Imax Corp Q2 FY2024 Earnings Call

Good day and thank you for standing by. Welcome to the Second Quarter 2024 IMAX Corporation Earnings Conference Call. At this time, all participants are 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 your speaker today, Jennifer Horsley, Head of Investor Relations for IMAX. Please go ahead.

Good morning and thank you for joining us for IMAX's Q2 2024 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. Our historical Excel model is 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 the reconciliation to non-GAAP financial measures are contained in this morning'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. Rich?

Thanks, Jennifer, and thanks everyone for joining us today. IMAX powers awe-inspiring experiences. We are a go-to end-to-end technology platform for the world's greatest filmmakers and creators. We deliver the biggest Hollywood and international blockbusters, original documentaries and immersive events at scale worldwide across 90 countries and territories. These attributes have been on full display. IMAX delivered one of the best years in its history in 2023. And while last year's Hollywood strikes dealt the entire entertainment ecosystem a temporary setback, it was just that—temporary. Now, with the strikes and the lingering effects of the pandemic firmly behind us, we are in an excellent position to fully realize the benefits of our strong, asset-light business model. We're on a roll in network growth with both system sales activity and installations. And the slate through '25 and '26 looks as good as we've ever seen. As we predicted, we began to see this pivot back to progress during the second quarter. The record performance of Inside Out 2 led a succession of recent box office hits, demonstrating that supply, not demand, depressed the global grosses of the early summer. The third quarter is off to a strong start. Twisters easily beat expectations at the local Chinese title, leading IMAX to a $21 million global weekend. Deadpool & Wolverine is set to continue the trend and deliver a massive opening this weekend. IMAX is commanding a healthy percentage of presales, in line with what we saw for the big debut of Doctor Strange 2, which opened to $33 million in IMAX's global network. And the fourth quarter looks strong, with buzz building for Wiccan, Gladiator 2, and Joker 2, which was filmed without cameras and will receive a select run in IMAX film. Furthermore, we continue to strengthen our strategic position. We locked a landmark deal in China with our biggest exhibition partner worldwide, Wanda Film. A record of at least 14 releases in 2025 are being filmed with IMAX cameras. And we successfully launched our original documentary, The Blue Angels, further diversifying our content portfolio. Several signs in our financial and operating performance demonstrate our growing momentum. Our second quarter financial performance significantly beat consensus estimates across most key financial metrics. We expect to achieve year-over-year growth in installations. On this call, we're raising the floor of our guidance from 120 installs to 130 new or upgraded systems this year, with the high end remaining at 150. Through the second quarter, we've installed 39 IMAX systems compared to 29 over the same period in 2023. We've signed agreements for 99 newer upgraded IMAX systems worldwide year-to-date compared to 84 over the same period of '23. And cash from operations climbed to $35 million in the quarter, up significantly year-over-year from $5 million last year. Consistently, IMAX has navigated periods of disruption to deliver strong results. Yet, we know it's not about what we've done, it's about where we're headed. And we believe IMAX is entering a new, very productive era with clear catalysts for growth over the next several years. This is a very promising moment for our business and our shareholders. Today, I'd like to offer updates on our global network and then our content slate. Then, I'll hand it over to Natasha before we take questions. On the global network, first, this positive pivot across our business extends to our global network, where both sales activity and installations accelerated during the second quarter. IMAX signed agreements with nine different exhibition partners, including four new clients covering priority markets including India, France, Southeast Asia, and more recently Saudi Arabia. Ongoing conversations with existing and new exhibition partners around the world are robust. Our deal with Wanda Film, spanning up to 123 upgraded new and renewed IMAX systems, holds significant strategic promise even beyond the hundreds of millions at the box office that these locations stand to generate over the next decade. This is our first agreement with Wanda since Tencent-backed Ruyi Holdings acquired a controlling interest in the company last year and is a strong vote of confidence by its new management team. Many of the upgraded systems are in Tier 1 cities and among the top 40% of IMAX China locations. The deal includes collaboration on the content side. We see powerful potential for delivering alternative content with Wanda Pictures and Tencent, especially given Tencent's significant stake in Epic Games and its exclusive streaming partnership with the NBA in China. We're very encouraged by the upcoming content slate in China and believe the market is on the cusp of a rebound. In the past two weeks, local hits have reignited the box office, including Successor, our biggest local opening in the market since Chinese New Year. We have two local films for IMAX releases this summer, Decoded and The Traveller. Early indications are that next year's Chinese New Year holiday will offer an exceptionally strong slate, including a local film for IMAX. Additionally, more Hollywood films are securing Chinese release dates, even edgier R-rated fare like Deadpool and Wolverine. The region remains a fertile testing ground for new events, experiences, and technologies. Last month, we partnered with the NBA to stream the NBA Finals live to IMAX locations in Hong Kong and Taiwan. The event sold out in hours, with 73% of attendees being first-time IMAX consumers, which is obviously significant for the way we see the network growing. We can see a role for IMAX as an immersive event platform for North American sports leagues looking to grow global franchises. We also announced that IMAX Enhanced will be featured on the world's first Android-based spatial computer, which debuts in China in October. It's similar to what Apple did with Vision Pro in the U.S. The positive pivot in our business is also very evident in the content pipeline, with the film slate set to come roaring back over the next several years. We have more films for IMAX titles than ever in 2025. Every IMAX release from May through September is filmed with IMAX cameras, including Mission Impossible 8, Marvel's Fantastic Four, and Thunderbolts. Apple's F1 starring Brad Pitt from Top Gun: Maverick Director Joe Kosinski and producer Jerry Bruckheimer, and Superman: Legacy. Our Film for IMAX program has become a key driver of sales for IMAX systems worldwide. Film for IMAX releases like Top Gun: Maverick, Oppenheimer, and Dune: Part Two prove that films shot with our cameras deserve to be experienced on IMAX screens. Exhibitors value that and the premium ticket prices and the incremental box office that IMAX delivers. Our slate is almost fully committed for the entire year in 2025. 2025 ends with Avatar 3, and then 2026 kicks off with carryover box office in January, including installments of Avengers, Star Wars, The Batman, Super Mario Brothers, and Toy Story. Alongside our expanding portfolio of local language documentaries and events and experiences, we continue to make progress in opening our content aperture to deliver a greater diversity of experiences for our audiences and drive capacity utilization for our global network. The Blue Angels was an excellent first outing for our newly revamped original documentary strategy. In its one week IMAX exclusive commercial release, the film scored the highest grossing theatrical documentary opening year-to-date. It has earned more than $2.2 million in IMAX box office so far. We sold the streaming rights to Amazon Prime Video, where it was the most watched original film on Prime in its first weekend, and in its first full week, it was the third most watched original film on any streaming service per Variety Insight with 1.9 million views. In early 2025, it will release across IMAX's institutional network. The sale to Amazon drove significant incremental revenue, and we will continue to reap the benefits across its institutional run, where it could conceivably play for years. We have several more original doc-busters in our pipeline, including the upcoming Stormbound with producer Adam McKay, which will capture the most powerful hurricanes with IMAX cameras. We continue to build out a robust pipeline of music content as well, including an IMAX exclusive event from Donald Glover next year, our recent live event for the Beach Boys documentary ahead of its debut on Disney+, and Queen Rock Montreal, which continued to deliver with a one-way bring-back in Japan in May and its Chinese debut at the Shanghai International Film Festival. We're experimenting in additional verticals, from recurring programming like our partnership with A24 to market activations including our multi-city launch event for Prime Video's hit Fallout. We held our biggest live event to date with an interactive fan event for Twisters across 180 locations, which helped IMAX drive strong over 11% indexing on the film's domestic debut last week. Tomorrow, we'll host a special presentation of the Paris 2024 Olympics Opening Ceremony with Comcast, Universal, and NBC. To close, we believe we've reached a pivot point in the post-strike rebound. Given the surging demand for the IMAX experience among filmmakers, studios, and audiences worldwide, we stand on the verge of an extremely exciting time for our business. Our global network, at less than 50% estimated penetration worldwide, is well-primed to grow and drive even more attractive scale economies for our business. The pipeline of blockbusters over the next several years is truly without precedent, representing incredible filmmakers and the most valuable IP in entertainment, and will further diversify our content portfolio with awe-inspiring experiences to drive greater utilization of the IMAX network. We look forward to continuing to deliver results in our business and for our shareholders. Thank you again. With that, I'll turn it over to Natasha.

Thanks, Rich, and good morning, everyone. As Rich stated, it is clear our business is at a positive inflection point with global box office, system sales, and installations accelerating ahead of a strong Hollywood and local language slate. We are also very encouraged by the growing diversity of our business and revenue mix, highlighted by contributions from new and emerging revenue streams not tethered to studio product. Events and experiences like The Blue Angels, Queen Rock Montreal, and The Beach Boys further diversify our business while driving capacity utilization across our global network. Our Streaming and Consumer Technology business also adds revenue diversity by bringing in high-margin licensing and software revenue. Given the incrementality in our business model, we believe the momentum in our core business, coupled with the growing contribution from emerging revenue streams, creates a potent combination, one that will enable us to drive accelerating and sustainable growth. Turning now for a recap of our Q2 results, where we exceeded consensus expectations across most metrics. We delivered revenue of $89 million. Within that, Content Solutions revenues of $35 million grew 12% year-over-year, driven by the sale of streaming rights of the Blue Angels documentary to Amazon and growth in alternative content that more than offset the lower strike-impacted box office performance. We are very encouraged that our strategy to unlock value for our documentaries in our commercial network and unstreaming platforms is bearing early fruit. Turning to Technology Products and Services, system installations grew 20% year-over-year, and this quarter's mix included a higher level of joint revenue-sharing arrangements than last year. Overall, revenues of $51 million declined 20% year-over-year, driven by the lower box office impact on rental revenues, as well as the installation mix that led to lower upfront system sales. SG&A, excluding stock-based compensation, was $31 million, a 4% improvement year-over-year. As a reminder, Q2 is generally our highest spend for global sales, marketing, and events. Even with these costs, we saw lower spend year-over-year, driven by operational efficiencies and cost initiative benefits. Overall, the second quarter total consolidated adjusted EBITDA of $31 million was at a 34.8% margin compared to 36.7% in the prior year, with declines in gross margin from lower box office and revenue mix being partially offset by SG&A and R&D savings. For the first half, total adjusted EBITDA margin was 37.5% and in line with our full-year guidance of high-30s percent. Lastly, adjusted EPS in Q2 was $0.18, which easily beats consensus and compares to adjusted EPS of $0.26 in the year-ago period. Turning to our global network, system installations and signings both showed very good growth in Q2, as demand for IMAX continues to grow in advance of the expected strong box office slate that Rich described. During the quarter, we completed 24 system installations, up 20% over Q2 2023, which puts us at 39 installations for the first half, a growth of 34% year-over-year. Of the Q2 installations, 67% were new locations with over 60% of these in the Rest of World outside of North America and China. Signing activity increased dramatically to the 87 in Q2 versus 46 in the prior year, with more than a quarter of these signings expected to be installed in 2024. The accelerating pace of installations and signings, along with our significant backlog of over 500 systems at the end of Q2, gives us confidence in our network growth trajectory. As a result, we have raised our 2024 full-year system installation guidance range to 130 systems to 150 systems from 120 systems to 150 systems with the low end of the range above full-year 2023 installations of 128 systems. Turning to cash flow and the balance sheet, we had a strong operating cash flow in Q2 of $35 million, compared to $5 million in the prior year. The higher year-over-year operating cash flow reflects the timing of box office receipts, as well as improving working capital. This has been a focus, and I'm pleased to see the progress. Our capital position remains very strong with $91 million in cash and $287 million of debt excluding deferred financing costs, reflecting a sequential reduction in net debt of $25 million. As a reminder, $230 million of our debt comes from our convertible senior notes due in 2026, which bear an interest rate of 0.5% per annum with a capped call leading to a $37 per share conversion price. Our current available liquidity is $392 million, which includes $300 million in available borrowing capacity under the company's revolving facilities. From a capital allocation perspective, year-to-date, we spent $15.6 million on CapEx, including $10 million on growth CapEx and $18 million on IMAX share repurchases. IMAX repurchases were weighted towards the first quarter when our share price was pressured following the Hollywood strikes. We determined the level of repurchases by considering the share price, available excess cash, and the cost of borrowing, while also factoring in competing uses of cash, including growth CapEx to expand our IMAX network. We are focused on driving shareholder returns and have spent $175 million to buy back 11.5 million shares or approximately 19% of our shares outstanding since 2020. This share reduction gives us the potential for meaningful adjusted EBITDA per share and adjusted EPS expansion in 2025, given the expected box office trajectory. We'll continue to focus on shareholder returns following the approach I outlined. In total, we have $151 million available remaining under our share repurchase authorization. While we are pleased with our financial performance and our resilience through a disruptive period for the entertainment ecosystem, we have also been focused on continuing to improve the way we run the business from an operating and financial perspective. Over the past nine months, we have looked closely at the global operating structure of our business. That evaluation has led to operational improvements and savings, as well as better alignment of our intellectual property ownership structure to maximize earnings power and improve tax efficiency. We have taken several steps, of which the results are reflected in our financials this quarter, and we expect to manifest more benefits going forward. First, we have begun to streamline our global operations, including restructuring IMAX China to gain greater efficiencies with IMAX Corporation, which has resulted in the elimination of certain roles and reductions in overhead expenditures. These organizational and tax efficiency gains have allowed us to capture a number of benefits we were aiming to realize from the IMAX China privatization effort we engaged in last year. Thus, our incentives to take that business private have decreased. Secondly, as previously discussed, we have been adversely impacted by tax valuation allowances for most quarters since the pandemic, resulting in an unusually high tax rate. During the second quarter, we reorganized our legal entities to optimize our tax structure to reflect the mix of our business and where we are making investments and realizing the most profit. As a result, we recognized a tax benefit in Q2 stemming from this reorganization, and we expect in the future, this structure will result in the creation of additional value from our IP and a more effective global tax rate. These are some very positive outcomes that help support greater IMAX profitability and earnings in the future. To conclude, we have real momentum across the key drivers of our business: global box office, system sales, and installations ahead of an extremely promising diverse film slate over the next several years, with more IMAX DNA than we've ever seen. At the same time, new revenue streams are contributing to our growth and driving greater capacity utilization across our IMAX global network. A strong opportunity given that one point of utilization can drive $75 million to $100 million in additional box office. Along with our increasing confidence on network growth from system installations, the third quarter is off to a great start. We're on the cusp of 100 system signings and delivered three consecutive hits in Twisters, China's Successors, and the strong presales for Deadpool & Wolverine. Given the strength of our business model, the tailwinds in the market, and our continued focus on streamlining our operations to unlock efficiencies, we believe IMAX is poised to deliver strong growth, expanding margins, and increased cash flows for years to come. With that, I will turn the call over to the operator for Q&A.

Our first question comes from Chad Beynon with Macquarie.

Hi, good morning. Thanks for taking my question. Rich, Natasha, let's please start with the installation improvement in the low end. Natasha, I know you talked about what's out in the market, kind of what you've already achieved in the first half. So that alone would bring up that low end. But then, you also talked about some of the signings for the year are coming in faster. So, can you maybe just talk about general dynamics? What's going on in terms of anticipation for the slate, maybe signings being delivered faster, kind of what you've seen? And if this could also be a positive trend beyond '24? Thanks.

One of the reasons, Chad, why there was such a wide range this year was there was a lot of uncertainty around China. The Wanda agreement and other things cleared up that uncertainty, so it gave us the confidence we needed to raise the lower end of the range. Aside from that, there have been a lot of signings, as you know, from the text of our speech, much more than the work in the first half of last year and certainly in the second quarter from last year. That increase in signings has given us more confidence about the range in itself, not just the low end of the range. I think it's too early to raise the high end of the range. But I'll give you one example: the movie deal, which we signed in Saudi Arabia, before theaters, three of those are opening this year. Although Saudi Arabia has been a very promising market for us, a lot of the signings are in backlog and haven't moved out of backlog. We’re starting to see that trend happen, and I think that's a function of the strong slate in 2025 and 2026 and frankly, just being practical about it. If you're an exhibitor anywhere in the world and you look at that '25 slate, you've got to say, I better get those things open. I mean, I can't imagine that again, as we've said, between May and September, there are eight films for IMAX titles in a row. So, I don't know if you had a multiplex anywhere, why you wouldn't want to get open before that; you miss out on a big opportunity and obviously have a shorter payback period. So, that's kind of the dynamic. I don't know if you want to add anything, Natasha.

I think the only thing to think about is the fact that we've already installed more this year than last year, and we're on the right trajectory. As we've talked about before, we have a really detailed process, where we go through a full schedule of what we know to be coming through the pipeline. And so we feel very confident in the range that we put out there of raising the lower end. The raise of the lower end is more than our full-year installations last year. And so that also gives us the growth that we've been talking about that we will have year-over-year.

Thank you. And then with respect to the NBA Operas that Hong Kong and Taiwanese consumers experienced. Can you just talk about what kind of the ceiling could be for alternative content opportunities, whether it's sports or other artists, particularly outside of the United States? Rich, you talked about this being very successful in terms of new attendees, but what is the ceiling for what you've started there?

I think we're just learning right now, and that's one reason we're experimenting with different kinds of content. Tomorrow, we're doing the opening ceremony of the Olympics. I think it's so hard to predict these things. We just found out in the last 24 hours that Celine Dion and Lady Gaga are the talent doing that. So, people are going to buy tickets at the last minute. I use that as an example. But something like the NBA Finals, you may know far enough in advance to where it pretty much sold out when they went on sale; other kinds of events are later breaking. We're going to try and do a trial phase, trying a number of different things. We've done the NHL. We've done a soccer before. We really like the early feelings of some of these initiatives, but it's way too early to say what the ceiling is.

Thank you very much.

Good morning. So, Rich, obviously, a lot of focus has been on showing the shot of IMAX DNA and shot of IMAX camera. I guess, what have you experienced so far? What do you feel is reasonable box office share delta over time from those films shot with IMAX cameras? And I'm just curious as the number of films shot with IMAX increases over time, how do you think that generally impacts your share? And then as you add additional cameras and resources to the market, what do you feel is kind of the maximum number of films each year that could have IMAX DNA, given that it may not work for every genre out there? And I have a follow-up.

So the historical evidence, Eric, is we index higher and there's more demand for IMAX when things are shot with IMAX cameras, whether it's film or digital. There are some outstanding examples, like Oppenheimer and Dune, where we did around 20% of the global box office for both. That's much higher than we would typically do. But for pretty much all the movies across the board, I think the world has looked at Furiosa as not being all that successful overall; but for IMAX, it was our third best title in the second quarter, and we had really high indexing on it. You can look at it two ways: as kind of an insurance policy if the box office doesn't meet expectations, then it guarantees some kind of minimum; because people seek out seeing it in IMAX. On the other hand, with Dune and Oppenheimer, it’s a tremendous boost to the box office. Next year, we have 14 films in North America shot with IMAX cameras. From May through September, the entire summer is filled with blockbusters. We have two films in China over the next two to three weeks that were shot with IMAX cameras and we have seven in production over the next year. We haven't spent much time talking about this, but I think that's a vital pivot point for us. Predicting box office is like predicting stock markets, very difficult. But when things are shot with our cameras, we index much better, so we're feeling very good about that opportunity.

And the follow-up to that, I know you don't control pricing in the theaters with your distributor partners. but obviously, you've been experiencing your elevated box office share coming out of the pandemic and plans to have a lot more films shot with IMAX cameras that drive higher demand. Are you seeing evidence of exhibitors or do you feel that there could be some pricing power for the IMAX format in terms of the premium charge versus baseline tickets over time?

Yes, as you know, exhibitors globally charge a premium for IMAX and generally a pretty decent premium. I thought about that, but when you looked at things like Oppenheimer and Dune where you couldn't buy a ticket for weeks or some cases even a month, I've often wondered why exhibitors don't charge more under those circumstances. As you said, we don't control the prices. That's up to our exhibitor partners. But certainly, looking at the data, there's an opportunity to do that.

Thanks, Rich.

Thank you. I was wondering about the content revenues. With some of IMAX's growth story tied to the rebound of the theatrical releases, how should we think about the cadence of the film remastering portion of the revenue?

Hi, David. As we look at film remastering, it's based on essentially the box office performance. Historically, our take rate runs about 18% on every dollar. As the box office increases, that's where you start to see the incrementality on that remastering line, which will increase accordingly and then flow right through to margin and straight to the bottom line. As Rich has mentioned about '25 and '26, we feel like those are going to be really good years because we have a huge amount of leverage in our model to be able to have incrementality. Our costs don't increase as we run and distribute films, but our revenue flows right through in our model, helping us capitalize on that. You would have seen that through other quarters that we've had, like Q3 last year, when we had Avatar.

Thanks. And I guess, similarly, there was year-over-year pressure on the tech products and services revenue and margins. Is that due to an acceleration in the installs and sales? In other words, is there timing of expense recognition with growing the network here in the near term?

That's definitely a function of the mix of types of systems installed in a quarter. As I mentioned, last year Q2, we installed less than this year. It's just a function of where the system is, what type of system, and whether the mix is heavier on JVs or sales-type lease, for example. If you're installing a JV system, you'll have some upfront costs that come in right now, but all of the revenue will come in later at the box office as titles get released across our network. So, it's simply a timing function and a mix function; it's not necessarily reflective of a consistent margin going forward.

Good morning and thank you. Rich, maybe you could give us a little insight into what's going on in India, especially in terms of your ability to take local language titles there and play them in other markets and leverage that way?

Yes. I mean, I think the second part of your question is more interesting, because Indian films tend to play very well outside India due to a lot of Indian expats in England, Canada, the U.S., and many other places. We continue to focus on finding the right titles to play, but the titles have to be available when we’re not playing other titles. For example, going into Deadpool this weekend, we think it's going to be strong, so we wouldn’t play an Indian movie this weekend. There's a lot of local language films coming in the second half of the year. I think it's something like 20 local language films still coming for the latter half of the year, and that's been very good. Some results this year have been among our highest in local language box office. On the other hand, there's network growth; India is certainly a place where we're underpenetrated. We do extremely well there. There’s a lot of room to expand our network, which goes hand in hand with the films. We have a number of theaters in backlog there. There's been some consolidation. As a matter of fact, breaking news, we signed another deal in India this morning. But there are obstacles in that market due to its structure; however, we still have confidence in that market long-term.

Good morning. Thank you for taking my question. Maybe, first on China, box office has been relatively weak lately. Just recently, I think there's just been a direct content. But can you elaborate on what's been driving the weakness and your expectations going forward over the back half of the year into 2025?

Well, Omar, I think you know we've guided to a box office for 2024 similar to 2023. For IMAX, that year was on par with 2019, which is our best year ever. When speaking about box office and IMAX-related, it hasn't been that weak over the past few years. I think you're asking about exhibitors at large and why their box office hasn’t done that well. I think you have to look back to the strikes, which impacted the release slate. It just ended towards the end of last year, and it takes a year or more to put a movie out. I think that's going to start turning in the second half. We're already seeing it with Inside Out, Twisters, and Deadpool. In terms of '25, that's just a strong lineup of movies, with 14 shot with IMAX cameras. For us, I feel extremely good about the box office because 20% of our box office is local-language films, which we proved with Blue Angels, documentaries, and alternative content. I feel very positive about IMAX. For the industry as a whole, I think '25 will be a much more positive year. The strength is in the rearview mirror, and the pandemic is mostly over globally, so even traditional exhibitors will do better in 2025.

Rich, I appreciate the content. I was referring to the China box office, not the overall box office. Just curious on what trends you're seeing and if the volume of films coming to market is expected to pick up and if you guys are seeing any improving trends there?

Yes, so the second half of the year in China, we believe will be better than the first half. We just did Successor last weekend, which brought in $8.5 million. We have two films over the next three weeks filmed with IMAX cameras that we're optimistic about. Next year's Chinese New Year is seeing a stronger slate than this year, and it looks more promising. The reason I'm not going harder in is there's less visibility in China regarding movie release dates, as that's a government function. I feel good about it, but we need to know the exact dates for certainty.

Very helpful, thanks. Real quick on the Blue Angels documentaries and the recent success. Can you elaborate on how you envision this strategy evolving over time and how big can this become as part of your overall portfolio? Maybe touch on how capital intensive this strategy or asset light is? Thank you.

We've been talking about this model, which is to put up some money to start production of more documentaries than we have, and to try and sell off the streaming rights, if possible, earlier, which keeps it capital light. For Blue Angels, we didn't put up a lot of capital; I think around $2-3 million. That’s part of the reason we’re attracted to the model, with the potential to create excellent documentaries without large capital upfront. I think we have four or five in production right now, including Stormbound with Adam McKay and one in China about elephant migration. We’ve been diversifying away from Hollywood content; the first quarter showed this with Queen. The first two quarters provided new capital light models and additional revenue streams that helped offset challenges from traditional exhibition during strikes.

Hi, thank you. Maybe following up on the prior question for Natasha, is it possible to frame all the gross profit or EBITDA contribution from Blue Angels in the quarter? Free cash flow conversion, pre-growth CapEx looks better year-to-date. I know you don't guide it, but any framework for how to think about it for the year or even a long-term target?

Hi, David. As in every quarter, there are lots of puts and takes in our model, similar to Rich's discussions on revenue streams. Blue Angels was a significant contributor this quarter. However, we haven’t disclosed all details of the arrangement as it’s between parties. You can see the contribution through the other content solutions line item in the models, which includes alternative content. We had multiple events this quarter, including the NBA but also a Suga release for Korean content. We aim for year-over-year growth with diversified revenue in our portfolio. Our cash flow was strong, with $35 million in Q2 compared to $5 million last year. There’s significant runway for improvement.

So, just to be mindful of people's times, we're pretty much out of time. But out of respect for those on the queue, we have three more questions, and I'd like to get through them. So, please phrase your questions as succinctly as possible, and we'll try to give shorter answers.

Hey, Rich, Natasha, Jennifer, congrats on the signings. Thanks for squeezing us in, Rich. Briefly, I guess, on SSIMWAVE. I know you guys repositioned that asset, and I know you're excited for growth opportunities. But part 1: curious if you can update us on the success you're having. And if it doesn't scale like you think, do you think you're able to pursue any sort of strategic alternatives for that asset? Obviously, there could be a fairly large margin unlock if you got it off your books. The second piece: just curious your view on the Sphere experience in Vegas. It's not your model—it's unique—but curious what you're thinking there. Do you think in the future, there might be an opportunity for a standalone IMAX experience that has some of those immersion qualities the Sphere has, like haptic feedback and sound, yet still leverage traditional Hollywood or local language content? Thanks, guys.

So, Mike, I’ll give you a relatively short answer just because of time constraints, but happy to schedule a time to discuss in more depth. In terms of SSIMWAVE, we continue to generate a lot of leads. This year was a breakthrough for us technically. Initially, Stream Smart was to help streamers save money on what they stream to their audiences, but we’ve expanded the offering to cover live content also. We continue to develop the business, and the number of leads keeps growing. It’s premature to say how well that’s going to do, but we feel good about it. As for the Sphere, I visited it and it was impressive. The technology is top-notch. I wonder what the addressable market will be outside Las Vegas and how many of these experiences can exist. We've been in a related business for 55 years, so we have a perspective on scalability. I'm not negative but just cautious about how the model plays out, and it’s going to take some time. In terms of creating a similar experience in IMAX theaters, they're not tall and costly enough to replicate that model, but we could create a smaller, immersive experience with less capital investment in smaller markets. It's early, so just one of many things we’re considering.

Thanks, Rich.

Hi, thanks for squeezing me in. I was just going to ask, in terms of the growing number of blockbusters you alluded to and the alternative content, are the studios bending in terms of screen sharing? I'm wondering if that's part of the solution. What is the nature of the relationship with studios now, given that you have a lot of content you want to put on those screens?

I'd say our relationship with studios, not just in North America but worldwide, is better than ever. This is due to increased market share and more directors and producers wanting to put their movies in IMAX. We work hard to accommodate all studio partners and can’t always do that 100% of the time. However, studios appreciate that we protect the window they negotiated. We can't always accommodate everyone, but we’re more open to discussing sharing screens. We typically try to host alternative content on off-peak times, like Tuesday nights.I think overall utilization remains low enough, so there's ample room for all content to fit.

Are you veering toward maybe one week as an alternative rather than two as the typical run for new movies if you get to that stage?

Jim, I hope not because we also want people to film their movies for IMAX. When they invest in that, they have a two-week minimum run, which we highly value. It's becoming a bit more of an art than science. We'll continue to work with filmmakersand studios, accommodating when feasible. I think our relationships are solid, which allows us to move forward.

All right. Thanks. It seems like a good problem.

I would agree.

That concludes today's question-and-answer session. I'd like to turn the call back to Rich Gelfond for closing remarks.

I think I said most of it earlier at the beginning of my call. We've been discussing our strategy going forward: more content, international growth, more film for IMAX, and more local language content. We’ve been delivering this over the years; 2023 was near-record when many traditional exhibitors suffered a 20% drop. Results in the first two quarters have shown the numbers supporting our story. The last four years haven't been easy, between the pandemic and the strikes, which are finally behind us. When looking at '25 and '26, I feel we are at a crucial pivot point. Our business is in a strong position, and analysts have recognized this for some time. Shareholders are finally aligning with the values seen by analysts for a while. Thank you all, and we hope to keep delivering for you.

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