Good day, and thank you for standing by. Welcome to the Q2 2025 IMAX Corporation Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jennifer Horsley, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for IMAX's Second Quarter 2025 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 those 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 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 as we review another outstanding quarter for IMAX. We delivered strong financial results in Q2, highlighted by installation growth of 50%, box office growth of over 40%, and an adjusted EBITDA margin of 43%. We've opened a total of 57 new and upgraded IMAX locations year-to-date compared to 39 during the same period of 2024. Given the demand for IMAX systems, we're moving higher in our range for full year installations to between 150 and 160 systems worldwide. And we've now completed agreements for 124 new and upgraded IMAX systems worldwide year-to-date compared to 130 in all of 2024. Q2 was our highest grossing quarter ever at the domestic box office as we remain on track to achieve our guidance of $1.2 billion for the full year. This is a direct result of our strategy to increase our global market share, which at 3.6% of total box office on less than 1% of screens is up 19% year-over-year in the second quarter, and to ensure that IMAX is the platform of choice for filmmakers and studios who want to deliver the best experience for the greatest films from around the world. Coming into the second quarter, we are focused on an unprecedented run of 8 consecutive films for IMAX releases this summer. Films shot with our cameras, featuring exclusive IMAX expanded aspect ratio designed every step of the way to be experienced on our screens. With all 7 of these films to date, we've averaged about 15% of the North American box office on opening weekend on just 400 IMAX screens, soaring as high as 20% on Mission Impossible - The Final Reckoning, Sinners, and F1. That's a feat we've only achieved 8 times in our entire history and 3 of those milestones came in this second quarter. And with Superman, our 16% opening weekend indexing marked our highest market share ever on a domestic debut over $100 million. It's becoming increasingly clear that we're raising the floor for our market share. 10% used to be the high end of what we delivered on major tentpole releases. Now, thanks to our film for IMAX strategy, the higher level is business as usual. In May, a New York Times feature posed a question, 'Why is IMAX suddenly everywhere?' And the preponderance of film for IMAX releases this summer, along with our outsized share of the global box office demonstrates the importance of IMAX across the global cinema business. More filmmakers are wielding our technology to create films designed to be experienced on our screens. Studios are competing more fiercely than ever to secure IMAX release windows and make IMAX a centerpiece of their marketing campaigns to eventicize their films. Audiences are responding, demonstrating a strong preference for seeing films in IMAX and exhibitors are clamoring to get more IMAX systems into their networks and fully capitalize on the very IMAX friendly slate rolling out over the next several years. We're seeing that our strong system signings and installations this year, which is a powerful catalyst for our business. The more we grow our network, the more we grow sales and box office revenue. And we maintain a strong capital position. Our recent renewal and expansion of our revolving credit facility demonstrates the continued confidence in our financial growth model. Simply put, this is a fantastic time to be in the IMAX business and we have good reason to believe it will only get better. Looking at our global network, installs came in at the high end of our projection with 36 systems in the quarter. The full year is set to yield several milestones, including our largest single year expansion ever in France with 7 expected installations, 5 of which have already been completed. Our largest single year expansion in the Netherlands with 4 expected installations, close to doubling our network in that country. And our largest single year expansion ever in Japan with 8 already installed and at least 4 to go, representing network growth of over 20% in that country from last year. Our recent agreement with Regal will see us expand into our first new location in Manhattan in 15 years as well as a new location in the iconic L.A. LIVE entertainment complex with an 80-foot screen and an IMAX 70-millimeter film projector. With 8 new domestic exhibition partners in 2024 and our record domestic box office in the second quarter, we remain keenly focused on growth in North America, one of our highest per screen markets in the world. We also recently completed another agreement with Wanda that will see IMAX systems replace existing premium format auditoriums in up to 27 locations, a sign of our dominant competitive position in China. And we continue to do brisk system sales in Australia, where recent agreements with EVT, Hoyts, and Village will help satisfy strong consumer demand and high PSAs for the IMAX experience. The second quarter offered strong evidence of our ability to elevate box office hits and drive results through our diversified global slate. One of Hollywood's biggest hits in years, it's easy to forget the questions that surrounded Sinners in advance of its release. As long-time partners of Director Ryan Coogler, we encouraged him to make IMAX a centerpiece of the marketing. IMAX drove 21% of the film's global box office during its 2 weeks IMAX run, even bringing it back weeks later for an encore run in IMAX film locations. Mission Impossible - The Final Reckoning made similar use of IMAX from the production through the marketing and the launch of the film. Final Reckoning includes more IMAX exclusive expanded aspect ratio than any Mission film and premieres from Tokyo to London to New York were hosted on IMAX screens. We far outpaced our projections in delivering over $75 million in global box office, our best result ever of the Mission Impossible franchise and a double-digit percentage of the film's overall gross across its entire run. The third quarter is already off to a great start. F1 the movie was designed from top to bottom for the IMAX experience, shot entirely in IMAX expanded aspect ratio by our long-term partner, Joe Kosinski. And we exceeded our internal projections in delivering more than $80 million and counting, a whopping 22% of the domestic box office and 18.5% of the global box office for the film. Superman will conclude its IMAX run this week with well over $50 million in global box office. And in local language, the Demon Slayer sequel delivered our biggest opening weekend ever in Japan this past weekend with $3 million and an incredible $48,000 per screen average. And in China, the much-anticipated film for IMAX release, Don J Rescue, opens next month. Our year-to-date local language box office stands at nearly $230 million, just shy of the $244 million full year record we set in '23. At the current pace, we expect to set a new record within Q3. The second half slate looks promising. This weekend, Marvel's long-awaited Fantastic Four opens worldwide. The Rotten Tomato scores and presales are pretty strong. Our film for IMAX slate continues into the fall with Tron: Ares and Mortal Kombat 2. There are several IMAX-friendly genre releases, including Predator: Badlands and The Running Man. Zootopia 2 is shaping up to be another big sequel for Disney Animation and holds significant global appeal, particularly across our Asian markets. And the year concludes with the second installment of Wicked and finally with Avatar: Fire and Ash, which will be preceded with an IMAX rerelease of Avatar: The Way of Water in October. 2026 kicks off the year with the Avatar carryover and features Christopher Nolan's The Odyssey as well as Avengers, Star Wars, the Mandalorian and Grogu, Super Mario Brothers movie sequel, Toy Story 5, Greta Gerwig's Narnia and Dune Part 3, and a very compelling '27 slate continues to take shape, including Star Wars: Starfighter from Deadpool and Wolverine, Director Sean Levy; Avengers: Secret Wars, The Batman 2 and Spider-Man: Beyond the Spider-Verse. We continue to deepen our relationships with tech companies in the theatrical space as well. Our partnership with Apple has yielded excellent results to date on F1, and we're rereleasing F1 on August 8. Amazon will release its first-ever film for IMAX titled next year with Ryan Gosling's Project Hail Mary. And we were very pleased by the announcement that Dune Director Denis Villeneuve, a long-term partner of the company who has called IMAX 'The Future of Cinema,' has been tapped to direct the next James Bond movie for Amazon MGM. And we are working closely with Netflix on the rollout of next year's IMAX exclusive theatrical run of Narnia from Greta Gerwig. Furthermore, we continue to offer diversified content, including films for music fans, including concert documentaries for the Grateful Dead, Prince and the Rolling Stones. To close, the fundamentals of our business are strong. The strength and impact of our brand across the entertainment landscape has reached new highs and we have tremendous runway with a strong slate and network growth prospects ahead. And we're focused on building on our momentum to strengthen our strategic position, executing with financial discipline, continuing to provide the most immersive entertainment experience in the world and delivering for our shareholders. Thank you. With that, I'll turn it over to Natasha.

Thanks, Rich, and good morning, everyone. IMAX's second quarter demonstrated the strength of our model and the discipline of our execution. IMAX delivered another quarter of record-breaking results, driven by a 41% year-over-year increase in global box office, strong installation growth of 50% and an adjusted EBITDA margin exceeding 42% for the second straight quarter. These results are not just numbers. We believe they reflect the scalability of our platform, the momentum in our business and the growing demand for premium cinematic experiences. We believe we're not just outperforming the market, we're expanding it. We're attracting more audiences to choose the theatrical experience, capturing more value per screen, expanding our global footprint and delivering consistent returns, all while maintaining a sharp focus on capital efficiency and long-term shareholder value. Our results through the first half place us on track to meet or beat guidance for the full year, including on box office, system installations now expected to be between 150 and 160 for the year and adjusted EBITDA margin now expected to be in the low 40s. Taking a closer look at our Q2 results. Overall, we delivered revenues of $92 million compared to $89 million in the prior year second quarter and achieved gross margin in Q2 of $54 million, which grew 22% year-over-year. This reflects a 58% margin or over 900 basis point improvement year-over-year, reflecting high incremental profit flow-through from the stronger box office performance, along with a more profitable mix of revenue. Looking at our results at the segment level. Content Solutions revenues of $34 million reflected the significant growth in IMAX Box Office of over 40%, while the prior year benefited from the downstream sale of the Blue Angels documentary to Amazon. Content Solutions gross margin of $22 million increased $6 million at a 66% margin, up 2,000 basis points year-over-year, driven by strong incremental margins coming from the higher box office. Overall, box office outperformed the industry, resulting in Q2 global market share of 3.6% on less than 1% of screens, driven by a remarkable 5.3% share of domestic box office and 6% share of China's box office. Technology Products and Services revenues of $56 million was up 9% year-over-year with a gross margin of $30 million, up 17% year-over-year and at a 54% margin, up 360 basis points year-over-year, driven by growth in box office and system sales. The quarter saw strong growth in installations, 36 systems versus 24 in the prior year, which included a higher mix of sales-type arrangements. Moreover, installations included 8 systems that were signed earlier this year and already installed in the second quarter of 2025. This is a good indicator of the robust demand by exhibitors to install IMAX systems in advance of the exceptional IMAX slate in 2025 and beyond. For instance, in Japan, year-to-date, we have installed 8 new systems, increasing our network there by 15% since the beginning of the year. And domestically, our backlog of 131 systems is up 46% year-over-year. And the momentum for signings continues with 28 signings in Q2 and 124 year-to-date. We are only halfway through the year and are close to equaling the 130 systems signed in 2024. We are seeing good geographic diversity in signings, including higher per screen average countries such as Australia, France, the U.S. and Japan. These signings are not only replenishing, but growing our committed backlog, feeding the pipeline for future network expansion. Turning to operating expenditures, defined as research and development and selling, general and administrative expenses, excluding stock-based compensation, was $30 million in the second quarter, which decreased $3 million year-over-year, reflecting our continued focus on gaining operational efficiencies and looking for better ways to use technology and scrutinizing work processes to find productivity opportunities. We continue to take proactive steps, which led to year-to-date restructuring costs of over $840,000 to enhance operational efficiency and reduce annual costs while optimizing IMAX's organizational structure, including eliminating redundant roles, leveraging technology for efficiency and centralizing select functions, which positively impacts both margin and OpEx. Overall, our strong operational performance led to a second quarter total consolidated adjusted EBITDA of $39 million, which increased $8 million or 26% year-over-year, driven by the higher revenues and gross margin. This resulted in a strong adjusted EBITDA margin percentage of 42.6%, up 780 basis points year-over-year and giving us a first half adjusted EBITDA margin of also 42.6%. Second quarter adjusted EPS was $0.26, up $0.08 year-over-year, driven fully by strong profit growth as tax expense year-over-year was a headwind of $0.09 given the tax benefit recognized as a result of the internal asset reorganization in the second quarter of 2024. Turning to cash flow and the balance sheet. Cash flow from operations continues to build and is just over $30 million through the first half, which is up 25% from the prior year period, a very good first 6 months considering the cash flow has yet to capture collections on the larger box office titles this year and cash expenses around compensation and events tends to be first half-weighted. We expect cash flows to continue to grow and similar to total adjusted EBITDA, the dynamics of cash flow are quite positive as box office expands, leading to incrementality, particularly considering the cash flow characteristics of our joint revenue sharing arrangements, where the capital expenditure is at the beginning of an average 10-year contract term. Turning to investing cash flows. We continue to prioritize the use of our available capital to invest in the business, including $15 million spent on growth CapEx in the first half related to partnering with exhibitor customers to grow and upgrade the IMAX network through joint revenue sharing arrangements. This represents an attractive return on investment opportunity as numerous large partners, including AMC, Wanda, and Regal are ramping up investment in IMAX as they upgrade their complexes, including bringing IMAX in to replace other premium formats as they look to capture more of the market share gains IMAX is delivering through our film for IMAX program. We are also making progress strengthening further our capital structure with a significant announcement last week of our amended and enlarged credit facility, which we expanded from $300 million to $375 million with a term that extends into 2030 and at an approved borrowing rate. This is a very positive development that not only increases our liquidity and strengthens our capital structure, but also reflects the recognition of the momentum in our business, long-term trajectory, and support from our banking partners. Included in our capital structure is $230 million of debt from our convertible senior notes due in April 2026 that bear an interest rate of 0.5% per annum with a capped call leading to a $37 per share conversion price. With our strong liquidity position and available facilities, we have the ability to be opportunistic as we assess the timing of when to address these notes and the nature of the instrument, whether that be our revolver or through new notes. Our capital position remains very strong with cash at $109 million. Debt, excluding deferred financing costs, was $280 million and our current available liquidity is approximately $490 million. In conclusion, our team is executing well and our first half of the year exceeded our expectations on all of our guidance measures, IMAX Box Office, installations, and adjusted EBITDA margin. We are focused on execution and the second half has started off strong with July box office pacing to one of our highest Julys on record, driven by the mix of Hollywood and local language blockbusters, including the standout performance of F1 and Superman runs as well as the record Japan opening of Demon Slayer this past weekend and several larger budget local language titles in China and other countries, along with our first German and Brazil titles later in this year. And looking beyond 2025, there is good visibility into IMAX's future installations as we have a significant and replenishing backlog with a clear path to years of network growth as IMAX location zones are less than 50% penetrated globally with potential for even more zones to be added to our addressable market. Similarly, the demand to secure an IMAX release window continues to grow, resulting in filmmakers and studios building deeper and earlier partnerships. This is affording us a clear view into IMAX's film slate for 2026 and beyond. In short, the model is working. Filmmakers and studios are partnering with IMAX to deliver the best movie experience. Consumers are noticing and choosing IMAX. Exhibitors are looking to meet that demand by adding more IMAX systems to their circuits, and this is translating to growth and expanding margins, profits, and cash flows for IMAX that, in turn, will generate greater shareholder returns now and into the future. With that, I will turn the call over to the operator for Q&A.

Our first question comes from Omar Mejias with Wells Fargo.

Maybe first, Rich, given the strong demand for IMAX slots from studios and filmmakers, do you see a future where all or almost all films you play across your circuit are film for IMAX films? Just curious on how you see the evolution of the number of films for IMAX movies across your network.

I don't think it will evolve to that point, Omar. We want to make film for IMAX something really special, including the right kind of content, the right visual, the right sound. So there are certain movies while they might be really good movies, they just don't demand that kind of treatment. And as you know, when it's a film for IMAX, it gets a 2-week minimum run. And I just don't think that all the movies will be suitable for a 2-week run. As you know, the slots are what's really valuable, like the IMAX playtime. And it's a little bit of a trade-off. When you do film for IMAX, you get higher indexing, you get the right property, but you're agreeing to 2 weeks before you've seen the movie. However, obviously, as this quarter shows, the results were so strong and the indexing was so strong. So just to give you a sense, in 2026, we already have 9 film for IMAX titles. And for 2027, we already have at least 8. So it is something we're going to lean into for the right content, but we won't make it ubiquitous.

No, that's very helpful. And maybe switching to some recent media reports that have been stating that U.S. theater chains are under talks about jointly marketing their PLF screens to better compete with the growing influence of IMAX. Do you view this as a competitive threat to your business or more of an opportunity to partner with U.S. exhibitors to potentially work together and grow the pie? Just curious on your thoughts on that.

Yes. So Omar, we've indexed an average of 15% on our FFI films this year on opening weekend and more than 20% on 3 of them. That's a real aha moment for exhibitors who haven't been in the IMAX business before and they're kind of scurrying to come up with a strategy. A lot of people have tried to create competitors to IMAX over the years, but the fact is that our brand and relationships with filmmakers are unmatched and our technology is superior and audiences know. Two of the three exhibitors mentioned in the story you're referring to have told us that they're not part of any discussions. We just signed a renewal for 40 locations with Regal and are opening new locations with them in L.A. and New York City. And if you miss the boat, it's getting a little late. And I think these are kind of pathetic attempts to try and take a stand that is highly unlikely to work.

Our next question comes from Chad Beynon with Macquarie.

Nice results. I wanted to piggyback on the back of that last question, maybe from a slightly different angle. Rich, I recall from Investor Day several years ago, you laid out the IMAX difference in terms of the economics and the benefits of your partners that would earn your PSAs versus the PSAs they would earn on a non-IMAX screen. And I think the math was pretty compelling then. It seems like the results are diverging even further given the indexing and some of the results that you're talking about. So my question is, in the future, could there be opportunities to improve pricing similar to what we see in the hotel industry as they've increased royalty rates, showing their partners that it helps to be with the brand that has bigger scale and marketing benefits?

Thanks, Chad. I believe this definitely strengthens IMAX's position in negotiations with content providers, whether they're studios or live content creators. However, we plan to approach this cautiously. In the last quarter, we saw that three of the biggest movies, Sinners, F1, and Mission Impossible, had studios firmly supporting the IMAX format. This weekend, we have Fantastic Four opening, and Disney is heavily promoting that as well. Enhancing their support will be more advantageous for our overall results. When studios consider doing a film for IMAX release or request extended IMAX showings, we've utilized our negotiation strategies to advocate for initiatives like IMAX premieres, IMAX tagging, and increased filmmaker engagement in promotions, which has been increasingly effective. I see potential risks in adopting varied pricing for different movies, as such discrepancies could signal to audiences that studios are hesitant to reveal. Overall, we think the current arrangements are fair for both the studios and us. The entertainment industry often relies on established practices, and we're satisfied with our current rates. We will leverage any additional negotiating power to enhance the marketing and accessibility of the experience for audiences.

Okay. Just a quick question for Natasha regarding the tax impact from this quarter that relates to last year. Is there anything else we should consider for the second half of the year? Or can we expect a normal tax rate as it affects free cash flow moving forward?

Yes, Chad, I mean, our internal asset reorganization that we did last year, that's essentially what you're seeing come through this year. Q1 had a higher tax rate. Q2 has come down significantly, and we're aiming towards just simply having an effective tax rate for the entire year, as we've said before. And so that's our goal as opposed to where we've been historically.

And our next question comes from Eric Handler with ROTH Capital.

Rich, a big picture question for you. As you think about your ultimate product mix between Hollywood movies, local language, alternative content, like where are you with alternative content in like the number of events that you're doing a year? How are you seeing like the average revenue per event scale higher? Just the opportunities there with those? And where would you like to see the local language percentage be for overall box office as well?

This year, our percentage of local language content is around 40%, significantly higher than the 20% we've seen in previous years. Ne Zha 2 contributed to this increase. When you consider North American exhibitors, their local language content percentage is almost non-existent. One of IMAX's strengths is our ability to bring in films from around the globe. Your timing is great because Demon Slayer just opened in Japan, setting an all-time record there, and we're releasing it in 40 other countries. The last Demon Slayer earned $30 million and this release has an even broader distribution than before. Local language content is crucial for our content diversity, similar to how Netflix has effectively utilized it for growth. We plan to continue focusing on this area. While alternative content is important, it generally has a shorter showing time and can conflict with studio releases. For example, this coming weekend, with Fantastic Four launching, if we had a live event or other alternative content, studios would prioritize their contracted offerings. So, alternative content tends to serve more as a filler rather than a core programming element. However, we do have about seven music events lined up in the coming months, including Dead & Company and a newly announced Prince concert. We may also re-release a Rolling Stones movie later this year. There's significant interest in the music community for more content. Last year, we had a successful League of Legends event in China, and we plan to explore more gaming-related events globally. We're still in a testing phase, evaluating the ROI on each event, and are committed to pursuing the right opportunities. However, I don't expect alternative content to have the same financial impact as our Hollywood films or local language content.

And our next question comes from Eric Wold with Texas Capital Securities.

Rich, I have a quick question for you. I know there has been some discussion, especially at CinemaCon and since then, about studios possibly lowering ticket prices. Recently, AMC has made moves to enhance their discount Tuesdays and implement 50% off on Wednesdays. I’d like to hear your thoughts on how this might impact IMAX in the future. It's still early, as the 50% discount just started at the beginning of this month. Do you think that adopting lower pricing midweek, not just at AMC but among other exhibitors, could incentivize moviegoers who were previously hesitant to try IMAX? If the base price is lower, could that make it easier for them to consider the additional IMAX cost, potentially allowing you to reach a new audience that you hadn't tapped into before? This could provide a tailwind for your market share and long-term moviegoer awareness.

I believe that the IMAX consumer has consistently demonstrated a readiness to pay higher prices for a premium experience. Currently, we are performing very strongly, with revenues around $700 million even before July ends. Our pricing strategy appears to be effective. For instance, Odyssey tickets recently went on sale for a film scheduled to open next year, and they sold out rapidly, often within minutes. This indicates that pricing is not deterring people; they value the premium experience and are willing to invest in it. This can be likened to trends in sports and concert ticketing, where consumers continue to pay for quality experiences. While I understand why some exhibitors are reconsidering discounts due to market competition and excess capacity, IMAX offers exclusive content and filmmakers willing to invest more in IMAX films. Therefore, I don't believe discounting will significantly alter the current landscape.

Our next question comes from Steven Frankel with Rosenblatt Securities.

I want to go back quickly to the alternative content discussion. You had wired a group of theaters for live events. Maybe give us an update on how many are able to do that today? And do you have plans to grow that network any further?

We initially wired around 200 theaters for the distribution of alternative content, but since acquiring SSIMWAVE and using their technology, we've developed a streaming solution that is more cost-effective than the previous method. This new approach eliminates the need for the expensive cabling installation. For example, during the League of Legends event in China, we successfully streamed the presentation to over 150 theaters quickly, and it was a sellout at a premium price. Moving forward, we expect to expand our reach to more theaters without significant capital investment, thanks to this more efficient method.

And our next question comes from Mike Hickey with The Benchmark Company.

Congrats on a strong Q2, Rich. Just 2 from us. Film visibility, Rich, is, I think, probably the best it's ever been for you. Just curious, as we sort of get into the second half of '25, your confidence level that you can grow your GBO in 2026? And I have a quick follow-up.

Yes. Mike, I mean, I have an incredible amount of confidence in that because our '26 slate is almost all filled up. And just some of the high points, we have the Avatar carryover in early '26 and got a number of other good films there, including Project Hail Mary from Amazon MGM. In the second quarter, we've got Super Mario Brothers 2. We've got the new Star Wars, Mandalorian. We've got Toy Story 5, Super Girl in the third quarter. Obviously, the most anticipated one is the Odyssey from Chris Nolan. We've got Milana, back to Eric's question. We've got Minions 3. In the fourth quarter, we have Narnia, we have Avengers, we have Dune Part Three. So this far in advance, it's unusual to have it virtually all locked in. And then for '27, I think I said this earlier, we not only have a number of films locked in, but we have at least those that are film for IMAX films in that. So I would say there hasn't been a point in history where we've had this much locked in 1 and 2 years in advance. Obviously, we have our theater backlog as well. And as we talked about in our remarks, signings and installs are going very well. So I think all of those things give us confidence about '26 and beyond.

Nice. And that's a good sort of segue to installations. It looks like you raised your installation guidance for '25; obviously, your signings have been spectacular. Also nice to see some installation growth from the U.S., which is obviously your strongest market. Do you think this momentum here, Rich, in installations can continue into '26? Or are you sort of maybe pulling forward some demand here from your exhibitor partners just given the strength of '25, certainly the buzz of Avatar 3 and as you just highlighted, an exceptional '26 home slate?

I think both in a way, Mike. Yes, some people are installing earlier because they anticipate a strong second half of the year, particularly with Avatar, but Zootopia also has a robust international following. Additionally, there are upcoming titles like Wicked, Predator, and Running Man. There's still a lot to look forward to. However, we've almost matched all the signings we had for the entire last year. While some signings are being expedited, we are also replenishing the backlog with new theaters starting up. The current pace is certainly strong. So I believe it involves both new entries into the queue and some moving up.

Our next question comes from Drew Crum with B. Riley Securities.

So you made a subtle upgrade to your adjusted EBITDA guidance for the year. You're sitting at just under 43% year-to-date. Can you discuss what the puts and takes are for margins in the second half and the drivers for achieving or perhaps exceeding that low 40s threshold?

Sure, Drew. When we examine adjusted EBITDA, we've maintained a consistent 42.6% for the first two quarters. However, each quarter has its own factors that affect this. For instance, the revenue from the box office positively influences us, along with decisions regarding marketing expenses, the balance between local language and Hollywood content, and the remastering costs involved. In the first quarter, we focused heavily on local language content, which is less costly and results in a higher EBITDA margin. In contrast, for the upcoming fourth quarter with Avatar, we plan to increase our marketing spend as it's a major film. This will not only impact 2025 but also 2026. Therefore, these decisions on marketing expenditures and content allocation will ebb and flow throughout the quarters.

And our next question comes from David Karnovsky with JPMorgan.

Maybe I'll just go back and ask one more about kind of the press report last week on the PLF. I suppose one of the takeaways from that report was that there's this undercurrent of tension between exhibitors and IMAX specifically around studios marketing towards the IMAX performance or even kind of your decision to play the Narnia film next Thanksgiving. I just want to give you a chance to respond. Is that a fair assessment? And kind of how would you gauge your relationship with the kind of domestic exhibitor community currently?

I think it's excellent. Our biggest client, AMC, just signed a deal with us for additional theaters, including a bunch of new ones and they're leaning in. And I talked to Aron after that story ran to get his perspective and he basically felt that it was remote that any consortium was going to be put together in any way. And he certainly said he had 0 interest in that. We also spoke with a number of the other big exhibitors that were in North America and they reassured us that they're either in the IMAX business or want to be in the IMAX business. Regal just signed a big deal for us, 30 or 40 theaters. So I think it's really good. I mean, how could it not be good? I mean, first of all, look at AMC's market share as everybody reports this week and their market share is going to be excellent because they're in the IMAX business. And I think look at the box office that we brought in for our partners. So I think what the story did was it found people who aren't in the IMAX business. And obviously, if you were losing market share and losing money, you would be disgruntled. So if I were them, I'd get into the IMAX business rather than make up stories to try and convince investors they're going to compete with IMAX. One little one and I don't mean to pick on anybody, but there's an exhibitor in Europe called The View that's actually been in 2 restructurings in the last 3 years and missed the PLF boom and they're launching their own PLF, which they announced in the trades is going to be a threat to IMAX. So I mean, good luck with that. I mean, people have been trying this. IMAX has been in business for 55 years. And we have technology, we have relationships. We have lots of competitive advantages. And it's almost like with no disrespect to Coke, if I came out and I said, I'm going to start a new soda brand and I'm going to band together with others and we're going to compete with Coke. I mean, the good news is if you're Coke, it doesn't work that way. And if you're IMAX, it doesn't work that way.

And our next question comes from Patrick Sholl with Barrington Research.

I have another question regarding the backlogs and signings. With the Regal agreement announced in May, you mentioned the 70-millimeter film projector. How many of those are in the backlog? Additionally, how have those types of screens performed for the film for IMAX initiative? What other factors might influence the growth in that area?

The film theaters have performed exceptionally well during IMAX film releases. This year, Sinners had incredibly strong numbers, thanks to Ryan Coogler's film shot with IMAX cameras, and Warner Bros. provided film prints that were at high capacity. We achieved over 20% in ticket sales during each of the first two weekends it was screened. Oppenheimer also had remarkable performance last year. I also mentioned the presales for Odyssey. While we don’t produce new film projectors since it’s an older technology, and despite the audience it attracts, there are associated costs. However, we have been searching globally, and I believe for Odyssey, we will have more theaters than we did for Sinners or for Nolan's Oppenheimer. We are working on this issue, but supply is limited and the economics are very favorable.

And our next question comes from Stephen Laszczyk with GS.

Maybe just one for Natasha on cash flow. Could you update us just around your latest thinking for cash flow conversion this year, maybe relative to EBITDA? I appreciate there's been some timing dynamics in the first half of the year that you called out. Just be curious how you think about that trending into second half. And then as you look ahead on cash generation, just be curious how you're thinking about cash generation as the business hits stride in '26 and beyond?

Cash flow continues to strengthen. We're currently aligned more closely with pre-COVID cash conversion levels. Our operating cash flow for the first half was $30 million, which is a 25% increase year-over-year. Our free cash flow is also improving. Historically, we were around 50%, and we're trending towards that again. The operating leverage in our model contributes directly to cash flow. As we've mentioned, exceeding box office levels of over $250 million each quarter means that nearly every additional dollar translates to EBITDA and cash at an 85% conversion rate. This will help generate ongoing cash flow. Looking ahead, we anticipate Q3 will show strong cash flow because cash flows from China often arrive later due to their payment cycle for films. For instance, cash from Ne Zha 2 will come in during Q3. Therefore, even with our strong first half cash flow, we expect Q3 to also perform well due to the expected receipts from Ne Zha.

And we have time for one last question, and it comes from David Joyce with Seaport Research Partners.

It's great to see the operating leverage really showing through. But I had a question on trying to understand the puts and takes of the take rates. Film remastering distribution was up year-over-year, but system rentals take rate compressed by 40 basis points. What would explain that, please?

There's always different puts and takes, David. Sometimes you can have upgrades of theaters. And so when you're upgrading a theater, you'll have to write off the old asset and put in the new theater, but you know that the incrementality will come within the very early stages of the 10-year term on that location as you upgrade to new technology. So it's a very good investment. It all comes down to the mix in relation to whether we're putting in sales deals or JV deals as well. And so that kind of ebbs and flows your margin take rate. But overall, the operating leverage, as you can see from the Content Solutions, we've done really well and that $1.2 billion guide that we're working towards this year is flowing through. You can see it in Content Solutions, 66% margin with a very strong return and our overall gross margin of over 58% flowing right through to the EBITDA margin of 43%. It's been a great quarter and a great first half of the year, and we expect good things from the rest of the year as well.

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

Thanks, everyone, for joining us. I want to leave the call with a few final thoughts. IMAX has reached a new inflection point in our business and is poised to achieve new levels of success. Filmmakers and studios want to release their best films in IMAX. Consumers overwhelmingly prefer to see those films in IMAX. And as a result, theater operators want to be in the IMAX business. All of this is creating a virtuous cycle that leads to growing revenue driven by higher box office, more systems signed, and more installations. This means more value generated for consumers, our partners, and for you, our shareholders. This simply has never been a better time to be in the IMAX business. Thank you all.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.