Imax Corp Q3 FY2024 Earnings Call

Good day and thank you for standing by. Welcome to the Q3 2024 IMAX Corporation's Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's 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 call over to Jennifer Horsley, Head of Investor Relations for IMAX. Jennifer, you have the floor.

Good afternoon and thank you for joining us for IMAX's third quarter 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 a reconciliation 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. With that, let me now turn the call over to Mr. Rich Gelfond. Rich?

Thanks Jennifer and thanks everyone for joining today. IMAX is setting the table for what we believe to be a new sustained era of growth over the next several years. Moviegoing has rebounded after the Hollywood strikes ahead of a phenomenal slate in 2025 and 2026. Exhibitor demand for IMAX is surging, with system sales and installations significantly outpacing 2023. We expect 2025 to be our best year ever at the global box office with more than $1.2 billion in IMAX grosses worldwide. The fundamental measures of growth in our business, system installations, timings, and the content pipeline are all strong, and this came to the fore in the third quarter. We beat consensus estimates with adjusted EBITDA of $39 million at a 42% margin and EPS of $0.35, beating the street by over 50%. We've already installed 100 systems worldwide year-to-date, including one of our best third quarters ever. We are now tracking to hit the high end of our installation guidance, which we raised last quarter to between 130 and 150 systems. This year we signed agreements for 119 IMAX systems worldwide year-to-date, on track to deliver more than 129 we completed in 2023. We delivered one of our best third quarters ever at the global box office, driven by domestic box office that exceeded 2019 by 45%. These results are noteworthy given the tough comp versus Oppenheimer in 2023 Q3. Network expansion offset box office softness, further demonstrating our diversified revenue base and flexible asset-light business model. More than anything, we're focused on the future. The '25 and '26 slates look as strong as we've ever seen, with releases from the biggest filmmakers and most successful franchises from Avatar to Avengers. 2025 alone boasts at least 14 films for IMAX releases worldwide, including Hollywood and local language films shot without cameras specifically for our screens. We typically index much higher with these titles, and as reported, we're very excited to be working with our long-standing partners Christopher Nolan and Emma Thomas on the release of their next film in July 2026. I'm pleased to share that Chris will be utilizing new IMAX technology in the making of the film, never before used equipment that our teams have been developing throughout this past year. As filmmakers and studios lean into our technology, moviegoers worldwide drive our global box office and market share, and exhibitors install more of our systems to meet consumer demand. An influx of great content will only accelerate these trends, and we look forward to executing to deliver results for our business and our shareholders. Today I'd like to offer updates on the opportunity we see ahead in our global network and our content slate. Then I'll hand it over to Natasha before we both take your questions. First, momentum continued to build in our global network with strong installations and sales activity in the third quarter. We completed 49 installations in the third quarter alone, compared to 30 for the same period in 2023. And we made progress in priority markets around the world with signings in France, Australia, and Saudi Arabia. Our recent agreement with Movie, Saudi Arabia's largest exhibitor, puts us in business with the four top exhibitors in the Kingdom. Saudi moviegoers continue to embrace a variety of IMAX content, from Oppenheimer to Bad Boys 4 to Indian and Japanese titles. We are pursuing our first local language project in Saudi, which will make the IMAX platform even more attractive to local exhibitors. We see an opportunity to expand IMAX’s Saudi footprint from the 10 currently in operation to at least 50 in the years ahead. Around the world, conversations with existing and new exhibition partners are robust. Already in the fourth quarter, we've completed agreements with partners in Australia, Japan, and Latin America. And in the wake of our landmark deal with Wanda Film, we're seeing encouraging signs of progress at the Chinese box office. China has lagged the rest of the world in 2024, but as we look ahead, we have reason for optimism. Next year's Hollywood slate is more consistent with the diversity of tentpoles and franchises that have historically resonated with Chinese audiences, as demonstrated by this weekend's Venom: The Last Dance and Alien: Romulus, which delivered greater IMAX box office in China than in the US. There is still a market for distinctive Hollywood films there. A local language slate next year looks promising, starting with Chinese New Year, which is set to feature big blockbuster titles initially slated for this year. And China is in the process of rolling out an economic stimulus package to bolster consumer confidence in the economy. We saw progress during the October national holiday, where our daily box office returns and market share grew year-over-year despite a relatively soft slate. China also offers a fertile testing ground as we open our aperture with new IMAX events and experiences. We are live streaming the 2024 League of Legends World Championship, an online multiplayer battle video game which is among the world's largest esports across more than 70 IMAX locations in China. League of Legends is published by Tencent, which owns Riot Games, and Tencent is also a major investor in RUI Holdings. Our partners that own Wanda Film, our streaming and consumer technology division, is testing a new proprietary technology with the potential to rapidly expand our connected live network without the considerable capital expenditure necessary to wire our locations. We successfully tested this technology with our sold-out presentation of the NBA Finals in Hong Kong and Taiwan early this year, and we see an opportunity to efficiently scale our global connected network and will continue to explore unique live events as we enter the new year. We're seeing strong momentum across our content portfolio and pipeline. While many initially tagged 2024 as a recovery year, the global box office is showing encouraging signs of progress sooner than many anticipated. We delivered more than $83 million with Deadpool and Wolverine alone. That's more than 50% better than any previous installment in the franchise and good for our fifth highest Marvel title of all time. Last weekend's Venom: The Last Dance, a film for IMAX release, delivered a strong international opening led by China, resulting in one of our best ever October debuts globally. And we strategically managed our network to accommodate a diverse, promising slate of tentpoles this Thanksgiving and through the holidays, including Gladiator 2, Wicked, Moana 2, and Mufasa: The Lion King. It's a great on-ramp for what looks set to be a very special year ahead. Every IMAX release currently scheduled from May through September is filmed with IMAX cameras. That includes Mission Impossible 8, Marvel's Thunderbolts, F1, and Superman Legacy. The strong, consistent slate concludes with Avatar 3, the follow-up to our highest-grossing films of all time. 2026 kicks off with Avatar Carryover and includes new installments of major franchises including Avengers, Star Wars, the Batman, Super Mario Brothers, and Toy Story alongside our expanding portfolio of local language documentaries and events. IMAX powers awe-inspiring experiences. We are opening our content aperture to deliver new experiences for our audiences and drive capacity utilization of our network. We recently hired our first Chief Content Officer to coordinate our content portfolio across Hollywood, local language documentaries, live and new events and experiences, and fine-tune our strategy as our portfolio grows to more than 100 experiences per year. We've had successes this year with a more consistent pipeline of experiences beyond first-run theatrical releases—nearly quadrupling the output of the previous year. That includes a balanced mix of music including Queen Rock's Machi Ho and a recent concert hit in South Korea, I’m Hero, which is now our highest-grossing local language title of any kind. In that market, documentaries, both originals like Blue Angels and through distribution partnerships with companies including Netflix and NatGeo, as well as library content events. Most notably our partnership with A24 to release one of their iconic films each month during an underutilized weekday. We also continue to push the envelope in experimentation with new experiences like the Paris Olympics' Opening Ceremony and League of Legends. We remain in talks with NBC Universal on additional sports and entertainment events, as well as tonight's launch event of Amazon Prime's new concert film with hip-hop artist Megan Thee Stallion, which builds on a successful launch of Prime's hit series Fallout earlier this year. To close, we are building momentum at the right time for our business with our system installations and sales activity ahead of expectations year-to-date and a 2024 slate that, on balance, has delivered. Consumers continue to prove that, when there are awe-inspiring events that fully capitalize on the IMAX experience, they will show up, and we have a fuller, more promising slate over the next two years and beyond than we've ever seen. We continue to believe we are entering a very exciting time for our business, and we look forward to continuing to deliver results in our business and for our shareholders. Thank you again, and with that I'll turn it over to Natasha.

Thanks Rich, and good afternoon, everyone. Q3 demonstrated once again the resiliency in our business as we delivered strong results while managing through some top-line headwinds, including the challenging comparison to last year's record Oppenheimer performance. Adjusted EBITDA came in at $39 million and a margin of 42%, above our high 30s percent full-year guidance. System installations are accelerating and outpacing our normal seasonality with 49 systems in the quarter, an increase of 63% year-over-year. As a result, installations are now tracking to come in at the high end of our full-year guidance range of 130 to 150 systems, as Rich highlighted. At the same time, profitability and cash flows remain strong. We delivered EPS of $0.26, an increase of 18% year-over-year, and operating cash flows of $35 million, an increase of 21% year-over-year. Overall, our results reflected our growing business momentum and management's continued focus on efficiencies and operating expense reductions. Looking forward, the table is set for accelerating revenue and profitability from the combination of our growing network footprint and improving Hollywood and local language box offices. In addition to expecting over $1.2 billion in IMAX box office in 2025, we also expect our box office to continue this upward growth trajectory over the next several years, given our strong position in the industry, the promising Hollywood box office slate that we either have scheduled or have visibility into, as well as our expected network growth. The bottom-line picture improves further as the operating leverage that comes with higher box office and scale increases, and we look to increase utilization by bringing other content onto our platform and deploying more digital marketing initiatives while also working to scale our streaming consumer and technology business. As Rich indicated, we are entering a very exciting time for our business, and I would add for our financial growth prospects. To recap our Q3 performance results, on most measures, came in ahead of consensus expectations and reflect good execution by the team. We delivered revenue of $91.5 million. Within that, content solutions revenues of $30 million reflects our third highest Q3 box office of all time on various tentpole content. Both Deadpool and Wolverine and Alien Romulus delivered the highest IMAX opening weekend box office in their respective franchise history. And in China, while Hollywood film performance has been uneven, we have captured, on average, a 16% share of box office across Hollywood titles year-to-date, including Alien Romulus and Godzilla Kong where both titles delivered more IMAX box office in China than in domestic rest of world. Year-over-year revenues from content solutions declined 32%, driven by the mix of content in comparison to the prior year that was powered by the record-setting box office from Oppenheimer. Turning to technology products and services, revenue of $58 million grew 3%, driven by strong system installation growth that more than offset the lower box office related rental revenues resulting from the global content mix. Overall, system installations and signings both provide insight into the strong demand we are experiencing in advance of the highly anticipated 2025 and 2026 box office slates which we anticipate will drive our network growth further. During the quarter, we completed 49 system installations, up 63% over Q3 2023, which puts us at 88 installations year-to-date in September, a growth of 49% year-over-year. As of today, we have completed over 100 system installations. Signings to date are up to 119 through yesterday, on track to exceed the 129 from full year 2023. Within new system signings, the mix continues to lead towards the rest of the world comprising 67% of the Q3 year-to-date new system signings. Gross margin of 56% was below the prior year of 60% given the lower box office compared to the record-setting Oppenheimer field quarter of 2023. However, we had good results across expense areas that offset this headwind or challenging comparison. SG&A, excluding stock-based compensation, was $26 million, a 16% improvement year-over-year driven by benefits from our ongoing expense initiatives as well as the timing of expenses and certain adjustments. R&D was also better year-over-year, reflecting the capitalization of the investment into our new state-of-the-art film cameras which have moved out of development upon achieving technical feasibility. In addition, bad debt provisions improved year-over-year reflecting improvements in working capital, specifically collections from exhibition customers that also helped propel us to a good cash flow result. Overall, the third quarter total consolidated adjusted EBITDA of $39 million was at a strong 42% margin, particularly considering the mix of content in the quarter. Lastly, adjusted EPS for the quarter was $0.35, consistent with last year's same quarter record. Within that, the Q3 adjusted tax rate was 13%, which is below our mid-20s statutory rate, driven by the jurisdictional mix of profits that led to a decrease in our evaluation allowance. This result reflects the benefits of the actions we took last quarter, which has led in part to an improvement in our effective tax rate in 2024 relative to prior years. Turning to cash flow and the balance sheet, we had strong operating cash flow in Q3 of $35 million, up 21% from the prior year, leading to $59 million through nine months, a growth of 9% year-over-year, and already equalling 2023's full-year operating cash flow. I am pleased to see the continued progress and growth in our cash flows. The higher year-over-year operating cash flow reflects an improvement in working capital, including an increase in collections. Our capital position remains very strong at $105 million in cash and $280 million of debt excluding deferred financing costs. As a reminder, $230 million of our debt comes from our convertible senior notes due in 2026 that 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 over $410 million, which includes $309 million in available borrowing capacity under the company's various revolving facilities. While we are building up our cash and liquidity positions, we are also using our available capital to invest in the business, having spent $30 million on CapEx year-to-date with $22 million of that in growth CapEx. This will continue in Q4, our historically highest growth CAPEX period, given the higher weighting of system installations to the end of the year. We view this positively as it will strengthen our ability to achieve higher levels of box office and in turn revenue incrementality, particularly as we head into the next several years with good visibility into what is expected to be strong content slates. We continue to focus on more direct shareholder returns, having done $18 million in IMAX share repurchases year-to-date, including IMAX China. Repurchases were weighted toward the first quarter when our share price was significantly pressured following the Hollywood strikes. To conclude, our moat has never been as wide or deep. Our global scale is unmatched and growing. Our relationships with studios and filmmakers have never been stronger, and the varied content available for distribution on our platform has never been greater and is expanding. Our technology solution for exhibitors is unequalled. Our accelerating signings and installation growth, driven by the demand for the IMAX experience by consumers, reflects our position of strength as we enter this extremely promising box office period. At the same time, we continue to see opportunities in new revenue streams to contribute to our growth and drive greater capacity utilization of our global network. Especially when you consider that one point of utilization can drive $75 million to $100 million in additional box office. Given the strength of our business model, the tailwinds in the market, and our focus on executing the opportunities before us, we continue to believe IMAX is poised to deliver strong growth, expanding margins, and increased cash flow for years to come. With that, I will turn the call over to the operator for Q&A.

Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from Eric Handler with Roth Capital. Eric, please go ahead with your question.

Thank you very much and good afternoon. Rich, look, it's no surprise, at least to theatre operators that the content cycle looks really good for the next two years. But even with that being known, as we get closer to next year, are you starting to hear, are you starting to get more phone calls from these theatre operators that they'd like to maybe accelerate the installation pace for your systems?

Well, I mean Eric, I think you could look at the empirical data where this last quarter we had significantly more installs than a year ago and even our guidance on the call today where we guided to the upper end of the range. So, I wouldn’t get the phone calls, but I certainly read the data, and the data shows that’s true. And on the other hand, as you saw, our signings are likely to run higher than last year. So also, there seems to be an increased pickup in signings. So, I think just based on the results we reported today, that’s true.

Okay. And then I'm sure you saw in the news earlier this week a comment that you're talking to Netflix about maybe doing exclusive with the Narnia movie that's being made there. Is there anything you could say with regards to that movie or just maybe, you know, how your conversations are going these days with streamers and what they're trying to do?

I must have missed that story, Eric. Sorry, I didn’t see it. In fact, as you know, directors, filmmakers, and studios are all leaning into the IMAX experience on another level than we’ve seen before. And as you know as well, we’ve tried different models in the past, whether it’s early release or exclusive content or all kinds of things. So, I won’t comment on that specific story in any way. But I would say that we’re always innovating and always looking for new approaches to enhancing content.

Standby for our next question. Our next question comes from Chad Beynon with Macquarie. Chad?

Yep, thank you very much. Thanks for taking my question. Nice results. You've noted the healthy number of films for '25 with IMAX DNA, and obviously your global box office outlook. Can you talk a little bit more about the spacing of '25, given that IMAX DNA has a slightly longer runtime? And then also related, how does the slate look in China in '25? Anything worthwhile to note there? Thank you.

Sure. So, you're quite right, it's a little bit of an embarrassment of riches. Between May and September, the end of September, we don't have any slots available. Every single slot is filled and for the year, you know, it's as tight as I've ever seen it in terms of available times. That's a high-class problem. As you mentioned, a lot of the films were made with IMAX Cameras, with IMAX DNA. As a matter of fact, next year, 14 of our films were shot with IMAX cameras and a number internationally, too, not just domestically. Also, you know, when you look at '26, to the extent a number have been announced already, it's incredibly encouraging. And I think if you wanted to look at a trend that I've seen develop in the last six months or a year, it's that people are discussing movies way farther out than they did years ago. So, as a matter of fact, you know, for '27 and even '28, we've been approached about a lot of high-profile films. I think studios and filmmakers are understanding that IMAX releases are kind of like beachfront property. If you want to reserve a place, you've really got to do it very early. And we talk a lot about our theatre backlog and what that means about future earnings. We don't talk as much about our film backlog and what that means for future earnings. But I think as you look out into the future and you talk about discounting future cash flows, to the extent there's more certainty in terms of our theatre backlog and our film backlog, you should imply a lower discount rate, and that's a very good thing for our business. So, I think that's one reason that we're so optimistic. And in China, we've just heard about a number of films that have been approved to get in. As a matter of fact, right before this call, Natasha was mentioning some of them to me. So, I'm going to turn it over to her to see if she has some of those names.

Hi, Chad. Yeah, so we actually, in addition to the Hollywood films, are gaining strength, we are looking at some local films that have been approved as well. Some included are Creation of The Gods Part 2, which has been approved for Chinese New Year, and A Writer's Odyssey, which is filmed for IMAX into the summer section of the year. And there are a few more also that have been announced. So, I think that that's good visibility. I mean, it's pretty early for Chinese New Year titles to get announced, and I think that gives us essentially the confidence that China will provide a more balanced genre slate next year.

Great, thank you very much. Both. And then thinking about higher box office revenues in '25, Natasha, I know you've given some margin targets for the overall business. I think in the high 30s year-to-date, you're at 39.2. Can you just help us think about the operating leverage in the content solutions, you know, business if, or both businesses for that matter, if the box office delivers as expected for '25? Thank you.

Sure. Chad. I mean, you're very familiar with our model, so you know that when we start to hit very high levels of box office anywhere, 250 plus, then you start to experience incrementality into our model. And so that box office, not only are we receiving payment from the studios, but then obviously from exhibitors as well for the performance of our locations. And so that creates the incrementality in the model. And then you couple that with the mix of our installations that we do throughout the year, which, as we mentioned in our prepared remarks, our installations are tracking stronger this year and we're guiding towards the higher end of the range. A larger system footprint will also give us that higher box office performance as well. And I think you couple that together with the way that we've been managing the business from an operational perspective, and that’s where you start to think about how the EBITDA margins can continue to grow and exceed over the 40% mark.

Stand by for our next question. Our next question comes from David Karnovsky of JP Morgan. David, go ahead with your question.

All right, thank you, Rich. I want to see if you could expand a bit on the recent performance of IMAX in China. And maybe there's just the exhibition there. Generally, it looks like your numbers and maybe the wider industry was down over 40% in the recent quarter over the summer. Is this economic, is the film quality, or are there other factors? I don't know. What are you hearing from your staff on the ground there?

Yes, I think we think it's a combination of things, David. So obviously, the economy overall has been pretty weak this year in China. And you noticed recently the new government measures that have taken effect—monetary policy, policy towards the real estate sector, fiscal policy. And again, it's hard enough to predict a company, let alone a country, but it looks like some of these things are certainly designed to focus on the consumer. As you know, box office in the movie business is very important to the Chinese government because almost all of the 80,000 screens anchor big real estate developments. One focus of the government is to get people, you know, to go to malls and to do shopping and help the domestic economy. So clearly that was one part of it. As I think Natasha said before, the kinds of films being released and how close they were or weren't to the IMAX genre played a role. I still think there's a little bit of a COVID hangover because a lot of the films were released in '23, but less films released in '24. On the bright side, a lot of films that you wouldn't have expected to get into China, like Deadpool and Joker, which, you know, don’t just fit the typically more conservative profile, have gotten in. So, I think that's a signal that the government wants more films in and it's part of their overall policy. As Natasha just said a minute ago, they've dated a lot of local language films for next year, which they don't typically do that far out. So, you know, predicting movies, like predicting stocks, is not a very exact science. But when we’re just in the process of going through our budget, when we look at next year compared to this year, we think it will be significantly better than this year.

And then, Natasha, the SG&A is noted down 16% in the quarter. I think you called out some timing benefits. I don't know if you can quantify those so we can get a sense of more of the underlying rate and then just any guidance for how to think about that R&D line kind of going forward? I wouldn't expect it to be negative on a go-forward basis.

Hi, David. Yeah, so the R&D, I'll address that first. You're correct. It wouldn't be negative on a go-forward basis. We typically do have R&D expense in each quarter. So, for your run rates, as you think about them, I would be looking at an expense. And essentially, we just did our annual assessment of technical feasibility on our film camera project, and we achieved the milestones needed. That's why you saw the credit in the quarter. When you're looking at SG&A, we actually had year-over-year, we had last year we had over $3 million of the transaction costs related to the privatization and the China privatization. So that's really what you're seeing in most of the variance year-over-year. So, when you're thinking through a run rate, our historical run rate is pretty predictive of the future. I wouldn’t be thinking of it in any different manner, but I think we've gotten some real wins on the operational efficiency side. And then timing of expenditures, there's still another quarter to go in the year, and so timing of expenditures. Sometimes we delay some of our expenditures on consultants or fees or marketing and see where we're landing for the year because we have the opportunity to make decisions that will help us strengthen our financials as we look year-over-year.

Stand by for our next question. Our next question comes from Omar Mejias with Wells Fargo. Omar, go ahead with your question.

Good evening, and thank you for taking my question. Rich, maybe first, I noticed you guys kept the 2024 IMAX box office unchanged year-over-year, despite Q3 being impacted by China weakness. And 4Q is off to a slow start with Joker and Venom. Are you guys still confident in achieving this guidance, and are there any films you are excited for in Q4 that could potentially offset the slower start?

Yeah, I mean, you know, this is the third time I’ve said it. It’s a movie business. It’s pretty hard to predict where things are going to come out. But when you look at the year going forward, we are incredibly excited about the Thanksgiving period around that. We've got Gladiator, Wicked, and Moana 2. Wicked came out of the box really strong with pre-sales, which is not surprising. There’s a wide following for that IP as you know the show has played for a decade, and it’s the kind of property people had circled on their calendar and came out and bought a lot of tickets. And then Gladiator has taken a little while to catch up. But actually, it’s really come on strong recently, and it stars Denzel Washington. The early buzz on it is extremely good, and the subject matter is very conducive to IMAX. We’re leaning in pretty hard on that, as is Paramount Studio, that’s leaning into the IMAX of it all. Moana—some people think that’s going to be one of the highest-grossing movies of the year. So, we have the ability around Thanksgiving to program, to some extent, with which movies are working and which aren’t. You only commit typically for the first week or maybe two weeks. So, I think that flexibility gives us a very good feeling about what’s going on around the Thanksgiving time. You know, all the time there are movies that don’t work, but this time, you know, out of that group I’m quite confident that period is going to be very strong for us. And then at the end of the year, you have Mufasa, and we have precedent for that. So, we can see what the Lion King did. Typically, in IMAX, there are pretty good numbers coming out of that. So, with that said, you’re just not sure where it’s going to end up. But we feel pretty good about our slate for the rest of the year.

That's very helpful. And Natasha, you mentioned improvements to capacity utilization across your system. Can you elaborate on some of the internal initiatives that you guys have put in place to drive utilization higher? What's the opportunity set from a percentage standpoint at IMAX over the next few years? Thanks.

Sure, Omar. So, we've been talking about alternative content for quite some time and we've actually made a lot of traction this year over prior years. The team's been put together in a way that they are synergistically working among the organization and within the organization, which I think earlier this year we talked about the fact that we made some restructurings and team changes in order to create that efficiency in the organization. That team has been working really hard on not only you saw the Blue Angels doc earlier this year, but then we've done lots of alternative content between concert films and moving into sports. This week we’re doing League of Legends as well, which is new and in China, and actually, China is in the finals against a Korean team. I think we’re looking at about the ability to do about 150 locations. We’re thinking about what all those opportunities are and when you pull them together coupled with different models. Not everything will be straight box office. We have the ability to do flat fee deals as well and other types of models to make sure in the end, regardless of where box office is, you’re still strengthening your financials and giving yourself other opportunities to create returns. Using those initiatives, I think that’s where we’ll continue to spend time. Of course, you would have heard in Richard’s remarks as well that we’ve hired a chief content officer and that that position is essentially to set the strategy for how do we create opportunities for ourselves on the content side and really make an impact on that side.

Omar, I’d also like to add, you know, we’re out in LA now that it’s hard for me to see people who don’t say, you know, wow, what about the Sphere? Wow, what about Qasem? Isn’t amazing all this alternative content coming out. But as you know, these things are really high CapEx kind of experiences, and I think they’re really good and I think there’s a future for them. But you know, IMAX has 1800 theatres sitting throughout the world, and not only do we show movies, but we show awe-inspiring experiences and alternative content. I think over time, you’ll see us really benefit in terms of utilization from that diversified content.

Our next question comes from David Joyce with Seaport Research Partners. David, go ahead with your question.

Thank you. The system sales revenue was up very steadily in the quarter. System rentals were down. Do you still have basically an agnostic view as to which strategy to employ, or is one of them quicker in the event that these theatres are looking to accelerate their being on the IMAX network?

Hi David. I think a mix between the systems is still our strategy. However, as you look at the slate in the next few years, I mean, is there an opportunity to install, therefore, get a higher return on the rental side? That is an opportunity before us. Also, when you're thinking about different countries and the operators that exist in those countries and their balance sheets. Our balance sheet is very strong, and we have the ability to put up the capital for that higher return. I think that’s where we have some opportunity before us. And yes, you’re going to have ebbs and flows like this quarter where the rental revenue was lower because box office was lower. But then you have other quarters like last year's Oppenheimer or the first quarter this year with Dune. Of course, we have Avatar next year and the film for IMAX slate next year. So, I really think you got to look at it in the full portfolio approach over an annual view and see how strong the rental revenue can perform.

Great, thank you.

Stand by for our next question. Our next question comes from Patrick Sholl with Barrington Research. Patrick, please go ahead with your question.

Hi, good afternoon. I just had a question on new screen installations. I was wondering if there's any sort of lag between a new screen install and getting to a ramp-up in box office. I was wondering if there are any differences across countries.

There actually is, you know, some. We've done some research into how quickly things ramp up because obviously when you first open, there’s some opening kind of publicity around it, and there is a seasoning period for theaters between when they open and when they hit their peak. But they’re widely differentiated in parts of the world and even within territories, you know what the particular locations are. So, we have it, and we look at it, but frankly, there are no meaningful trends that I can give you other than to say that, you know, when things open, it takes a little while until they hit their peak performance.

Okay. Have you noticed that timeframe shortening after the pandemic?

We haven't really done research in that direction, so I can't say. But I could certainly say when people open around a major movie at a time like that, so many people see it that it really accelerates the word of mouth and shortens it. So, I’m hoping as we're in the fourth quarter and next year, all the promising content, that that period will get shorter. But I haven’t studied it empirically.

Our next question comes from Stephen Laszczyk with Goldman Sachs. Steven, go ahead with your question.

Great, thanks for taking the questions. Two if I could. First on local language, maybe for Rich, could you update us on the medium-term outlook for the local language film supply? What are you hearing from some of your key partners in some of those key international markets in terms of their production plans? Where do you see film supply today in some of those markets and where do you think it can get to over the next few years? And then second, maybe on CapEx for Natasha. I think growth CapEx came in around $12 million in the quarter. I think you mentioned the install calendar being a little back-weighted with 4Q. Any more context you could add on 4Q growth CapEx and then perhaps anything on '25 as we think about you executing against the installation pipeline next year. Thank you.

So, Stephen, as you know, last year was around local language was around 20% of our total box office. This year, it’s marginally lower, but in the same kind of ballpark. My guess is the reason it’s a little bit lower is because the Chinese box office was more challenged this year. As we go into next year, where we expect a more robust Chinese box office, I would think it would settle around that 20% level or higher. There's a lot of activity going on with studios and filmmakers from around the world, and we continue to have new countries opening up. We had a film called I’m Hero in Korea, which did exceptionally well, and I think when you have kind of those new territories and the new one-offs, they really boost the amount of inquiries that comes in. We're in France now, we're working on actually an original production that's likely to be released only in IMAX and then elsewhere. So, I really don’t feel, you know, better or worse for it. I think it’ll continue its trend.

Hi Stephen. On the CapEx side, year-to-date, we're about $20 million for growth CapEx. If you looked at historical pre-pandemic years, we ranged somewhere between $30 million to $40 million historically. I think that’s where the opportunity is, that we do have the strong balance sheet that I talked about earlier and the ability to get higher returns. Especially when you look at the slate as it stands right now. We do have the ability to do that. The other part is as we look out towards next year, if you looked at historical patterns of installations, we generally have a historical mix of about 50/50. We’ve stayed pretty strong to that. But there are years that could weigh more heavily to JV CapEx. It really depends on who we're rolling out with from an exhibitor side, which locations or countries, geographic places in the world and the ability to look at where do we want to spend our dollars. Our teams, and we’ve talked about our theatre team, they do a biweekly call. They really think through and plan it out as much as they can to be able to say what's going to give us the most return and try to work with exhibitors to push those forward. I think that’s where we’ve delivered and we continue to. I’m confident we’ll continue.

Our next question comes from Mike Hickey with The Benchmark Company. Mike, go ahead with your question.

Hey, thank you. Hey Rich, Natasha, Jennifer, great quarter, guys. Thanks for taking our questions. Just Natasha, Rich, just clarification on your '25 guide. I think it's pretty much exactly the same, but you threw in the $1.2 billion. Natasha, was that your original assumption when you guided revenue growth to be high single digit in 2025, or has that changed?

Hi Mike, we actually didn't give out a guide for next year's box office when we did the look-through guidance earlier this year. We just commented on high single digits for revenue growth. That revenue growth was based on a holistic view of our entire P&L. That’s where we look at the different levers.

Okay, great. I guess the next question, Rich, is about superhero fatigue. How are you thinking about that genre, I guess in particular and what offsets you have if it is weaker than it has been historically?

I mean, when you look at our schedule for the next two years, you have what’s been announced so far. You have Dune 3, the new Christopher Nolan movie, Formula One. None of those involve superheroes except for the directors who are all superheroes. But I just think the slate is really well balanced going forward. I've spent a lot of time with our studio partners and our filmmakers and, going into our forecast, our optimism is that these films are going to perform extremely well. You know, there’s always one or two that don't work because it’s the movie business, and not everything works. But I don’t believe there’s superhero fatigue right now. In fact, let’s go into Thanksgiving where I’m incredibly optimistic, where you have Wicked, Moana, and Gladiator, and none of those are superheroes.

Nice. Rich, real quick, you mentioned Christopher Nolan's going to get some new tech. Are those the new cameras that are now sort of going out into the field, or is that something else?

I think we're going to have to wait until he wants to talk about it.

This concludes the question-and-answer session. I would now like to turn it over to Rich Gelfond for closing remarks.

I don't have a lot to say other than I think the quarter really demonstrated something we talk about all the time, which is revenue diversification. You know, we diversified around the world in sources of revenues. So, you know, China didn't have a great third quarter, but North America had a really good third quarter. I think we talk about diversification in terms of different kinds of content. So, some things that perform very well are in the mix where League of Legends, the Olympics, all kinds of different music content. Our documentary Blue Angels was very successful for us this year. So, I think that’s another kind of diversification. I feel really good about it. As I’ve said too many times, '25 and '26 look really strong. This quarter just spotlights diversification also, with high numbers of installs. There’s lots of ways we’re diversified. The more people understand about our company and our revenue sources, the more they’ll understand our growth story. Anyway, thank you.

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