All right. Good afternoon, everybody. My name is Eric Handler, Media and Entertainment Analyst here at Roth Capital. Very happy to have with us today Natasha Fernandez, Chief Financial Officer of IMAX. Natasha, welcome. Well, thanks for having us, Eric. Let's talk a bit big picture for you guys. Can you maybe talk about your broad strategic goals for this year? Sure. I mean, 2025, we're
coming off of a record year and we are excited about what's in front of us we have we had a recent investor day in December and talked about long-term targets too but we really feel like we have set a new stage for ourselves as to where we are going in the future and creating growth year over year and as we look at our goals I'd say the two major kind of themes that are coming out of that would be strengthening our filmmaker studio relationships and really leaning into that a lot more I mean a lot of our conversations and the reason why we have a film backlog now is because we're having those conversations with filmmakers so far in advance now and they're coming to the table with their ideas and stories and wanting to see how IMAX can be part of it and they're in a real piece of it as they as they work towards telling their story and so the leaning in of that I mean project Hail Mary this past weekend is a a phenomenal example of it. Film for IMAX, using our digital cameras, 16 film locations, we indexed 20% domestically, and actually... 20.3, I'll give you the point. 20.3, all right, but I have an even better stat for you. Monday's performance was 24% domestically, so it brought in another three million dollars on Monday, and so I think, you know, when you look at it, just even increasing in indexing as the film run goes on but not only that the way they leaned in on the marketing like filmed for IMAX and they they did some really unique things have you ever seen an IMAX screen go into outer space a hundred and ten thousand feet into the stratosphere they actually put forward this marketing of and our tech team worked on it creating an IMAX screen that basically was elevated out and played the IMAX trailer and live from LA, the premiere. And so amazing, amazing the way that they leaned in. And part of that is really leaning into the IMAX of it all through the way that the conversation is happening in order to elevate the way that the film plays and for consumers to understand this is not a film you sit at home to go and to experience. You need to go to the movie theater to watch this film and you need to see it in IMAX, of course. And so that is really the way Amazon leaned in. A great partnership. I mean, it happened last year with Apple and F1 and now Amazon. And we are excited for the future on the partnership front with respect to filmmakers and studios. But I'd say the other kind of major goal for us is continuing to create and strengthen the differentiation in our unmatched IMAX experience. And so our technology mode and investing in that and investing in building out not only our network, but that differentiated experience, whether that is our cameras and the technology that filmmakers use there, but then also the way that the sound and the look and the feel is as well from a visual and sound aspect, because the differentiated experience is the reason you go out to watch a movie in IMAX.
So you did mention, you know, this year is expected to be another record box office year for you guys. You know, looking at global box office, about $1.4 billion. Now, it is well known. OneQ does have a bit of a challenging comparison just because of the record performance with Chinese New Year last year and NESHA 2. You did have a great weekend with Project Hail Mary. but it really seems like things are really, should be taking off now. 2Q looks great, 3Q looks great, 4Q looks great. But what gives you confidence in, you know, that $1.4 billion outlook?
Yeah, I mean, the challenging Q1 compare, that's not a surprise to us. We knew that. It is not normal that China would have had 46% of its box office earned in Q1 for us. And that's what happened last year. Normally, it's about a 30% run rate of Q1, right? And so when you look at it, we're doing fine for Q1 the way we would have expected for this year and the way we built up to our $1.4 billion. And when you actually look at how many opportunities there are for outperformance this year, last year for IMAX, we played one film in the IMAX network, Zootopia, that grossed more than a billion dollars. this year there's a lot more opportunity for for more films to gross over a billion dollars i mean you're looking at super mario which is coming up very soon uh star wars uh odyssey of course dune like there's lots of opportunities whereas um last year less right and so you you look at just from that perspective the opportunity then secondly our increase in indexing um you know Project Hail Mary indexing 20%, 24% on a Monday, that is very real when you only represent 1% of the screens in the domestic market or less than 1% globally. And so if you continue to create that that repetitive nature of indexing, higher indexing, and the way that the filmmakers and studios are leaning in as well, that creates the opportunity to hit the 1.4 billion. And of course, local language contributes significantly to that too. I'm going to talk about local language in a
second but you know we it is been fascinating with local language in this last you know it's not unusual for a film for IMAX movie now to index you know 20 percent. We're seeing that more often. Can you talk about the evolution of how that film for IMAX strategy has evolved and you know how that sort of continues to proliferate yeah it's a it's a really important part
of our strategy and our future growth as well I mean as I said it's what's creating our film backlog because if a filmmaker is using our camera that means they're coming out and having a conversation with us a couple years out before they've even released before they're releasing the film so that's part of it but we're at the process and the part of the phase where we're maturing the program and we're getting to the point of realizing what works well what doesn't and so we can be more thoughtful about it so I'd say a few years ago film for IMAX meant every film this film for IMAX is fully exclusive to the IMAX network for two weeks guaranteed now there's evolutions of that sometimes we'll do a guarantee three weeks Christopher Nolan definitely has our network for three weeks there is no question about it however there are other titles that it's non-exclusive now and for sure you can use our cameras and you can lean in and marketing but we're not going to guarantee you the network and so there's almost different levels now and we can do that in a way that we can then enable ourselves to maximize our box office performance and and help our exhibition customers as well maximize their box office performance
so let's talk about you know local language i mean you are much more than a hollywood story um local language has been expanding rapidly in your business can you talk about um you know what's been happening with local language and you know first it was china now you're looking at more
markets you know how far can this go yeah i mean a handful of years ago i'd say we were just china for local language you know that you've been following us a long time and um and you look at where we're at now i mean a quarter of our box office is essentially local language but when you look at the number of titles I'd say we were less than 20 titles a handful of years ago with more more than half of that being China. Now we're aiming towards 75 local language titles this year with predominantly being outside of China and so that's a big difference when you're looking at how do you create higher utilization across the network how do you create incrementality in the box office and really just create consumer demand and behavior right and as we expand into the rest of world. Like last year, we expanded our network 8% in the rest of world markets. And so if you're expanding your footprint, you got to give the consumers what they want. And then you expand the network further. It's a great cycle to have. And a lot of our conversations on the sales front is happening in the rest of world regions. And so you need that local language to keep fueling that
growth in the rest of world too. I imagine, you know, there's a lot of markets where Hollywood is less than 50% of the revenue to have that local language opportunity is really the best way to improve the efficiency of occupancy of a theater.
Oh, completely. I mean, look at Japan last year, amazing with Demon Slayer. And we grew our network 17% in Japan last year, all predominantly before Demon Slayer because they wanted to be open for it. I think Japan is one of our biggest growth markets and opportunities. We're only about 40% penetrated in Japan. So I still think there's a lot of opportunity there. and their high-performing locations. But India, this weekend, we actually, I know we did Project Hail Mary domestically, but in India, we did release, and if I say it properly, Durandar, which actually is the second biggest Indian title overall ever, and it was our biggest opening in India ever. So I think that that's an opportunity too, and I think we're less than 25% penetrated in India, so a lot of opportunity for growth.
now what about alternative content I think at your investor day you said alternative content is expected to grow about uh 20 this year what's driving that growth what are people interested in with with alternative content and and how do you think about programming alternative oh I hear a
lot of feedback from you all the time of what you're interested in but there's uh you know a lot sports music concert films like epic the documentary for Elvis it looked phenomenal in IMAX, like music, if you can't make it to the actual concert, why would you not want to go see it in an IMAX theater? Like the reality is, is feeling the music. I have been to multiple concert events for IMAX and people are standing in the theater and they're dancing. Even if you go to an Indian title, like RRR, people went on the stage in one of our LA locations and we're dancing on the stage. Like it's very real, the communal experience that you want to have when you're watching content like that so yeah so music concert films whether it's live or or or film but then sports a really big opportunity obviously we've announced the f1 live race events that are starting in May five of them across I think it's 50 domestic locations that we're going to do but and then you know we've had League of Legends in China so e-gaming which you know what's great about all of those things you are opening up the opportunity to introduce IMAX and theatrical to new consumers because these are people who don't normally go out and to to watch movies or they've never been introduced to IMAX before and on our out surveys we actually got a lot of feedback that you know now they're a fan like in Korea we did a concert film and it was like women aged I think it was age 50 right for the concert film and they had never been on IMAX before, but they are now IMAX fans on the surveys, right? So I think part of it is just creating additional consumers who are now going to, when they want to watch a movie, they're going to come see it in IMAX, creating higher utilization and incrementality to our model. Maybe we need some IMAX sports bars. Sure. There's alcohol in theaters. Very true. You know, when you look at
the partnerships that you have developed over the years and, you know, you've got a good relationship with Apple now. You've worked well with, obviously, Amazon MGM this weekend with Project Hail Mary. One of the more contentious Hollywood theater relationships has been with Netflix. But you have a Netflix exclusive this year. Can you maybe talk about what you're doing with Netflix and maybe where that can go over time? Yeah, I think what's great about that
is we're bringing content that was never going to make it into the theaters and so we're giving the opportunity to make more box office overall for our customers and for ourselves and so to me that is a win overall to just create added opportunity for more content and so netflix and that partnership uh it's great i mean really it's stemmed from and it came comes back to your first question about our goals stems from the filmmaker it's greta gerwig who came to us it's not netflix And so if a filmmaker wants IMAX, we are more than happy to come alongside and be great partners and work with them to, for them to have the IMAX platform as a release for something that could be very large, right, overall. And so we're excited. It is exclusive. So on an indexing front, I mean, it's 100%. So not 20%, it's 100%. So I think that's a great opportunity. but also whoever all any of our customers that have an IMAX location that is added box office to them too but we're excited for what that will look like I mean if it's if it's a success think about the fact that it's a franchise and so what does that then look like for added content down
the pipeline as well now let's talk about the other side of business I mean movie business you know you've got a great backlog of movies coming you're going global with more local language content you also at your investor day you increased your TAM for the potential number of screens or systems that we could see throughout the world over the next 10 years can you maybe talk about you know the expansion opportunity for IMAX where you see the biggest potential for growth yeah so we
have our adjustable market is about 4,500 locations worldwide right now we're at at about 1,891 countries, really big opportunity, that's 40% penetrated and highly under penetrated in the rest of world market where really we're only about 30% of penetration. And so our opportunities just continue to grow that. I mean, Japan, I mentioned that we're only about 40% penetrated, but places like Australia, we're 11% penetrated, it's just so much opportunity. India, I said less than 25%. Germany, I think it's less than 20%. France is about 30% or 40%. So most of them, you haven't even hit a 50% mark. And so you look at that opportunity, now local language is really the unlock there. Last year, we did five new countries of local language, including Germany, which then starts to open up the conversations there. Coming up very soon, we're doing our first Brazilian title to die for, which is essentially a fast and furious Brazilian equivalent, and we really don't have any presence in Latin America, it's highly under-penetrated, so, you know, I think that that really is a big opportunity there, and a lot of our conversations are happening in those rest-of-world regions, what's great is success continues to breed more success, and as you expand in those countries, and you do more local language, then you expand further and and especially as the zones and the competing the competing exhibitors realize that the zone is going to be taken then it kind of brings the rest of the exhibitors to the table i mean australia is a great example of that a year and a half ago we had two locations and now we have 10 and that's not by accident that's because one of the exhibitors came to the table to have a conversation and that made the others come to the table as well and so um you know the one thing we are very mindful about are the zones that we think it's important it's important not to create cannibalization on yourself and not to overextend and to have too many screens in one spot you need to have the right amount to have demand the right consumer demand behavior right for your screens
and so i think a lot of people don't realize that in a lot of these rest of the world markets the average revenue per screen is actually larger sometimes meaningfully larger than
what you're seeing in north america like four million dollars right now for screen for us so yeah japan i believe is still over two million yeah those are amazing great markets with good
runway yes now you know for years you know the view was you know in north america i think going back 10 years ago it felt like you north america was like 80 85 penetrated but you're actually seeing a good amount of growth in the US and Canada. What's changed that's giving you an opportunity to actually reevaluate this market and see a good runway for expansion?
Yeah, well, demographics change for sure, but consumer preferences and tastes. We actually, we grew domestic 4% last year. As you said, people think it's a mature market, but the reality is is the demand for a premium experience like IMAX, that demand is very real. And so we actually signed deals with eight new exhibition partners domestically last year. So that's a lot different than where we were before, right? We continue to work with AMC and Regal and Cinemark, of course. But there's a lot of opportunity in the local markets, right? And so that's really where we're continuing to expand out. and the per screen averages domestically are very strong. But the Film for IMAX program also, and with Hollywood filmmakers, is creating that evolution as well. Because if you think about even Narnia, if you don't have an IMAX screen, how are you playing Narnia, right? But I think the other part is the ability to, if we're taking 20% of the domestic market, it means having an IMAX screen can be impactful and beneficial to you domestically, right? and it's because the studios are leaning in and using our cameras and our, like if you see Project Hail Mary in a different format, I'm sorry, but it's just not the same. Two hours of expanded aspect ratio. That is unique and bespoke to IMAX. There is no other way to see that movie to be immersed in space with the screen filled from top to bottom, no black bars anywhere. It's very real.
And not only just in more markets, But it does seem like in a number of major metropolitan markets, particularly New York City, where I think there's only four IMAX screens, five right now. I mean, it actually, New York City seems under screen.
It is under screen for IMAX, yeah. I think we're opening the sixth. Another one's coming in soon, but with Regal, I think, right? But I think that there is definitely, I mean, Lincoln Square is always sold out. There's just never an opportunity at that theater. So I think that there is an, the second screen opportunity domestically is very real for us. And so that is something we're actively looking at. We do have about, I think there's about 70 to 80 right now that are second screens and they are all highly productive. So I think there is an opportunity. I think Chicago is another area that we've had a lot of feedback from investors who have wanted more in Chicago as well. And Jen lives in Connecticut. So she really wants one there.
We're starved in Connecticut.
okay there you go there you go um but actually it's interesting you know when you talk about
a second screen as you think about you know so many movies you know want to be they want to be debut on an imax screen um there's actually not a lot of weekends open and you know you look at this year um december 18th you have um you know the avengers uh going up against dune and dune is a film for imax movie they've got the three-week exclusive having a second screen could actually help as you know there there are times in the year where having that ability to show two movies um at the same time could be very good for imax oh i fully agree not all year because
you think about utilization is not really uh something that runs at a higher rate but i do think there is a really good opportunity and uh the dunes day of it all as as they're calling it now I think it's going to play really well it's it you know ideally they would have not been the same day and day ideally for the entire industry not about IMAX but just for the entire industry it would have been great for them to be separate and to create space so that moviegoers have enough that like consumer income and demand that they want to go see both right but they are going day and day the opportunity for IMAX though is you know when you look back at the second dune that That was during March and that was widely played and we grossed 20% of the overall box office of Dune 2. Imagine Dune 3 where IMAX is likely to be the only premium screen playing Dune 3 and all the others will go to Avengers. Our indexing is gonna be huge and so there's a really big opportunity there. It's almost like you have a Narnia 2.0 happening with Dune, right? And so I think that that's really gonna be a big opportunity for us too.
Okay, let's talk a little bit about your fundamentals, and you look at your adjusted EBITDA margin has expanded. You hit 41% in 2025. You were at 28% in 2022. What's been the key driver of that expansion, and how high
could that go? First, we hit 45% in 2025, so that's okay. I'm going to go with the higher number, but I think we did guide to the low 40s and we did come out with 45 percent and you know moving to the higher number you can easily see it the box office incrementality is very real in our model and it's not only through to EBITDA but through cash flow conversion I mean closing off 2025 with 46 percent free cash conversion and that's including our 30 million dollar investment and growing our network and so it can be much higher if you excluded that and I think that the opportunity before us is as you continue to grow box office our costs don't expand right we're going to expand our network and we're going to keep playing more films but our costs are relatively fixed and especially on the on the SG&A side as well and so there's a really high incrementality flow through that happens and hitting 1.4 billion is going to show very clearly how you can get to the higher levels of EBITDA margin and we have guided publicly right to being over 50% by 2028 as well. And as well, you know, obviously free cash would follow too.
And so when you think about, I mean, you've got a strong balance sheet, you've got a convertible note, you just refinanced last year, so you don't have to worry about that for several years. How
are you thinking about deploying your free cash flow? Yeah, I think 2025 was a great year for us to solidify our balance sheet and set ourselves up between renewing our revolver and doing the convert for the next handful of years so we have a strong runway and the ability to invest both in network growth because growing the network will grow the box office which will grow the incrementality in EBITDA and free cash but then taking the free cash investing back in the network and also buybacks I mean we have spent a substantial amount in buybacks over the past handful of years and and that is always the second use and major use of our capital is to
do buybacks. Great, well I think we are just about out of time. I thank you very much for being here and participating yet again at this conference. Thanks for
having us.