Imax Corp Q2 FY2023 Earnings Call

Thank you for your patience, and welcome to IMAX Corporation's Second Quarter 2023 Earnings Call. I will now turn the call over to Jennifer Horsley, Head of Investor Relations. Please proceed.

Good afternoon, and thank you for joining us on IMAX's Second 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 on the website as well. I would like to remind you all 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, 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. Richard Gelfond.

Thanks, Jennifer, and thanks, everyone, for joining us today. What a weekend and what a quarter! We're pleased to join you today on the heels of a historic few days at the global box office, a weekend where moviegoing reasserted itself as an unparalleled cultural and commercial force. And IMAX demonstrated its ever-strengthening position at the vanguard of cinema. The paradigm shift to IMAX has never been more apparent. IMAX obliterated expectations with a $35 million opening for Oppenheimer, delivering a staggering 20% of the film's global debut on only 740 screens. In China, we delivered more than 16% for the local blockbuster, Creation of the Gods, on just 1% of total screens, our best-ever indexing for a Chinese film. We scored 20% of the debut of Mission Impossible 7 in Japan on just 48 screens. All this combined to lift IMAX to a $46.4 million weekend, the fourth best in the history of IMAX. There is real heat around our brand and technology in the marketplace right now, and this is evident in our strong financial results for the second quarter. IMAX drove more than 30% year-over-year growth across revenue as well as adjusted EBITDA, net income, and earnings per share, including nearly $33 million in adjusted EBITDA and adjusted EPS of $0.26 per share. We grew signings for new and upgraded IMAX systems with 84 worldwide year-to-date, far more than the 47 we achieved in all of '22. And we maintained our record-breaking share of the global box office from 2022, even as more non-IMAX and mid and low-budget films returned to the theatrical market. As a result, we remain on track to deliver significant growth in system signings, installations, global box office, and adjusted EBITDA for the full year. What's remarkable is we delivered despite a Q2 slate that yielded mixed results at the box office. This speaks to the differentiation of IMAX and the diversification of our business across box office and network sales as well as Hollywood and local language content. This potent mix makes IMAX a consistent winner in a dynamic global marketplace for entertainment. Increasingly, it is clear the future of the movie business is IMAX. The shift to premium experiences in moviegoing that IMAX created is no longer just a post-COVID trend; it's the new normal, the way forward. IMAX is a strong global brand at a time when local language content is exploding as a future growth driver of the global box office. International markets continue to offer our biggest opportunity for network growth. Finally, as studios adjust their distribution strategies across theatrical and streaming, our technology is well positioned to deliver the highest possible quality across both. Additionally, we recently took a significant strategic step with our proposal to acquire full ownership of our IMAX China subsidiary. Our expansive footprint, strong market share, brand, and industry relationships, and our mix of Hollywood and local language films make us very optimistic about our business in China. Today, I'd like to provide updates on our box office and film slate with a focus on the shift to IMAX we're seeing in moviegoing. Global momentum behind our brand with a focus on network sales activity and local language. 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, as we look at our global box office, the dominant trend continues to be our market share. Through June of this year, our share of the global box office is 3.3%, and this month is on pace to be one of our best Julys ever. In North America, for the first time ever, we've delivered more than 10% of the opening weekend box office for six consecutive releases of $50 million or more. The second quarter also saw IMAX continue to expand its impact in animation. We reached our number one and two biggest animated movies of all time with the Super Mario Brothers movie and Spider-Man Across the Spider-Verse. Perhaps the best indicator of the power of IMAX was the significant attention devoted to our play times for Mission Impossible, Debt Reckoning Part 1 and Oppenheimer and the competition for our screens in the broader summer marketplace, and IMAX is delivering with both excellent films. Our debut with Oppenheimer gave us our best indexing of any major release ever, globally, domestically, and internationally. It is the biggest IMAX debut in our long and wildly successful partnership with Christopher Nolan, and it helped turn the film into an unmistakable cultural event with IMAX selling out 4 a.m. shows and people traveling hours and sometimes flying across borders to see an IMAX film. Mission Impossible 7 delivered the highest-grossing IMAX debut of the franchise and has earned more than $33 million globally for IMAX to date. The back half of the year has strong titles as well, including films for IMAX releases on June 2 and Aquaman and the Lost Kingdom, Apple's Napoleon from Ridley Scott, and Killers of the Flower Moon from Martin Scorsese, both scheduled for exclusive theatrical release. While there is some concern about release dates shifting due to the labor strikes, we believe nearly all of our second half slate has wrapped shooting. Additionally, given our surging indexing, we believe studios will be reluctant to move films on our slate and potentially sacrifice already agreed-to IMAX windows. Furthermore, our diversified programming strategy will help offset the impact of a shifting Hollywood slate. Local language films will continue to bolster our slate in the second half. We now expect to program more than 40 local language films worldwide in '23, up from the 30 to 40 we initially projected. We've had several solid wins in local language in recent months. IMAX delivered more than $10 million with the Chinese blockbuster Lost in the Stars, a mystery thriller, we opportunistically added to our slate within a matter of days in the quarter. As I mentioned earlier, we delivered $8.6 million this weekend with Creation of the Gods 1, King of Storms, having 16.6% indexing and our biggest summer debut ever for a Chinese film. And in Japan, IMAX was granted its first-ever day-and-date release for a studio film, How Do You Live. The final film from the legendary Japanese Director, Hayao Miyazaki, delivered one of the biggest IMAX opening weekends in Japan of all time with IMAX earning 16% of the film's debut box office on just 44 screens. To date, IMAX has delivered more than $2.8 million with the film. We expect it will have a long run in Japan and select markets worldwide throughout the rest of the year. Our performance across this unique mix of local language blockbusters continues to be a catalyst for network growth, and we see potential for Oppenheimer to drive further growth as we've seen with films like Avatar 2, where we vastly outperformed. As I said earlier, we now have 84 signings this year, compared to 47 for all of last year. We're seeing exhibitors bring more IMAX to their existing multiplexes globally to drive growth rather than adding more conventional screens, such as multinational exhibitor Kinopolis, which in May signed a deal to double its IMAX footprint. We also more than doubled installations in Q2 over Q1 of '23 with 20 in the period. And that number reflects our continued focus on high-growth markets beyond North America and China. Year-to-date, we've grown our rest of the world footprint by nearly 6%. While there continues to be discussion about China and the economy, we remain bullish. Like many of the world's most successful multinational category leaders, we have built a robust business in China over decades, yielding hundreds of millions of dollars in revenue. This year, IMAX box office in China through mid-July is up more than 150% year-over-year versus exhibition, which is up almost 60%. Our market share in the first half has been remarkably strong, at 4.6% of the overall box office on less than 1% of the screens. We program a healthy mix of local, Hollywood, and international content, particularly Japanese. While Hollywood blockbusters have shown softness in China, our average opening weekend indexing for Hollywood releases has surged to 15% in China, again, on 1% of the screens, up from 10.7% in 2019. As China emerges further from COVID and moviegoing recovers, we believe there is upside for Hollywood and local films in the market. As we expand across the world, we are expanding across platforms. In the second quarter, we announced an agreement to sell worldwide rights to our forthcoming documentary, The Blue Angels, to Amazon Studios, a first-of-its-kind deal that will see the film go to Prime Video following an exclusive run in the IMAX network. We continue to refine our go-to-market strategy with SSIMWAVE, and we're seeing a positive response with streaming encouraged by our efforts to champion quality in that space. We remain focused on solutions for streaming platforms that allow them to compress video images while preserving optimal quality and creating significant cost savings. In conclusion, we believe our performance and broader market trends demonstrate a paradigm shift in cinema, with IMAX gaining increasing market share. And that our remarkable indexing is clear evidence of a structural change in moviegoing. We're seeing increasing numbers of consumers on a global basis seek out the future of the movie business, which is IMAX, and it's a bright future. We created and continue to lead the shift to premium moviegoing that is now most in demand among audiences, filmmakers, and studios. We are the only global premium theatrical platform with unparalleled scale and at a time when global markets and local content are the most promising drivers of future growth. Finally, our strong brand and technology enable us to expand and create value across the ecosystem and capitalize on the interconnectivity between theatrical and in-home entertainment. We are confident in our ability to build on our momentum, to deliver a strong second half of '23 and drive further global growth across the IMAX network. Thank you. And with that, I'll turn it over to Natasha.

Thanks, Rich, and good afternoon, everyone. As Rich shared, Q2 was an excellent quarter, which showcased the diversity and strength of our technology-centered business model. Our signing momentum continues, and installations are ramping while box office grew through a diverse mix of content and without the benefit of any mega hits like Top Gun in the prior year quarter. In summary, our results included IMAX box office of $268 million, revenue growth of 32% over the prior year, adjusted EPS of $0.26, up from $0.07 in the prior year period, and adjusted EBITDA attributable of $33 million or 35% of attributable revenue. As I noted last quarter, we are seeing this winning portfolio of Hollywood and local language content create for us lower volatility from Hollywood releases as we optimize the programming of the IMAX network to maximize box office. This, in turn, is driving greater demand by exhibition customers for IMAX systems, creating a positive growth dynamic. And as Rich highlighted, Q3 is off to an incredible box office start with our biggest July opening weekend ever, global and domestic, led by Oppenheimer, as well as local language titles, Lost in the Stars, Creation of the Gods Part 1, and How Do You Live?, putting us on track to achieve our highest-ever July box office. Now for a closer look at the second quarter. IMAX box office of $268 million was up 8% year-over-year and roughly in line with Q1 box office with very positive profit flow-through given the mix of titles. This included hit animated titles not historically the mainstay of IMAX, such as Super Mario and Spider-Man Across the Spider-Verse, coupled with good contributions from blockbusters like Guardians of the Galaxy and Fast 10. Add to that, a Chinese box office that was fueled by a mix of local language and Hollywood titles. The performance in Greater China led to IMAX box office market share in Q2, up 5.2% on 1% of the screens, driven in part by an average indexing of 15% on Hollywood releases. Total revenue in Q2 was $98 million, up 32% from $74 million in Q2 2022. At a 59% gross margin, we recognized gross profit of $58 million, which equates to growth of 31% year-over-year. This higher level of revenue and gross profit year-over-year was driven by improvements in both segments. Content Solutions revenue of $31 million comprised 32% of total revenue and grew 6% year-over-year, driven by IMAX box office growth. Gross profit of $20 million or 64% of revenue grew 15% year-over-year, driven by the positive profit flow-through from stronger box office performance, along with lower film marketing expenses given the mix of titles and recovery in China. Technology Products and Services revenue of $64 million comprised 65% of total revenue and grew 49% year-over-year. For this segment, gross profit of $36 million grew 42% year-over-year. This very strong result was driven by a higher level of IMAX system installations under sales or hybrid arrangements as well as system renewals and amendments. In total, we had 20 installations in the quarter, 13 of which were sale or hybrid and 7 which were joint revenue-sharing leases. Of the installations, 14 were in international markets, reflecting the strong momentum we are seeing in those geographies. Signing momentum also continues with 46 coming in Q2, which is more than three times the 13 signings in Q2 of 2022. The strength in the rest of the world is evident in the 84 signings we've had so far this year. Of the signings, over 80% were new systems compared to 30 for all of 2022. 26 were with exhibition partners who are new to IMAX in the past year. 25% were in the U.S. and Canada and 13% in Europe. Nearly half were in Japan and Southeast Asia, including the seven Aon signings from January, which are all installed and off to a strong start. Three signings were in China, all of which signed in the last month, and the vast majority were in high PSA countries. Turning to operating expenses, we are investing for long-term growth and to exploit our differentiation and strong brand. R&D expense of $2.8 million increased $1.4 million, reflecting our investments in new technology, including streaming optimization software for SSIMWAVE. SG&A excluding stock-based compensation of $32 million increased $2.6 million from Q2 2022, driven by the inclusion of SSIMWAVE expenses, which were not in the prior year given the acquisition closed at the end of Q3 2022. As a percentage of revenue, SG&A excluding stock-based compensation was 33% versus 40% in Q2 '22, an improvement of approximately 700 basis points, reflecting the strong operating leverage in our business model, coupled with continued cost discipline efforts. Adjusted EBITDA attributable to IMAX was $32.8 million, a growth of 29% over the prior year of $25.4 million. The growth across our segments highlighted earlier and the strong incrementality and operating leverage in our business model drove this excellent result. From a margin perspective, adjusted EBITDA attributable to IMAX was in the mid-30s at 35.4%. And the strong performance flowed directly to the bottom line with adjusted EPS in Q2 of $0.26, which compares to $0.07 in the prior year period. As we turn to our balance sheet and cash flows, operating cash flow through six months was $25.9 million, representing significant growth of $31 million from the use of cash of $5.3 million in the first half of 2022. This improvement reflects our higher profits year-over-year and the accelerating business recovery of our exhibition customers post-COVID, including year-to-date collections of $43 million in China. For context, on a consolidated basis, operating cash flow for the entire year of 2022 was $17 million. Our capital position remained strong as we ended the quarter with $95 million in cash and $262 million of debt, excluding deferred financing costs. Of the $262 million of debt, $230 million reflects our convertible senior notes due in 2026 that bear an interest rate of 0.5% per annum with a capped call taking us to $37 per share. As of June 30, our available liquidity was $420 million, including cash and cash equivalents of $95 million and $325 million in available borrowing capacity under the company's various revolving facilities. Furthermore, during the quarter, our Board approved a three-year extension to our share repurchase program through June 2026. As of the end of Q2, there was $191 million remaining available under our share repurchase authorization. Our strong liquidity position gives us ample resources to fund the $124 million to acquire full ownership of IMAX China as announced on July 12. To conclude, our results through the second quarter displayed the strength of our business coming from the combination of our unique position in the entertainment industry and our high-margin asset-light technology-focused business model. And we continue to believe that the opportunities in front of us are even more significant when considering three factors. First, as Oppenheimer results underscore, there is strong demand specifically for IMAX as the most premium entertainment technology company with unmatched global scale. Second, the success we are having in programming a diverse array of content across our platform, which is supercharging our signing momentum in installations. And third, the emerging potential of our SSIMWAVE streaming technology backed by our strong brand. We look forward to reporting on our progress on all these fronts going forward. With that, I will turn the call over to the operator for Q&A.

Our first question comes from the line of Eric Handler of ROTH MKM.

Good afternoon. Thanks for the question. Rich, I wonder if you could talk a little bit about your Chinese local language market share? I mean correct me if I'm wrong, pre-pandemic, I remember a good movie would do like a local language movie in China would do like 3% to 5%, maybe 6%. But you seem to be consistently getting better from that and obviously, 16% from Creation of Gods is way above average. Is there anything that you can point to in China? Are they just getting used to seeing their own biggest films in the IMAX format? Is there any marketing going on? Anything you could point to there?

So Eric, I think about around the time of pre-pandemic a few years before that we made a strategic shift to doing local language films in IMAX. And I think before that, audiences were conditioned to seeing Hollywood films in IMAX, but they weren't conditioned to seeing Chinese language films in IMAX. And I think once we started that, people got used to it. So IMAX wasn't a place that was associated with Hollywood films; it was a place associated with films of all types, and you're right, I don't have the data in front of me. But my memory, and just to be clear, I could be off, but I think it used to be around 2.5%, 3% of the market on Chinese local language films. And most recently, it's been more in the 5% to 6% range. And that's part of a global trend, I mean one of the points we're trying to make on the call is there's been this paradigm shift, where IMAX was kind of ancillary to the movie. But I think what you're seeing now is IMAX is the future of cinema or like primary in the movie. And I think what it reflects is during the pandemic, people kind of got tired of sitting on their couches and especially in China, where it's smaller apartments and less room. And I think they've decided when they go out, they want something really special to go out to. And as you said, the market share for this weekend's film was unprecedented. In my introductory remarks, I talked about Japan and even anime in Japan, which is homegrown, and IMAX is really outgrowing. So I think it's all part of this bigger model where people are seeking out IMAX as a separate thing. And instead of just saying, 'Oh, Oppenheimer, let's go see it at IMAX,' they're saying, 'Let's look at what's in the IMAX and let's go see that.' And that's been our long-range plan for a while.

Great. And then just as a follow-up. Last year, you did very well with local India content, and it looks like you've been getting some really good momentum in that market. Haven't heard as much this year. I have no clue what big blockbusters they have on their site or how those are spaced out? But anything you could say about the Indian market?

Yes, I can. First of all, I should say that Oppenheimer was the biggest opening in the history of India! So I mean I'm just talking about the business in general. In terms of local language, we do have some that we're going to show in the second half of the year. Overall, I think we have 20 to 30 international films in the second half of the year. But this is even a very major one, Eric, which I'm embarrassed to say, I don't remember the title of. We could fish it out before this call ends. I'll come back to it. But there are several Indian ones. And as you know, strategically, we want to have more of them.

Our next question comes from the line of Steven Frankel of Rosenblatt Securities.

Can you talk a little bit about alternative content, given the potential risk of a protracted strike? What have you thought about the types of events you could do with IMAX Live and alternative content that could really have some traction?

So we've spent a lot of time, obviously, assessing how long the strike is going to last, what kind of content could we play, what's out there? And pretty much for the rest of the year, no matter what happens, the content is finished or about to be finished. So none of this is really likely to be a 2023 issue. In terms of 2024, if the strike lasts a long time, it likely wouldn't affect a lot of content in the first half of 2024. It would more likely affect content in the second half of 2024. And we have, as your question addresses. So we're looking at what local language films we could lock in early, particularly one light anime or Indian films that would be exportable to other places. We're looking at things like bringing back, so obviously, not only Oppenheimer, it's going to be a great bring back to actor runs. But Mission Impossibles run was truncated. I think that's something we can bring back and do very well on documentaries. As I mentioned in my prepared remarks, we have one coming out this October. And another one, which we sold to Amazon, is coming out in 2024, and Blue Angels, I'm really excited about; it's very much an action documentary. As you mentioned in your question, you live and different events. We've greenlit a number of events, and we're looking forward to putting that together. But to be clear, the strike is not likely to have a short-term impact, and it's only if it goes on a long time that it has an impact. We'll do our best in the ways that I enumerated to you to make sure that we have as much content as possible. But I think if a strike lasts a long time, there are going to be content shortfalls, but I don't believe that's the most likely scenario.

Our next question comes from the line of Omar Mejias of Wells Fargo.

Could you discuss the current situation regarding your ability to screen 70-millimeter films? With the recent success of Oppenheimer, are you seeing a potential increase in demand for IMAX or upgrades in North America and globally? What feedback are you receiving from exhibitors and studios about this format? Do you think this could resemble the impact that Avatar had, and how are you considering the potential effects of this situation?

Yes. So Omar, we are analyzing that data and looking at it. As you probably remember, we've already said that we're going to build several more film cameras. That way, filmmakers will have the ability to do it. The projectors are all dated. It's not like a new generation, but we are exploring whether there are more of them that we could possibly refurbish and bring into service. Remember, it's hard to believe given all the publicity around Oppenheimer that it's only been there for four or five days. But we are thinking of other opportunities and building new 70-millimeter projectors. Are there opportunities in branding with other 70-millimeter projects with IMAX? Certainly, we'll reach out to filmmakers because the numbers are so spectacular about them shooting with 70-millimeter film. So we're aggressively examining the possibility of how we can leverage this amazing cultural event. I think you will see us find different ways to do it going forward.

That's very helpful. And maybe I think you alluded to this on your prepared remarks, but there were recent media reports talking about that Warner Brothers was strongly considering moving the release date for June. I just wanted to get your thoughts on what is your confidence that that won't be the case? Or just your thoughts in general, what's the likelihood of this happening? And if so, what other options are you considering for the replacement for the rest of the year?

In June, there's another major film coming out, the new Marvel movie, which we won't be able to show because of our commitment to June. If June gets rescheduled, we'll switch to the Marvel movie, which is a decent fallback option. However, I don't think June will move; that's my informed opinion based on the facts. June is already deep into its marketing campaign with trailers and promotional materials available. They recently had a significant presentation, including one at the IMAX CEO Forum, so it's well on its way. If you delay it, they would incur costs to re-launch the campaign down the line. Additionally, June has a long IMAX release of five to six weeks, and currently, there are no competing projects. If they were to postpone it to next year, chances are they wouldn't have that same extended window again. It's worth noting that IMAX contributed about 20% to June 1's growth, and there's substantial marketing planned for June 2. If they shift June 2, they'd face costs—let's say around 10%—so how would they offset those against other expenses? The IMAX release is crucial to their rollout strategy, and replicating that kind of runtime seems unlikely. Looking at it from their financial perspective, it doesn't add up to move it. The only justification for a delay would be the ongoing actors' strike and trying to secure a premiere slot on shows like the Tonight Show, but I question whether that would compensate for losing the six-week IMAX release and the associated capital costs of postponing for a year. They wouldn't know what competition they may face in the future, especially given their current lack of rivals in the market. That’s a compelling reason not to make a change. I’ve spoken to the distributor at Warner Brothers, and they're uncertain about the media speculation, confirming that such reports are false. I can only share my reasoned perspective, but I strongly believe there won't be a shift in the release date.

Before I go on, I have the major Indian title in Q3 to the last question. Jawan, and one reason we have fewer Indian titles in Q1 and Q2 was because the Hollywood schedule, it really didn't leave room to play them. And big Japanese titles in Q4 are Godzilla, Minus 1, Spiral Family, and The Boy and The Heron, which is the film which will play for a very long period of time. You can go back to the next question. Our next question comes from the line of Michael Hickey of the Benchmark Company.

Rich, Natasha, Jennifer, congratulations, guys, on a great quarter. Rich, obviously, phenomenal success here with Oppenheimer. I love it that the IMAX brand has never been so hot. And I think that obviously gives you a lot of leverage to build the business, and we've been running it now almost three years. So you have an incredible perspective. I'm just curious how you think about sort of the next three to five years here? Obviously, we've always got near-term turbulence, labor strikes. Some films are great, some films are not, some of the agents are great, some reasons or not. But just curious how you think sort of medium to longer term, how excited you are today and the growth of your business, given your perspective? And I guess how material maybe some of these new avenues of revenue like SSIMWAVE can be for you guys?

This week, I feel that IMAX has never been in a happier position. It's not solely due to the success of Oppenheimer at the box office. However, Oppenheimer's performance exceeded our expectations significantly. The film achieved substantial box office results, capturing about one-third of the U.S. market and one-fifth globally, despite being shown on a small percentage of screens. This positions us well for future signings and could create an "Avatar effect." As for our financial outlook for the third quarter, we've already experienced our best July, and theaters are nearly sold out for the next three weeks with excellent presale numbers. Overall, it's difficult to feel more positive about IMAX than I do right now. Our five-year plan showcases favorable growth trends, supported by our increased market share, which has grown approximately 50% in North America since the pre-pandemic period. We've aimed to return to pre-pandemic levels, and this year we have around 85 signings, with 80% being new theaters. This means we will receive royalties from both exhibitors and studios. Additionally, we're optimistic about new business ventures like SSIMWAVE and ENHANCE. We believe SSIMWAVE has significant potential, especially for streamers looking to cut costs effectively. Thus, our five-year outlook is very promising, and it's hard to recall a time at IMAX when we felt more optimistic than we do now.

Rich, could you elaborate on your global market penetration? There appear to be significant opportunities, especially in regions outside the United States where you've seen notable success, such as Japan, India, and China. I'm interested in how you view domestic opportunities. I know you recently signed a deal in Canada—was that an incremental addition? It seems like there are urban areas where you could potentially install more screens, despite some zoning restrictions. Is there any flexibility in the future to allow for more screens with the same operator in specific zones? With IMAX being popular right now, does it make sense to have two suites in densely populated areas?

I'll begin by saying that we are quite neutral about whether we focus on the U.S. or international markets; theaters generally perform similarly, except in Japan, where our per screen averages are double those in North America. Just to provide a bit more detail, we signed a deal for seven theaters with Aon earlier this year. All seven are operational and expected to generate between $1 million and $2 million in annual per screen averages, compared to the U.S. average of 900,000. This demonstrates significant potential for global growth. That's why I don't solely concentrate on North America, as doing business in Japan is twice as valuable to us. However, we are still more established in North America than in other regions, but there is definitely room for further expansion. If I recall correctly, around 25% of our signings this year have been in North America. We also completed a five-theater deal with another company, and they have the capacity to take on more. Additionally, we have an eight-theater deal with EVO, and they too can expand. While I don't want to get ahead of myself or make any promises, we are beginning to explore options for exclusivity in certain areas. If AMC has ownership in a specific market, we cannot add more theaters there due to franchise-like restrictions. However, we are starting to consider whether it might be possible to establish additional theaters in exclusive zones to enhance the North American box office, and we are having some initial discussions about this possibility.

So, Jim, it's Natasha. We have our guidance out there for 110 to 130 for the year. Of course, there will be ebbs and flows in the timing of the rollout, which depends on various factors. It depends on when our exhibition customers have the cash flow available for a rollout, as well as other influencing factors. If we have the chance to install theaters sooner, we will. However, based on our historical cadence, we will continue to emphasize that it will be loaded in Q4.

This may sound presumptuous, and I don't mean it this way, but I want to put it in perspective. People should take out a pen and look at the Oppenheimer numbers and the predictions to see whether buying more installs or fewer, or any specific number, will really make a difference for IMAX this year. When you consider the big picture, especially with IMAX, the signings and installations—given how strongly we're performing—I believe that looking at this year from our current position, with a few more installs, isn't a significant investment for IMAX.

Earlier on, as you rolled out China, Rich, there was a big difference in the PSAs as you moved into the 'smaller markets,' which are still relatively large. I'm wondering if that variance has continued as you've gotten people more used to seeing local language product in IMAX if that gap has narrowed somewhat?

Jim, it's still a recovery here in China. Because remember, I know it seems like a long time ago, but in December, they still had quarantines and shutdowns. So I think it's really too early to detect a trend. It's just coming back to a normal state, not even there yet. So I think it's too early to tell.

I'm curious if there are any contractual obligations regarding your film release windows, whether they benefit you or the other party. For instance, if you have a 5- or 6-week window in June and a Marvel opportunity arises, does that allow you to negotiate about sharing that window?

Yes, we typically do not go into specifics, but there's a two-week window for the IMAX program. We could either play the minimum or offer more time, so we do have some flexibility. If they want to move the movie, there would be consequences, as they would lose all of that window. I believe it would be difficult to replicate that in future years.

But you would have the same flexibility. So can you force the issue as well? Does that work that way? Or is it a matter of creating this honor system so that you do spread things out over the course of the year?

Jim, as you may have seen in the media regarding Mission Impossible 7 and Oppenheimer, we make commitments and we stick to them. Thanks to the quality of Oppenheimer and its association with IMAX, being a company of principle and honoring our commitments has proven beneficial for us. We don’t engage in games like that.

Okay. Understood. Lastly, you've touched a little bit on the rollout in terms of number of sites. And I wonder if given how you do feel IMAX right now, if there's any consideration towards in general, accelerating that rollout in terms of numbers, so it maintains some sort of percentage. I know it's not itemized in terms of certain dollars, or sites, or percent. But do you think an acceleration is warranted given the number of markets you have and the reception to your format?

Jim, this is Natasha. We have our guidance set for 110 to 130 for the year. There will certainly be variations in the timing of the rollout, but this will depend on several factors. It relies on the timing of our exhibition customers and their available cash flow for a rollout, among other considerations. If the opportunity arises to install theaters sooner, we will take it. However, based on our historical cadence, we will continue to emphasize that the rollout will be back-end loaded.

In the future, if you're asking about upcoming years, I think there was an Avatar effect that can be seen this year and is likely to continue. Some individual IMAX theaters can make $1 million from Oppenheimer, with many reaching $200,000 to $300,000. When you consider what this means for the theaters and their logic, it should lead to the insights you are looking for.

Our final question comes from the line of David Karnovsky of JPMorgan.

Rich, I thought it was interesting to see Napoleon on the calendar for IMAX. Maybe I don't know if you can give any background to this. I think it's your first content deal with Apple and what potential do you kind of see for more releases here. Have they given you any indication of their fleet?

Well, not only is Flower a core movie, but Napoleon, which is really a Scott film, it's also another Apple movie, which is interesting, David, because there are two different studios distributing them. One is Paramount and the other Sony. Yes, we are discussing other projects with Apple, and Apple is committed to a theatrical exclusive window. And I think they see us as a key part of that; on this one specific one, in mind that we haven't agreed to, but we have a verbal understanding about the next couple of years. It's not in the near term. So I do think we'll get more and more content from Apple and probably Amazon as well because they're committed to a theatrical window.

I would now like to turn the conference back to Richard Gelfond for closing remarks.

Thank you, operator, and thank you all for being here today. We just announced a very strong second quarter, following a successful first quarter. In the first month of our third quarter, we achieved our best July ever in box office performance, and as we look ahead to August with presales and the potential for Oppenheimer, along with other upcoming movies, the outlook is promising. IMAX seems to be shifting from a perception as just a story stock to having characteristics of a value stock. I encourage everyone to take a moment to analyze the numbers. We've been reducing our capitalization, our outstanding shares have decreased, and our EBITDA has increased. It doesn't just rely on believing in the story; it requires looking at the math. I truly feel that IMAX is in one of its most favorable positions in a long time. Thank you all for joining us, and I look forward to sharing more positive updates in our next call.

This concludes today's conference call. Thank you for participating. You may now disconnect.