godzilla Vs. Kong, Mortal Kombat, and Demon Slayer. Our flexible, asset-light business model has allowed us to withstand temporary theater closures, manage costs effectively, maintain liquidity, and preserve our balance sheet. Our fixed to variable cost ratio enables us to act decisively. Without significant real estate ownership, lengthy leases, or staffing issues, we can quickly rebound and start generating box office revenue as global markets reopen, essentially flipping a switch with minimal start-up costs. We are a desirable global brand. In this post-pandemic era, it’s evident that people are turning to trusted brands. Studios are prioritizing IMAX release windows to solidify their film lineups, while filmmakers are increasingly seeking IMAX’s technical support. During the pandemic, we have added over 80 new systems to our network, as exhibitors look to IMAX to revitalize their businesses at reopening. Consumers desire the most immersive experience as they return to theaters, and they are choosing IMAX. We continue to witness that where the virus is controlled and people feel secure, audiences are eager to leave their homes and return to movies, particularly to IMAX. This momentum from global reopening is reflected in the financial results we are sharing today. As the industry progresses, two essential strategic insights have emerged. First, the global pent-up demand for moviegoing is genuine and robust. Second, IMAX’s unique position within the global ecosystem is more critical than ever, creating numerous opportunities for our company. I would like to highlight a few points today before handing the floor to Patrick. We will discuss our global network's reopening progress, showcasing the resilience of moviegoing and near-term prospects for IMAX; the accelerating momentum in our industry; our performance and recent results as the successes in Asia extend to other markets; and finally, our compelling strategy and market position as we navigate the post-COVID landscape. First, regarding our global network and film slate, the positive indicators we observed at the Asian box office have strengthened in the first quarter. In China, the resurgence of the box office combined with a robust increase in installations brought revenue back to pre-pandemic levels of $26 million, consistent with our first quarter of 2019, despite not featuring Hollywood films. We continue to achieve strong box office results and increase indexing across both local and Hollywood titles. This trend also applies to Japan, where IMAX has reached its highest and second-highest grossing Japanese films during the pandemic with Demon Slayer and Shin Evangelion, both of which are top-grossing films in IMAX history for the country. Since April of last year, we have averaged a remarkable $1.2 million per screen in Japan, again, largely absent of Hollywood films. The first quarter also confirmed that the pent-up demand for moviegoing is evident beyond Asia. Godzilla Vs. Kong exceeded expectations, grossing over $400 million globally. Furthermore, six of the top ten highest-grossing regions during its first weekend of release were outside Asia, showing strong results in North America, Mexico, Russia, Spain, Australia, and Saudi Arabia. Recently, the domestic box office experienced its highest performance during the pandemic last weekend, coinciding with the North American launches of Mortal Kombat and Demon Slayer. We see more growth potential for the remainder of the year with upcoming blockbuster films such as A Quiet Place 2, Fast 9, several Marvel titles including Black Widow, James Bond, Dune, and Top Gun, many featuring IMAX elements. The outlook for 2022 seems robust with a host of Marvel and DC films, alongside new installments of Jurassic World, Mission: Impossible, and Avatar 2. Just this quarter, we rereleased Avatar in China with only 1% of screens, accounting for about 30% of the entire rerelease. Turning to our results, IMAX continues to experience financial improvements. In the first quarter, we reported year-over-year growth in revenue, gross margins, and EBITDA, marking our first quarter of year-over-year box office growth during the pandemic. Leveraging the healthy state of the capital markets, we opted to increase our liquidity through a convertible debt offering. I’ll let Patrick go over the specifics, but essentially, we were able to secure over $200 million in additional liquidity while significantly reducing our annual interest expenses. While we have always maintained a solid balance sheet, this transaction provides extra security and the flexibility to invest in our business going forward. Looking beyond COVID, considering the early trends worldwide, we feel very confident about our position in the out-of-home entertainment market. To capitalize on our momentum, we’re exploring opportunities to use our brand and technology for in-home entertainment and the streaming market. Through IMAX Enhanced, we are optimizing blockbuster content for home viewing, delivering the best movie experience outside theaters. Using our proprietary technology, we have digitally remastered exclusive content for high-end consumer devices and leading streaming platforms globally. IMAX Enhanced is available in North America, Europe, China, and Japan, and certifies devices from more than 20 leading consumer electronics manufacturers, including Sony and TCL. In the first quarter, we launched our largest distribution of new enhanced content by adding over 50 new Sony titles and international hits, including last year’s top film, The Eight Hundred from China. We now have over 100 films available through IMAX Enhanced, ranging from recent successes like Spider-Man: Far From Home to classics like Top Gun, as well as notable documentaries like A Beautiful Planet. We will focus on expanding this ecosystem with new partners and more content. Concurrently, we have invested time over the past year into our artificial intelligence strategy, exploring whether machine learning could create significant business opportunities for image enhancement. We believe we can develop innovative products that meet the demand for efficient and low-cost enhancement of professional and personal content, utilizing unique advantages in our expertise. IMAX film cameras capture images at a stunning 12K resolution, and we have unparalleled access to some of the highest resolution content amassed over the decades, vital for training AI tools to upscale content. Moreover, our relationships with creators and content owners position us well to market such a solution. Thus, we have established IMAX AI, a joint venture with Maximus, an AI company founded by Dr. Daniel Nadler, known for his significant previous work in AI and data science. Maximus brings acknowledged success and an agile entrepreneurial approach. We have worked alongside Daniel and his team over the past year, developing proprietary algorithms through our post-production and tech departments, capable of up-resing content to 4K, 8K, and beyond, rapidly and cost-effectively. We see immense potential applications for this solution, from enhancing streaming library content to real-time up-conversion of live sports and entertainment, addressing the needs of an increasingly globalized sports landscape. Over time, we expect this joint venture to innovate products and services that will aid the growth of our IMAX Enhanced business. We have integrated IMAX Enhanced within the IMAX AI joint venture to ensure our efforts are synchronized. In summary, we see a large market opportunity by leveraging our strong brand, technology, and relationships with minimal operational or capital expenditures. We look forward to providing updates as our partnership develops. In closing, we are optimistic about the trends we observe in the global marketplace. Demand for the IMAX Experience is significantly growing worldwide, and we are enhancing our status as one of the premier entertainment experiences globally. We aim to build on our unique position in the entertainment ecosystem, unlocking new growth opportunities and creating value for our shareholders. Lastly, as you may have seen in our press release, Patrick McClymont will be departing next month to pursue a new role as CFO of a private company. On behalf of everyone at IMAX, I want to sincerely thank him for his enduring contributions to the company. He has been a trusted partner to me and our entire senior management team as we’ve expanded our network and strengthened our global brand, particularly during the challenges of the past year. Patrick, I wish you and your family all the best in your future endeavors. While we seek a new CFO, I am pleased to announce that Joe Sparacio, who served as our CFO for nearly a decade before Patrick, is rejoining us temporarily as interim CFO. Joe most recently served as Chief Financial Officer at Entertainment One, where he played an integral role in their $3.8 billion sale to Hasbro in 2019. His extensive knowledge of IMAX will help ensure a seamless transition as we finalize our search for Patrick's permanent successor. Thank you once again for joining us today. Please stay safe and healthy. With that, I will turn it over to Patrick.

Thanks, Rich, and good morning, everyone. I want to begin by expressing my gratitude to Rich and the entire IMAX team for an incredibly productive and enjoyable four-plus years. I take pride in our achievements and have found it both professionally rewarding and fun to collaborate with such a talented and driven team. While leaving a great situation is never easy, I feel ready to pursue something new and different, as I will be joining an early-stage private company. I am excited about this new experience and challenge, having spent most of my career in well-established global firms. I especially want to thank the IMAX finance team, with whom I have thoroughly enjoyed working and who have contributed immensely to IMAX's value. I leave with confidence that the finance organization is in great shape, and the company is in a strong financial position. As we demonstrated during the pandemic, IMAX is a powerful global brand with a robust and flexible business model and a strategy that will ensure long-term growth as our fans worldwide return. As Rich mentioned, we've seen another quarter of sequential box office improvement, and our business in Asia is benefiting from a strong lineup of local language films and significant pent-up demand for out-of-home entertainment. Our results further highlight our unique financial model. We operate as an asset-light licensing business with low fixed costs and minimal ongoing capital expenditure requirements, along with high incremental margins. We concluded the first quarter with $268 million in cash and $283 million in debt. Of this, $112 million in cash was held at IMAX China and $156 million at IMAX Corp. Our robust financial and operational results allowed us to access the capital markets, raising additional liquidity at very favorable rates. In March, we closed a convertible debt offering that raised $230 million through five-year convertible notes with a coupon of 0.5% and a conversion premium, setting the conversion price at $28.75, which was a 35% premium at the time of the offering. We also purchased a cap call, which effectively increased the conversion price of the shares to above $37 per share for a 75% premium. When accounting for the cap call's cost, our effective cost of debt stands at approximately 2.2%. We paid off $255 million of our revolving credit facility, leaving $45 million outstanding, and completed a second amendment to our credit facility. This amendment suspends our senior secured net leverage ratio covenant through the first quarter of 2022. Moreover, for the second and third quarters of 2022, although we will be subject to a 3.25% senior secured net leverage ratio covenant, we can substitute quarterly EBITDA from the pre-pandemic third and fourth quarters of 2019 when calculating the trailing 12-month EBITDA. This adjustment will replace the corresponding quarters in 2021, providing flexibility and clarity through Q3 of 2022. I want to emphasize that the full $300 million borrowing capacity under our credit facility is still accessible to the company. After factoring in the repayment of our credit facility, our annualized cash interest will decrease by about $4.3 million. We're very pleased with the financing results, as we've added over $200 million in liquidity while lowering our cash interest expense. Even considering the cap call cost, our total annualized interest expense will decline. As we review our first-quarter results, please keep in mind that year-over-year comparisons reflect the partial closure of our network in both Q1 2020 and Q1 2021. In Q1 2020, theaters in China shut down at the end of January, just before the critical Chinese New Year holiday. In Q1 2021, our business in China was open and benefited from a record Chinese New Year holiday, while the rest of the world was only partially open with limited new Hollywood content. Compared to Q1 2020, total revenue rose by 11% to $38.8 million, with an adjusted EBITDA of $2.8 million compared to an EBITDA loss of $4.4 million in the previous year. Revenue from the IMAX Technology Network increased by 22% to $20.3 million in the first quarter, as our network's reopening in Asia drove the first year-over-year increase in quarterly box office since the pandemic began. The gross margin for this segment was $10 million, up by more than $7 million due to higher box office revenue and reduced costs. IMAX Technology Sales and Maintenance revenue improved by 12.5% to $17 million due to heightened maintenance sales as our network continued to reopen. Gross margins for this business rose by 49% to $7 million, driven by higher revenue and cost reductions implemented during the pandemic. We installed nine new IMAX systems in the quarter, compared to five in the same period last year. SG&A, excluding stock-based compensation, decreased by 19% to $20.3 million. SG&A benefited from cost-cutting measures taken throughout the pandemic, alongside $1.2 million of COVID-19-related government relief, although this benefit was offset by $4 million of costs that typically would be allocated to the cost of goods sold but were accounted for in SG&A. The EPS loss of $0.25 per share showed improvement year-over-year, attributed to higher revenue, lower costs tied to our ongoing pandemic-related cost measures, and fewer anticipated credit losses. The company recognized a noncash valuation allowance to lower the value of its deferred tax assets by $7 million or $0.12 per share. Due to the pandemic and the uncertainties surrounding it, accounting regulations prevent us from recognizing deferred tax assets in specific tax jurisdictions. During the quarter, IMAX sold its stake in Maoyan Entertainment, yielding gross proceeds of $17.8 million and recording a $5.2 million gain. We invested $2 million in capital expenditures during the first quarter. To conclude, we are confident that IMAX is positioned well to capitalize on the resurgence of moviegoing as vaccine distribution accelerates globally and Hollywood blockbusters return to theaters. As anticipated, we are starting to observe signs that the experience in Asia is being mirrored in the United States. Audiences are resuming their moviegoing habits and choosing IMAX in larger numbers. Our balance sheet and business model are well-structured to take advantage of the broad reopening of the global economy. Additionally, we have an exciting lineup of IMAX-friendly titles set to release in the second half of the year. I remain optimistic that the best days for IMAX are yet to come. Now, I will hand the call over to the operator for Q&A.

Our first question comes from Eric Handler with MKM Partners.

Two questions for you. First, now that things are gradually reopening, do you have any improved visibility on what your install outlook could be for this year for your systems? And then secondly, given that it's clear that people are opting for premium experiences like IMAX as they return to movie theaters, is that driving studios to have more discussions with you about doing more films with IMAX DNA?

Regarding the first question, Eric, we don't have clear visibility into installs at this time. We have an internal budget and inventory, and a general idea of our plans. However, given the rapid changes, especially noted in India recently, it's not wise to provide guidance on installs right now. As for the shift to premium experiences, an article in The Hollywood Reporter today highlights this trend globally. It has certainly led to more discussions with studios as well as directors and talent. Many recognize that the pandemic has altered certain trends, such as shorter release windows and the importance of standing out. All these factors point towards IMAX. We have engaged in significantly more discussions about how IMAX can enhance product offerings and attract audiences, and this trend is not limited to the U.S. but is seen globally as well.

Patrick, best of luck to you.

Thank you, Eric. Appreciate it.

Our next question comes from Alexia Quadrani with JPMorgan.

I wanted to revisit the topic of windowing. While Cinemark may not be a major partner for you, they are still a partner, and I'm interested in whether you believe everyone will reach an agreement. With major blockbusters like Black Widow and Cruella coming out in the next few months, will there be an opportunity for them to showcase these films, ensuring that most of your partners are prepared to display these larger titles?

I view the situation in two parts: during the pandemic and post-pandemic. A useful reference for where things might go is what HBO Max and Warner did. They experimented with the day-and-date release strategy during the pandemic and are continuing that model for the rest of the year. However, in 2022, they announced a 45-day theatrical window, a strategy also adopted by Paramount. Universal is using a similar 45-day window for their blockbusters, while Sony has a longer one. Regarding Disney, they've chosen to release Cruella and Black Widow on premium video on demand for about $30, rather than through their streaming service. It's hard to make precise predictions, but given that the industry seems to be coalescing around a 45-day window, I suspect that is where Disney will eventually land when things normalize, although I can't say that for sure. For IMAX, a 45-day window works well, especially since we typically screen films for just one or two weeks, and in rare cases, three weeks. When looking at the Godzilla results, what stood out to me was that we sold out around 1,000 shows in a weekend at limited capacity, even with that film available day-and-date on HBO Max. I don't believe IMAX competes with the streaming option; consumers have consistently shown a willingness to pay a premium because they desire a unique experience and to get out of their homes. We haven't been overly concerned about this issue. To answer your question directly, I believe the industry will likely settle on a 45-day window.

Do you think Cinemark will reach an agreement with the studios, specifically regarding Raya, allowing all your exhibitors to screen these movies in IMAX? Additionally, do you believe Cinemark will ultimately come to an agreement with Disney on the revenue split, enabling them to show these films, which would clearly benefit you?

Not a direct line into Cinemark, but I think both Cruella and Black Widow will play in the majority of theaters and the majority of our IMAX theaters.

So it will ultimately, whether it's Black Widow or Cruella, all these films will eventually settle into the new normal, and theaters will be displaying the movies. You don't seem concerned about the longer-term disruption regarding the changing window, it sounds like?

Not for IMAX, I'm not concerned about it. As I mentioned, even with day-and-date releases, like Mortal Kombat, the results in IMAX show very little impact from day-and-date, and it’s not going to be day-and-date. It will be significantly better than that. I should also mention that I see this as an opportunity for IMAX. This relates to the question Eric asked earlier. The reason is, if you want to promote a movie for your streaming service or any ancillary platform, studies over the past decade have shown that audiences tend to prefer the movie more when they see it in IMAX compared to a regular screen or certainly a TV screen. This adds more value to the content chain, encouraging people to invest in IMAX as that's how they will monetize the entire property. Therefore, one could argue that a shorter window is beneficial for us.

Given the current situation, is there any consideration to modify your marketing strategy to emphasize that this is more of an event, especially now that there is pent-up demand and people are eager to go out? Or do you believe that your current approach is sufficient?

Well, I think the studios will put more money into that because they'll want to create more of an event and publicize the IMAX release more to kind of curate for the public that this is really a special movie. And I think we'll make some tweaks. For example, I think we would do things by like saying, you only have one more week to see an IMAX or to create more of a sense of urgency. But I don't think it will be addressed with the overhaul.

Okay. And best of luck, Patrick.

Thank you.

Our next question comes from Chad Beynon with Macquarie.

Wanted to start with China, which was a bright spot in the quarter. Can you help us think about how the slate looks for the upcoming May Golden Week and then how this Golden Week period historically compares to October Golden Week? I know back in October of 2020, you had a very successful outcome, and I think that was led by Eight Hundred. But just trying to get a sense of how important this week is and what the local lineup may look like?

Thanks for the question. So typically, there are 1 or 2 big blockbusters during Golden Week. For whatever reason this year, it's much more spread out. So there's not an obvious breakout hit like there's been in the past. And I think there's something like 12 or 13 movies being released. From IMAX's point of view, that's not as advantageous because it wasn't like we could go and find The Eight Hundred, like you pointed out, and say this is the movie. So I don't think it's going to be a breakout period for us this year. I think we pick movies as good as any of the movies out there in general. But I don't think it will be a breakout Golden Week period. The slate for the rest of the year, though, I don't have it off the top of my head. I remember one that used our cameras called Mozart in Space because, obviously, it has a very unique name. But there are a few movies like that, that we have a fair amount of confidence in coming out later in the year, but not Golden Week.

Great. What have you and your partners learned about price elasticity during this period, both outside of the U.S. and in the U.S. with Godzilla and Mortal Kombat? Do you expect pricing to remain strong, especially in your well-located units in major cities? Will you be pushing it, or do you think your partners will take a more gradual approach with pricing for your customers?

So I can tell you in China, during the Chinese New Year holiday, pricing was very strong, and there was no deterioration from where it was in 2019. In Japan, for their string of hits, our pricing has been very strong. We haven't seen any deterioration. I haven't looked at it, and this is anecdotal, but I believe that pricing for Godzilla and Mortal Kombat has been consistent with pricing before the pandemic. We'll have to see how strong demand is, and we'll have to see what the capacity restrictions are. I don't anticipate any weakness. But part of your question is, given all the liquidity out there and given the demand and the limiting of our screens, will we be able to raise prices? We'll see. I don't know. Certainly, the macro trends would be in favor of not a lot of resistance to raising prices, but we'll have to wait and see.

Best of luck, Patrick.

Thank you, Chad.

Our next question comes from Mike Hickey with The Benchmark Company.

Rich, Patrick, Brett, congrats on your results. Patrick, awesome working with you in the last 4 years, best of luck to you.

Thanks, Mike.

It seems you are very enthusiastic about AI, which appears to be an intriguing opportunity for additional revenue for your business. Could you elaborate on AI, particularly regarding the capital expenditures required for growth, your thoughts on monetization, and your current status in this monetization process? Additionally, when do you anticipate this could become a significant contributor, if at all?

I believe it's too soon to accurately assess the financial impact of AI. We feel we are making progress and could have partnered with several major AI companies. Maximus not only includes Daniel Nadler but also the same team that was responsible for Kensho, which was the largest AI sale in the history of private AI companies. It's a relatively small group, primarily composed of highly skilled individuals from Harvard and MIT with PhDs. I mentioned this briefly, but to elaborate, the way AI functions is similar to teaching a child, though it happens at a much faster pace. By inputting data, it can quickly learn and produce results. IMAX possesses the best teaching data available due to its superior resolution, and we have extensive knowledge of images, along with a strong brand presence. Currently, we do not know what the market will look like, but we believe there is a significant opportunity. Over the past year, we've been refining some aspects of our technology and have initiated some preliminary discussions to explore its potential. However, we still lack certainty. As I noted earlier, we have integrated IMAX Enhanced into this strategy. We are collaborating with streamers, electronics manufacturers, and studios worldwide, including partners like Sony, TCL, Tencent, and Rakuten in Europe, as well as Fandango, among others, with ongoing discussions. It's important to remember that Enhanced utilizes a different technology for upscaling content, not AI technology, and we have seen positive initial traction. We aim to leverage the business we've built and the relationships we have alongside the technology that Maximus offers to establish a business model, but it's still too early to assign financial figures to this.

Michael, regarding your first question about CapEx, one attractive aspect of this initiative is its scalability. Depending on the path we choose, there will be start-up costs, operational expenses, and possibly some capital expenditures. However, the nature of AI solutions and tools lies in their scalability. This aligns with our business model as an asset-light operation, which makes it a sensible approach for IMAX.

Yes. Thanks, Patrick. And Mike, just before you go on, just to give you an example, to up-res as a movie to 4K or 8K using existing technology is a fairly expensive proposition at the high end of your Scorsese or you're doing Apocalypse Now, it's super expensive. But I think the cost to do it is in the tens of thousands of dollars. To up-res an image in AI, it's the cost of electricity. So that just tells you why we're excited about the possibility. But we have to figure out the market size.

Thank you. I appreciate that. The next question relates to the strong demand for movies that you are observing. It’s clear that the interest is more than just anecdotal; it seems natural that people are eager to return to theaters. However, when we examine viewer behavior in China, which has returned to a more normal state compared to the U.S. or other international markets outside of China, are there any signs of a slowdown or a shift to more typical viewing habits after the Chinese New Year, Rich? I’m curious about how long you believe we can maintain this elevated demand. Summer 2021 looks promising, but will the excitement carry through to 2022? Are we expected to revert to regular movie attendance in about a year? Additionally, what insights do you have regarding growth in China, specifically concerning ticket prices versus attendance and how they impacted your first quarter results?

In the long term, content and consumer demand will play crucial roles. There is excellent content scheduled for both 2021 and 2022. I've touched on some of the 2022 offerings but haven't mentioned everything, including titles like Spider-Man and Mission: Impossible. The lineup for the end of 2022 resembles an all-star team of content. Regarding content, IMAX had over $200 million in earnings from Avatar with just 150 screens, and now we have 1,600 screens. While I wouldn't say demand is linear, there is clearly strong interest in watching that film in IMAX. This suggests we have favorable conditions for at least this year and next. In terms of pent-up demand, J.J. Abrams noted that the 'roaring 20s' followed the Spanish flu pandemic because people emerged from it eager to socialize. It seems that, particularly as we recover, with government support and liquidity in the economy, many people I know are planning trips for later this year and are less sensitive to prices than they might normally be. This relates to my earlier point about confronting one's mortality. Regardless of age, people often feel they have plenty of time to do things, but after experiencing lockdowns, there will likely be a shift toward seeking experiences now rather than postponing them. While on a smaller scale, I believe social experiences and outings with friends will see a resurgence, creating more positive momentum.

Nice. I guess one more quick one. With the shorter windows, Rich, and what looks to be sort of a migration to the premium experience for moviegoers that you noted. Do you think you'll see more domestic competition for PLF screens? On the flip side, do you think there's an opportunity to get an installation bump domestically?

If you recall, IMAX has exclusive zones. For instance, on 42nd Street in New York, we're located in the AMC and can't be in the Regal across the street, even though they would welcome us and we would like to go there. I believe there is some potential for growth in North America, but not a significant increase in screens. However, there is substantial potential for growth globally. For example, in Japan, we currently have over 30 theaters open and are aiming for around 100 zones in the next three years. The Middle East, particularly Saudi Arabia, is another market where we expect substantial growth. While there may be some growth in North America, it will not be as rapid. Regarding competition in North America, it's important to note the 80-20 rule, where most of the business comes from just 15% to 20% of the screens. IMAX has 85% of its network in those top-performing locations. Additionally, many of those competitors have similar IMAX screens and premium large formats, and the market is fairly saturated in that regard. Therefore, I don't see many opportunities for expansion. They could explore smaller markets, but the economics of those areas likely won't support significant IMAX growth or the development of many large screens.

Our next question comes from Mike Ng with Goldman Sachs.

I was just wondering if you could talk about whether you see the potential for a single film or a group of films that could deliver what would be considered a normal or post-pandemic level of box office performance and can serve as a proof point of a U.S. box office recovery and help us think about where the new baseline of box office will be? Just trying to get your sense of whether there's a litmus test in the near term that could help us all assess the health of the box office in the U.S.

I think there will be several indicators to look at. For instance, A Quiet Place, which is scheduled for release around Memorial Day, will be significant since we have data from the previous film. Its performance will help set a benchmark based on the capacity limits. Godzilla also serves as a useful reference. One point I mentioned during the call was that about 1,000 of our shows sold out due to capacity restrictions. If we weren't limited to 25% or 30% capacity, it's hard to say if those 1,000 would have sold out, but we definitely would have performed better, leading to higher box office numbers. Regarding major films, I'm uncertain if Black Widow will provide a solid test; it has a PVOD release, and we need a genuine theatrical release to assess properly. My bet would be on Maverick Top Gun. I was really hoping it would release in July, but it got pushed to Thanksgiving due to various factors, including the delay of Black Widow. Although it's coming later than we anticipated, I believe it will serve as a thorough test, assuming we manage to keep the pandemic under control by then.

Good luck to you, Patrick.

Thank you, Mike.

Our next question comes from Jim Goss with Barrington Research.

Rich, continuing along this theme of how the benefits might accrue to 2021 versus 2022 and maybe beyond. With the theaters, studios would want exclusive real estate, but there's a cost to delaying releases. And I know you maintain a strong relationship with all of your studio partners. I'm wondering how your sense is as to how the studios would allocate films to this year versus next year given that it might bunch up too much in the second half of this year, but there's also a cost to delaying those releases. And I have a couple of others. Go ahead with that first.

I'm going to Los Angeles next week to meet with nearly every studio, so I will have a clearer answer after those discussions. As of now, I believe this year's schedule is mostly set, especially in the U.S., where the situation regarding vaccinations and the disease is relatively well understood. However, Europe and India remain more uncertain. I don't anticipate significant changes from 2021 to 2022 at this point. It seems like the studios have adjusted their focus during the pandemic from economics to streaming and PVOD strategies, which makes sense given that people were staying home instead of going to theaters. Therefore, the cost of carrying films hasn't been the primary concern for studios lately. As theaters reopen and box office numbers recover, I think there will be increased attention to those costs, but for now, I believe not much will change.

Okay. I was also wondering is to the extent that some of the smaller films might be more at risk of moving to streaming, et cetera, is there any potential benefit to IMAX box office from a smaller slate of smaller films versus the blockbusters, which obviously need the first-run releases?

I don't really think so. Jim, if you look at every year, about 7 or 8 films account for a significant portion of our box office. People go to IMAX to experience blockbusters in a unique way. I believe the expense of marketing smaller films and creating awareness is a factor. Additionally, the brand connection of IMAX aligns more with Top Gun: Maverick than with Marriage Story. I don't see that changing; I just don’t believe that reflects who we are.

Okay. The last thing I'd ask is Japan's your current emerging market star, it seems. Are there other markets in the index circle capable of warranting more indigenous DMR treatment?

I believe the Middle East, especially Saudi Arabia, is promising. We have a backlog of around 30 theaters there, but currently only 3 are operational. A few more will open this year, and the per screen averages are very strong. I anticipate increased activity as things stabilize, and there are already many discussions happening. China still has a significant way to go, and there are opportunities in other parts of the Middle East, including the Emirates. In Latin America, we’re underpenetrated, but recovery may take longer in that region. That's my perspective, Jim.

All right. And Patrick, I'll add my congratulations, and thanks to you. And it will be good to see Joe back for at least a temporary period.

Thank you, Jim. Appreciate it.

This concludes today's Q&A. I would now like to turn the call back over to Rich Gelfond for closing remarks.

Thank you, operator, and thank you, everyone. It's been a challenging year for us all, both professionally and personally. For IMAX, we feel like we are starting to come out of it, especially in Asia. The main factor holding us back right now is the release of movies, particularly in North America, where films have performed well. The pandemic has affected regions like India and Europe. Recently, the conversation has shifted from whether people will return to theaters to when they will. We are optimistic about our recovery trajectory. The pandemic prompted us to focus on our strengths, which have become clear to our stakeholders, including studios, filmmakers, and investors. We've also taken this time to explore new opportunities, such as in the home market, and we've set the stage for that. While it's too early for definitive predictions, we have been strategic during this period, and we hope our efforts will yield positive results. I want to acknowledge Joe Sparacio, who knows our company very well, and we're fortunate to have him fill the gap until we can recruit. Patrick has been a significant asset in many ways, helping to build IMAX, and we wish him well. Thank you very much.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.