Imax Corp Q1 FY2023 Earnings Call

Operator: Good day and thank you for standing by. Welcome to the Q1 2023 IMAX Corporation Earnings Conference Call. At this time, all participants are currently in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ms. Jennifer Horsley, Head of Investor Relations. You may now begin.

Good afternoon and thank you for joining us on today's first quarter 2023 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. Rob Lister, Chief Legal Officer is 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 site. 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 not 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 income, adjusted EPS, and adjusted EBITDA, as defined by our credit facility, are contained in this afternoon's press release and our earnings materials, which are available on the Investor Relations page of our website at imax.com. With that, let me now turn the call over to Mr. Rich Gelfond. Rich?

Thanks Jennifer and thank you everyone for joining us today. 2023 is off to a very strong start. Across our network sales and global box office we are soaring to historic highs that position us very well in both the near-term and long-term. Simply put, it's a great time to be in the IMAX business. Sales activity is blooming. Year-to-date we've already completed 63 signings for new and upgraded IMAX systems around the world, significantly more than the 47 signings we did in all of 2022. We delivered our highest growth in Q1 ever at the global box office. We captured 3.5% global market share in the period, up over our full year record set in 2022 and we drove extremely strong double digits year-over-year growth in quarterly revenue and adjusted EBITDA and improved adjusted EPS of $0.30 year-over-year and operating cash flow $25 million year-over-year. What's exciting is the geographic composition of these results because they also prove that IMAX is even more global than ever. Many of our signings came in high value international markets, validating our strategy to focus on countries where we're generating high per screen averages. The first quarter was our highest grossing ever for local language films. Nearly a third of our global box office was driven by non-Hollywood films. That included our highest grossing Chinese New Year's ever for local language films and top 3 all-time IMAX releases in Japan and India. Today, I'd like to provide updates on our network growth and sales activity and our global box office and film slate and then I'll turn it over to Natasha to take you through our financial results in detail before opening it up to questions. First our sales activity has broken out in a significant way, which is a very positive indicator for long-term growth across our global network, box office and financial results. As I mentioned, our sales strategy this year is focused on high box office markets around the world, particularly those where we drove record breaking performance with Avatar: The Way of Water, and have made significant gains with local language content. Our strategy resulted in 28 system signings in the first quarter, all but one of which were for new locations and 63 signings year-to-date. It's important to note that all signings are not equal. Many of these agreements are high quality in terms of market PSAs and increasing our footprint in high potential growth markets. For the deals we signed during the first quarter, the aggregate per screen average was nearly $1 million during 2022. That includes Japan, a market where we drove $1.8 million PSA in 2022 and recently signed an agreement with AEON to install seven new systems this year. We signed our biggest deal ever in Indonesia for 10 systems, which will double our footprint in the world's fourth most populous nation. We struck an agreement for up to 10 IMAX with laser systems in Thailand, which will also significantly expand our footprint in that market. Around the world we remain in active discussions on new signings with exhibitors. That even extends to our most highly penetrated market North America. At CinemaCon earlier this week we announced our biggest agreement for new screens with a new partner in the United States in a decade with EVO Entertainment, an innovative exhibitor with ambitious plans for national expansion. Furthermore, we continue to generate new opportunities for IMAX Enhanced while strengthening our go-to-market strategy for SSIMWAVE. Just last week, our partners at HP announced plans to bring the world's first IMAX Enhanced certified personal computer to market. At SSIMWAVE we installed a New Chief Revenue Officer, a veteran digital executive who has served in that role for subsidiaries of TiVo and Nielsen. And last week IMAX made its first appearance at the NAB Show in Las Vegas where SSIMWAVE's VOD Monitor won a Product of the Year award and we held more than a hundred meetings to discuss potential new and expanded partnerships. It's notable that in a time of cost cutting among streamers at high churn among SaaS based solution providers SSIMWAVE has retained its entire client base, underscoring its value as a cost saving solution. We also remain bullish on the long-term applications of SSIMWAVE technology, including potentially transformative solutions for streamers that allow them to compress video images while preserving optimal quality and saving significant costs. For both SSIMWAVE and IMAX Enhanced we view 2023 as an important stepping stone for these initiatives to make more meaningful contributions to our revenue next year and beyond.

Our local language strategy has played out in three distinct phases. First, we strategically ramped up our local language pipeline in key markets during the COVID pandemic to diversify beyond Hollywood as U.S. studios postponed releases or conducted failed experiments with day and day streaming. This yielded several big pandemic era hits from The Eight Hundred, the first Chinese film shot with IMAX cameras to our highest grossing Japanese title ever with Demon Slayer. Second, we shifted perception of our brand in critical markets like India and Japan. Before the pandemic we were reviewed as a platform for Hollywood blockbusters. Now we're seen as a first choice purveyor of local blockbusters as well. Today we're entering a third phase. Our success with local language films is extending beyond their home markets, and IMAX is becoming a critical player in launching these films around the world. The floodgates open wide for Hollywood blockbusters next month and through July with a very strong IMAX-friendly slate that includes new installments of many of Hollywood's biggest franchises, including Guardians of the Galaxy, Fast and the Furious, The Little Mermaid, Spider-Man: Across the Spider-Verse, Transformers, The Flash, which played extremely well at CinemaCon, Indiana Jones, Mission Impossible, and of course Christopher Nolan's Oppenheimer shot with IMAX cameras. The back half of the year has strong titles as well, anchored by films for IMAX releases, Dune: Part Two and Aquaman and the Lost Kingdom. And we remain committed to the 30 to 40 local language titles for the full year, as well as exclusive IMAX live events, like our successful world premiere of Creed III. Around the world for a diversifying set of creators and content owners, it's clear IMAX is a must-have partner for the launch of global blockbuster content. In conclusion, we are delivering on the strong promise 2023 holds for IMAX with diverse, high-quality new signings in key growth markets, a record-breaking quarter at the box office, continued global market share growth and significant progress in the global diversification of our brand and business. We are confident in our ability to drive further global growth across the IMAX network and box office as we carry our strong momentum throughout this year. We look forward to updating you on our progress as the year continues and to creating value for our business, our shareholders, and audiences around the world that continue to embrace the IMAX experience. Thank you, and with that, I'll turn it over to Natasha.

Thanks Rich and good afternoon everyone. As Rich highlighted, we are off to a strong start to 2023 and that positive momentum is clear in our results, including Q1 IMAX box office of $273 million, revenue growth of 45% over the prior year. Adjusted EBITDA attributable margin of $27 million or 34% of attributable revenue, adjusted EPS of $0.16, and operating cash flow of $21.2 million. The positive business momentum has continued into Q2 with strong global box office and sales activity in the period to date. We are particularly encouraged by the quality and mix of our 63 signings so far this year. 54 were new systems compared to 30 for all of 2022, 23 with exhibition partners who are new to IMAX in the past year. 25% were in the U.S. and Canada, 17% in Europe and 44% were in Japan and Southeast Asia. And as mentioned earlier in the call, the vast majority were in high PSA countries. As announced at the time of our Q4 earnings, we resegmented our business to two reportable segments, which we believe are better aligned with how we operate and provide a clear view of our entertainment technology business model. The first segment is Content Solutions, which consists primarily of revenues from our agreements with studios and filmmakers for the remastering and distribution of content to our network, including post-production services as well as documentary production and live events. The second segment is Technology Products and Services, which is focused on our IMAX system network and primarily includes revenues related to the sale, lease, and maintenance of IMAX systems to our exhibitor customers. Lastly, businesses which are not yet material enough to comprise their own segment are included in All Other. At this time the primary components of All Other are IMAX Enhanced and SSIMWAVE. I encourage those looking for more detail on our segment reporting to view our updated historical financial model posted on our IR website. Now onto the results. First quarter results exceeded our expectations driven by record IMAX global box office and the accompanying profit incrementality. Notable contributors were the long play of Avatar into February and the robust return of the China box office and our diversified portfolio, Hollywood and local language blockbusters that created a strong opportunity to maximize box office. The winning combination of Hollywood and local language content enables us to lower the volatility from Hollywood releases and to optimize the programming of our network to maximize box office for our exhibitor customers, which in turn is driving greater demand for IMAX systems creating a positive growth dynamic. Our box office performance led to a record Q1 global market share of 3.5% on less than 1% of the screens up from 2.6% in Q1 of 2022. Revenue in Q1 was $87 million, up 45% from $60 million in Q1, 2022. At a 57.5% gross margin we recognized gross profit of $50 million, which reflects growth of 58% year-over-year. This higher level of revenue and gross profit was driven by improvement in both segments. Content Solutions revenues of $32 million comprised 37% of total revenue and grew 53% year-over-year driven by strong IMAX box office growth globally with North America up 25%, rest of the world up 60% and China up 97% year-over-year. Gross profit of $18 million grew 43% year-over-year driven by the profitable flow-through of box office while gross margin came in at 56.1% of revenue, down from 60% in 2022, driven by higher film marketing expenses and costs to operate the IMAX connected network which scaled in the back half of 2022. Technology Products and Services revenue of $52 million comprised 59% of total revenue and grew 36% year-over-year. For this segment, gross profit of $30 million grew 63% year-over-year with a gross margin of 57.8%, which was up from 48.5% in 2022. This strong result was driven in part by an increase in systems rental revenues resulting from box office growth of 52% associated with our revenue-sharing model, which also generated higher revenue flow-through to margin. Also contributing to our Technology Products and Services results were a higher level of installations under sales or hybrid arrangements and system renewals. In total, we had nine installations in the quarter, eight of which were sales or sales type leases and one which was a joint revenue-sharing lease. Consistent with our expectations, total installations were in keeping with historical seasonality. System signings of 28 were at their highest Q1 levels since 2018 and compared to seven in Q1, 2022. 27 of these signings were from international markets, which were driving strong PSAs and see a clear opportunity to grow our system footprint and in turn box office. This momentum has continued into Q2 with 35 signings already achieved. This is a very positive signal and will fuel long-term future growth considering the relatively low level of IMAX system penetration, particularly in rest of world. All Other of $3.2 million comprised 4% of total revenue and grew 168% year-over-year reflecting the addition of SSIMWAVE as the acquisition closed in September 2022 as well as the growth in IMAX enhanced. Turning to operating expenses, SG&A excluding stock-based compensation of $29 million increased $4.5 million from Q1 2022, driven by normalized level of business activity, including higher staff costs over the prior year as we have returned to a full staffing complement following the pandemic. In addition, the inclusion of SSIMWAVE expenses contributed $1.5 million of the increase. As a percentage of revenue, SG&A excluding stock-based compensation was 33% versus 41% in Q1 2022, an improvement of 740 basis points reflecting cost discipline efforts and the strong operating leverage in our business. Adjusted EBITDA attributable to IMAX was $27.3 million or 34.4% of attributable revenue and grew 84% compared to $14.8 million in the prior year, driven by growth across our segments and specifically the high level of box office performance flow-through to profit. Adjusted EPS in Q1 was $0.16, which would have been $0.19 except for the negative tax valuation impact of $1.6 million or $0.03 in Q1 2023. This compares to adjusted EPS loss of $0.14 in the year-ago period, which includes a negative tax valuation impact of $5 million or $0.09. We anticipate for the foreseeable future an approximate $1 million to $2 million or $0.03 to $0.04 quarterly negative tax valuation allowance impact. As we turn to our balance sheet and cash flows, operating cash flow was $21 million or almost 70% of adjusted EBITDA in the first quarter, representing significant growth of $25 million from the use of cash of $4 million in the prior year period. This improvement reflects our higher profits year-over-year and the accelerating business recovery of our exhibition customers post COVID. For context, operating cash flow for the entire year of 2022 was only $17 million, a tremendous start to the year in what generally has been in recent years, a weaker operating cash flow quarter. Our capital position remained strong as we ended the year with $99 million in cash and $266 million of debt excluding deferred financing costs, $230 million of which are our convertible senior notes due in 2026 that bear an interest rate of 0.5% per annum with a capped call of $37 per share. As of March 31st, our available liquidity was $423 million, including cash and cash equivalents of $99 million and $324 million in available borrowing capacity under the company's revolving facility. Furthermore, as of March 31, $192 million remains available under our share repurchase authorization. To conclude, the first quarter was a strong start to the year. As I said last quarter, we believe and are now seeing that 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 and the long-term opportunities for growth are even more significant. The ceiling is very high when you factor in our global system under-penetration, along with the emerging potential of our streaming technology backed by our strong brand. We look forward to reporting on our progress on all of these fronts going forward. With that, I will turn the call over to the operator for Q&A.

Thank you. Our first question will come from Eric Wold of B. Riley Securities. Your line is open.

Thanks. Good afternoon. I guess a couple of questions, two questions from me. I guess Rich, with the 63 signings you've announced year-to-date, and I guess probably what's in discussion and hasn't been announced, can you, I think you talked about the strength of Avatar and whatnot kind of driving these accelerated discussions. I mean there have been periods of other box office strengths in the past 10 plus years since the prior Avatar. What makes this different possibly from those other periods, and then how does this impact your thoughts around your kind of ultimately backfilling or penetrating certain markets as you see where this demand is emanating from?

So Eric, while Avatar did play a role and we’ve discussed the Avatar effect, there was much more happening in the quarter. First, regarding Avatar, it accounted for 11% of the box office from less than 1% of the screens, generating $255 million. Thirteen years ago, there was only one Avatar, but now we have new Avatars coming every two years, with three more planned. This positions it as an asset that enhances our appeal for future IMAX engagement. As a result, we may see the Avatar effect increase in significance. However, beyond Avatar, there were many systemic trends at play. Our local language content represented nearly a third of our box office this quarter, showcasing a shift from what we've seen in the past. For instance, just this past weekend, we earned about $4.5 million from Super Mario, which is impressive in itself, but our overall box office surpassed $13 million. This suggests that we cannot solely focus on the latest Hollywood releases. Looking ahead to this weekend, it’s Labor Day in China, a five-day holiday with three films we believe will perform well, and India is set to release one of its most anticipated films. In earlier times, one might have worried about a lack of releases in North America, but now it’s evident that there are many opportunities. We also have Mario debuting in Japan, and when you connect these various elements, it highlights a significant amount of box office potential. This trend reduces volatility and dependence on Hollywood blockbusters. Different markets are responding to various films; in China, audiences are drawn to anime, while in Canada, they are interested in Indian releases. Overall, this blend contributes to a more reliable and stable box office, of which Avatar is a part, but there is so much more to it.

No, that's perfect, Rich. And I guess last question, obviously you have a "problem" of having too full of a slate. I mean, you've got movies fighting against each other for room on IMAX, but you're still somewhat tied to film releases and film successes. And I think about SSIMWAVE, what needs to happen for that technology to become a true kind of recurring revenue stream that's decoupled from any kind of content release calendar on the streaming platforms or otherwise? And, what needs to happen for there for that to become the case?

I think we need to wait a little while to roll out the products in a broader way. But the product itself, if you don't recall, basically does streaming optimization, which is it figures out the optimal compression rates on different kinds of content in order to save streamers money. And as a matter of fact, that product just won an award as best new product in its category at NAB this last weekend. And at NAB we had way more discussions and way more leads than SSIMWAVE has ever had before. So I think we just closed on it five months ago. Obviously, the narrative of how streamers can save money is a really important narrative in that world. The total addressable market is quite large and now it's time for us to roll it out. Now, you know, we have clients for different SSIMWAVE products including Disney Plus and Comcast and Paramount Plus and lots of other clients, but we haven't really pushed this product and it's this product at this time, which we believe over time could be a game changer. Now do I think it's going to contribute significant revenues in the third quarter? No, I don't, but I do think as we launch this product and people understand that it's going to gain traction and I'm quite excited about its potential to diversify our revenue and profit streams.

Thank you. Our next question will come from Eric Handler of ROTH MKM. Your line is open.

Thank you very much for the question. Good afternoon. Rich, I wonder, we talked a little bit about the local language films. You obviously had a very high percentage in the first quarter. As you look at your full year box office guidance for this year of $1.1 billion, what do you think local language could potentially account for, for that total and where do you think that amount could go over the next three, four years?

So Eric, as you know, it's dangerous to predict how particular movies are going to do, and I'd rather look at it from a portfolio basis, because part of it is what do you think Hollywood movies are going to do and what percentage that's going to be? But certainly when we put together our guidance, which we gave on the last call, we understood that the impact of foreign films could be significant and that's part of what got us to where we came out. And we'll have more local language films than we had last year in the second quarter I believe I just went through this coming weekend. But, but again, I think it's going to be choppy and I think some of it's going to depend on China because China is our first and biggest market for local language films. And again, we mentioned this on the call, but I think it's worth underlining that last weekend in China for an anime Japanese movie called Slam Dunk, we did $5.5 million. So this is really a growing area for us and it involves how fast it grows and how far it grows and it also involves what Hollywood films do. So I think trying to assess the percentage is very, very difficult other than to say, I think the absolute number will be bigger than it was last year.

Fair enough. And so let me ask you this question then, let's say we continue to see very good success with local language films over the next several years. Let's say you've doubled the volume of your local language film count. Would that have any consequential impact on your DMR costs?

I don't think so, Eric, although you've given me the opportunity to mention that for local language films we're actually doing our DMR costs in many of the territories they're being released in. So for example, in India we just started DMR in Indian films in India and Chinese films we do in China and the cost of DMR are cheaper in those territories than they are doing them in the United States. So the more product we do there as a percentage of the total product, the average cost should come down.

Thank you. Our next question will come from David Karnovsky of J.P. Morgan. Your line is open.

Hi, thanks. Rich, I appreciate the success you're seeing in China with local content, but if we look at kind of Hollywood films and we've started to see market dates, I think the recent performances, mix especially for some of the comic book features. So I'm wondering if you think there's been a shift at all in local taste over the prior few years, or is this just too much read through from a relatively small sample?

Well, David, we're not, yes, I think it's a relatively small sample. I mean, we're only four months away from Avatar, which at during the height of the pandemic when a significant part of the country was locked down and we did over $50 million. And you go through the slate, even Ant-Man which as you know, didn't perform well in China, it wasn't that far off of what the previous Ant-Mans had done. So one problem I have is that a very short sample size begins being characterized as a trend and I think, I think it's way too early. And if you look at some of the films that have already gotten in like Fast and Furious and Transformers and I believe Mission Impossible will get in, those are usually very big performers in China. So, I think we just have to wait and give it some time, but I personally am very optimistic that movies that played well before, those genres and movies will continue to do well. And one other thing I should add is, with two parts to it, is the films that have gotten in in China have gotten in a lot earlier than they used to. So there's much more time for a proper marketing campaign and public awareness to build and that's something extremely positive. And then I also think that there'll be momentum. So there would be, there hasn't been Hollywood film last year very much because of the pandemic and other issues. And I think once films start to come in, like in the rest of the world, you trail or other ones and momentum sort of builds and I think the momentum will improve the performance of following films. So I don't see that as an issue right now.

Thank you. Our next question will come from Omar Mejias of Wells Fargo. Your line is open.

Good afternoon guys and thank you for taking my questions. Maybe going back to signings, it seems like you guys are reaching an inflection point here with signings and this is all happening without China. Can you give us some context of what's changed? How are your conversations different with exhibitors? And then also maybe talk about, so how should we think about the timing of some of these signings? Are they mostly 2023 events or 2024 events? Just trying to sort of triangulate here as it relates to, I think you guys are, the signings are accelerating and you don't even have China in the mix. So would it be fair to think that you have a clear path to get back to like pre-pandemic level signings as we move beyond 2023? Thanks.

There are a few factors at play here, Omar. One is the increasing share of the box office that is attributed to blockbuster films, particularly IMAX titles, which has been growing steadily. The pandemic accelerated this trend as many smaller and mid-level films shifted to streaming platforms. This has resulted in a more robust and diverse film lineup. Additionally, the globalization of our film offerings has boosted confidence for those considering entering the IMAX market, reducing reliance on Hollywood. Our market share has also seen significant gains, with a roughly 50% increase in North America since before the pandemic and about a 30% increase worldwide. People seem to be increasingly comfortable with the economic prospects of IMAX. For instance, in Japan, our box office performance is around $1.8 million, and in India, it closely mirrors U.S. numbers. This attractive outlook encourages new entrants into the IMAX business. Furthermore, the pandemic has shifted consumer behavior—after being homebound for an extended period, people are now willing to pay premium prices for premium experiences, whether that’s in IMAX, concerts, or sporting events. Collectively, these factors make entering the IMAX space a compelling opportunity. Regarding your question about returning to pre-pandemic levels, it varies by year and requires looking at both new builds and upgrades. We're beginning to see new locations come online, and we already have 63 signings this year, which could bring us closer to pre-pandemic figures. However, it’s essential to note that some exhibitors are still facing financial challenges, particularly in North America. We recently announced our largest deal in a decade, but many exhibitors remain under strain. In Asia, conditions have improved, contributing to a higher number of signings as those markets recover more quickly and are better funded. China may experience a delay of six to nine months in returning to pre-pandemic box office levels. Overall, I believe that once we navigate this transitional period, we can certainly return to historical norms.

That's very helpful. Going back to SSIMWAVE, it's been about five months since you closed the deal and you have a new head of sales there. Could you provide a timeline of your top priorities for the next six to twelve months and discuss the long-term opportunity? I'm also interested in how their technology could benefit IMAX internally, not just from an external perspective. Thank you.

So the timeline is, we've developed a number of leads, like I said, at NAB. We don't want in the first instance necessarily to aim for the biggest clients in the world. I think we want to go for small and mid-sized streaming companies to demonstrate the use case and document some data that we can use. So I think like literally today, we're following up on those leads and we're trying to get in as many demos in as broader territory as we can. And then as the use case keeps rolling out and as you mentioned, thank you, I forgot that in my previous answer that we hired a new head of revenue and sales who has actually been at a company recently, which he took from like $30 million in sales to $80 million in a couple of years. So I think you just have to put those pieces in place which we're in the process of doing, and then I think you demonstrate your use case and then you try and blow it out in a broader way. And we're going to be as aggressive as we prudently can be. But as I said before, I don't think you'll see meaningful numbers to IMAX corporation come in until sometime in mid 2024 to 2025.

Thank you. Our next question will come from Steven Laszczyk of Goldman Sachs. Your line is open.

Hey, great. Good afternoon. Rich, you mentioned IMAX's share, the global box office. I was wondering if you could talk a little bit more about your expectations for share of total box as you look at the slate for the rest of 2023. You think that the strong trends in 2022 and in 1Q continue to hold or do you think there's some reversion to the mean that takes place this year?

Yes, I think they hold period, hopefully they go up. I'd be really surprised to see a reversion to the mean, because the world has changed in a lot of ways. Mid-level movies are going to streaming, foreign language films are going to different countries, the level of blockbusters is increasing and, just went through it kind of briefly on the call. But the slate for April was not one when you looked at it on the outside, maybe Mario you thought would be okay, but it was not like a summer blockbuster season. And we more than doubled what our forecasts were for April and what last April looked at. So as of still April it's looking like really good. So I don't think in a period where you go into Guardian to the Galaxy and Fast and Furious and Indiana Jones and Mission Impossible, films that are kind of franchises that have always done great in IMAX that I'd be shocked if our market share went down at that period of time. And also remember it is that our network footprint is going to grow. I mean obviously we've given install guidance for this year, so we'll have a larger footprint than we had. And at the same time our footprint is increasing at least in North America, some of the conventional footprint is decreasing. And even though they're not direct competitors, I think that will also give us incremental market share. So, I'd like to be able to predict, but I don't want to get ahead of myself, that it will continue to go up, but I certainly don't see it going down.

Great, thank you. That's helpful. And then may be just one on the opportunity in ticket pricing. We've seen some of the major theater operators start to talk more seriously about dynamic ticket pricing over the last few quarters, I was curious, what your views were on dynamic pricing for the box office more broadly, and then perhaps more specifically the opportunity for IMAX on pricing over the long-term.

So I'm actually going to start a little more general and then answer your question, which is one thing I didn't mention. I was talking recently to one of our important European exhibitors and I said, "Are you over screen?" And he said, "No, it's not a too much screen problem. It's a revenue problem, revenue proceed." And he said to me, and by the way, one of the deals we signed, he said, "Whereas in the past I probably would have invested in more screens. He said, but the ROI on putting in premium things like IMAX is much better than investing in screens. So I do think the ability to get that ticket price premium is one way they see going forward. And he said to me, when I do my own internal model and I convert my network over to much more premium, I could keep my screen count the same and box office doesn't have to grow by much, and I have a very different economic model. So I think ticket pricing is another example of that. If you look historically during inflationary periods, it's been relatively easy to raise tickets. As I said earlier in another context, look at the price of concert tickets, sports tickets, it's not like we're pushing against a tide, we're kind of with the tide. And also the ticket prices even for IMAX are way lower than for comparable special experiences in other theater, concerts, all those things. So I think there's a lot of way to move. Whether the answer is dynamic pricing or not, I'm just not sure and it's also a complicated question because the studios have a pony in that race too, and the studios have traditionally resisted dynamic pricing. I don't know if they're going to feel differently about it this time. And also, dynamic pricing like models where the price goes down over time and it's higher for better seats. In IMAX our percentage of great seats is much higher and most of our films we play for one to two weeks, so we don't have to fill a box in week four or week five, like they do. So I think the arguments for dynamic pricing are much less convincing in IMAX.

Thank you. Our next question will come from Steven Frankel of Rosenblatt. Your line is open.

Good afternoon and thank you, Rich. We talked a lot about local language, but one element that we haven't dug into yet is the injection of IMAX DNA into films and markets other than China. I know it took you several years to get there in China, and now that's a regular feature. Kind of what's the path to having other local language content that's either shot in IMAX or has material IMAX DNA to it?

Yes, it's something that we're starting to focus on Steve more and more. And I think, I'm not up to speed on a project-by-project basis, but I know in Japan and in India we've had specific conversations about using our cameras. And this one filmmaker I know of in India, I've talked to myself who's starting a project probably in about six months, who intends to film it with IMAX cameras. So I do think that's going to be more and more a part of our strategy, particularly the digital cameras because it's not that much more expensive to shoot with them. And I would also think in Japan in particular, because of the popularity of IMAX, it just makes sense for them to do it. So I think that's a trend you're likely to see.

Thank you. Our next question will come from Chad Beynon of Macquarie. Your line is open.

Good afternoon. Thank you for my question and congratulations on the quarter and the signing levels. I wanted to begin with capital allocation. Natasha, you and your team have done a great job reducing the share count over the last few years, especially in 2022 by about 5 million shares. The stock market is always changing, but it seems like your free cash flow is heading in the right direction. How are you planning to approach opportunistic or programmatic buybacks moving forward?

Thanks, Chad. Yes, we are continually considering opportunities for buybacks. When the stock price is at the right level, we'll proceed with repurchases. We were mostly in a blackout during Q1, which is why the buybacks were not as significant as in the past, as we only had a two-week open window during that period. We did establish a plan, but that becomes locked in and proceeds based on the stock price at that time. You can see from our cash flows for the quarter that we had a strong start to the year, with operating cash flow in Q1 reaching $21 million, surpassing the total for all of 2022, which was $17 million. This marks our second consecutive good cash flow quarter. Generally, if box office figures are projected to exceed $1 billion, margins and cash flow improve. This reflects the incremental nature of our business. Historically, when we have excess cash, we engage in share repurchases.

That's great, interesting. Thank you. And then Rich, I wanted to ask about just I guess, the change in direction with the streaming debate. I know this hasn't really affected you guys as much in the past couple years, just given your focus on blockbusterization, but I know this was certainly a positive takeaway for the overall industry from CinemaCon. So wondering if you could just kind of opine on updated views on this, if movie going beget movie going and maybe you get some more people out to the theater if this is a positive or kind of a non-event for you guys. Thank you.

Well, I mean, I think the data is clear that a theatrical release really helps our streaming release and I've read some of the data that is being shared with the streamers and it's just not a question, a theatrical release helps boost the entire value chain. I mean, there's a reason why people have done it forever. Like reselling a product, building a buzz, all of those reasons are really positive. The other part of it and I think this is what you were referring to was Apple and Amazon deciding to release their streaming movies theatrically. I think for some movies it will be really good, the blockbuster ones and the more, the merrier. I don't think it's a game changer for us because our slate was really, there was a lot on it. But for some of the big movies, I think it's a really good addition and even some of the ones this year looking into whether we could get involved with them. So it's nothing but a net positive.

Thank you. We have time for one more question. And our next question will come from James Goss of Barrington Research. Your line is open.

All right, thank you very much. Rich, I wanted to ask you about two of the international markets, Indonesia and India. Indonesia because it's brand new, but very large, I think you said number four population. I wonder if you could characterize the market? Is it mostly Hollywood content or is it mostly local language or some sort of blend? And with regard to India, I was wondering if there are certain characteristics within the type of movies that are made there, local language-wise that play particularly well in IMAX. And I'm wondering if the local production is starting to gravitate toward meeting those elements.

In Indonesia, the market is primarily focused on Hollywood films, and we've established a successful partnership that has mainly engaged in that area. However, we have also produced a local Indonesian film that performed moderately well, and we are discussing the possibility of creating more films in that market. For the time being, their focus remains largely on Hollywood content. It's worth noting that Indonesia is the world's most populous nation with a significant portion of its population living in poverty, which presents an opportunity for further growth, although it depends on demographic factors and other variables. In India, I spent a week meeting with various exhibitors and studios. One positive development is the increase in local language content, which is an essential aspect of their box office revenue. Additionally, we have nearly the same per screen average in India as we do in North America, close to $1 million. This indicates that the financial landscape in India is favorable. However, India faces unique challenges, such as a highly fragmented potential partnership landscape compared to other regions. This fragmentation means that while we could pursue large-scale deals like in China, in India, our approach will require more focused and gradual efforts. We're transitioning to revenue share agreements with select clients, something we hadn't done previously in India, to mitigate risks and accelerate growth while addressing some of the structural challenges in the market.

Thank you. This will conclude the Q&A portion of the conference. I would now like to turn the conference back to CEO, Rich Gelfond for closing remarks.

Thank you very much. Typically, I conclude by summarizing the call, but today I'll take a different approach. Over the last decade, there has been a rivalry between theatrical and streaming, with debates about which will dominate and the costs involved. However, I've been increasingly concluding that these two can actually support each other. For instance, more content from streaming can enhance theatrical releases, and likewise, the success of theatrical can benefit streaming platforms. An interesting case is the global popularity of anime, which has thrived in IMAX settings, but is largely generated by streaming services that gather data on online audiences and transform that online engagement into theatrical success. Another example is local language films, where exhibitors know who attends and leverage events, such as cricket matches, to promote these films. Moving forward, I believe less in the idea that streaming poses a threat and more in how both sides can collaborate to grow the overall market. I wanted to share this perspective because I hope it resonates with some of you. I appreciate your participation in the call, and as I mentioned earlier, it's an exciting time to be at IMAX. I look forward to our next quarterly call.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.