Good morning, ladies and gentlemen and welcome to the IMAX Corporation Second Quarter 2014 Earnings Conference Call. All participants are currently in a listen only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Teri Loxam, Vice President of Investor Relations. Please go ahead Ms. Loxam.

Thanks, Valerie. Good morning and thanks for joining us on today’s second quarter 2014 conference call. Joining me today is our CEO, Rich Gelfond; and our CFO, Joe Sparacio, who will have prepared remarks. Also with us today is Rob Lister, Chief Legal Officer and Head of Business Development and Greg Foster, Head of Entertainment who is joining us remotely from our LA office. I would like to remind you the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking in that may pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. During today’s call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. Discussion of management’s use of these measures and the definition of these measures, as well as reconciliation to adjusted EPS and adjusted EBITDA as defined by our credit facility are contained in this morning’s press release. The full text of our second quarter earnings release, along with supporting financial tables is available on our website, imax.com. Today’s conference call is being webcast in its entirety on our website. With that, let me turn the call over to Richard Gelfond.

Thanks, Teri. In the second quarter we showed continued operating leverage, delivering strong growth in net earnings compared to the same quarter last year which importantly translated to strong operating cash flow growth in the period. This was the result of margin expansion and disciplined cost controls. In addition, we continued to focus on developing our business to maximize our growth potential over the long term, including further positioning our China business to maximize its long term value, installing 30 new theaters, and signing 24 new theater deals around the world, testing new marketing strategies and making additional progress on our laser initiative. Starting with China, as we mentioned on our call in April, we closed a very important strategic transaction in the second quarter with the sale of 20% of our China business to two investors, CMC run by Li Ruigang, and FountainVest to help maximize the growth and future success of IMAX China. We’ve been pursuing this deal for about three years and the most important criteria for us was finding the right investors. We’ve had tremendous success building our business in China over the last decade, in part due to the partnerships that we've developed, including Wanda, TCL, many of the local studios and many others. But as you know, China is a complex country to operate in and we feel that having the additional influence and business acumen of these strategic investors could help us advance IMAX China to a higher level than we could have achieved on our own with our existing network of partners. In addition to the strategic input and relationships, a key reason for doing this transaction and bringing on strong Chinese investors was to help position us longer term for potential IPO of our IMAX China business which we believe can…

Thanks, Rich. As Rich mentioned, effective cost controls, we delivered expanded margins and operating leverage this quarter which drove about 15% growth in adjusted net income compared to Q2 last year and contributed 21.3million of operating cash flow for the quarter. Let me go through all the pieces in more detail. Global box office of 216 million was down 2% compared to Q2 last year, primarily due to lower box office at the industry level, particularly in the domestic market. The overall domestic industry box office was down 18%, compared to the second quarter last year as several titles did not deliver the box office compared to last year's Q2 slate, which included films such as Iron Man 3, Star Trek and Man of Steel. Importantly as Rich mentioned earlier, the IMAX average domestic indexing for the films we played in the second quarter this year was in line with our average indexing in Q2 last year. Our box office this quarter skewed more international with 57% of the box office or 123.2 million coming from international markets and 92.8 million coming from the domestic market. Our global PSA was 300,000 with an international PSA of 345,000 and a domestic PSA of 256,000. In terms of our network, we installed 30 new theaters in the second quarter with 11 sales type installations and 19 JVs, of which five were hybrids. Our total commercial network as at the end of Q2 was 735 theaters, of which 408, or 56% were JVs. For the full year, we continue to expect to install a similar number of new theaters in 2014 as we did in – 2013. In addition, we continue to expect the mix of installations for this year to be about one third sales type and two thirds JVs, including approximately…

(Operator Instructions) And we'll move to our first question from Townsend Buckles of JPMorgan. Please go ahead.

Thank you. It looks like you were able to pare back on some costs in the quarter but you kept your full year guidance. Can you talk about what are your thoughts on these benefits and maybe where the highest spending is coming from in the second half, any opportunities to come in maybe a little bit better?

There are opportunities to come in a little bit better, Townsend, and I would say we are going to sharpen our pencil in the second half of year. We are not changing guidance because there is always unanticipated things that come about, but we're going to try and carry over some of the things we did in the first half more into the second half. And as I think I have mentioned before the kinds of things we have done are we have a hiring committee and no one in the company can either fill on open position or replace someone unless it goes through the discipline of the hiring committee. We have been doing some different cost-saving things such as pooling service and we’ve been extremely focused on that T&E has been a matter of a great deal of discipline for us and I think hopefully we will be able to continue that in the second half of the year.

And, Rich, with the stock here at 52-week lows, how are you and the Board thinking of executing on the recent buy back authorization. Any sense on how aggressive you might want to take it here, especially with the initial China proceeds you have?

Townsend, I think you have to analyze it on a day-by-day basis, right. I mean, the stock is here today. We don’t know where it’s going to be tomorrow. But in general, the repurchase plan was primarily driven by a desire to return some capital to our shareholders. As you know, at the end of the quarter we had no debt. We have $75 million in cash. This was the best quarter we’ve had in a long time in terms of operating cash flow generation. We are feeling very good about our cash position. And I think, you will see us act in the interest of the company as we discussed before with the twin goals of providing capital return and being opportunistic and with the good film slate shaping up for 2015 and 2016, see if we can create an accretive atmosphere.

Would you expect to be active in the near term?

You know, I just don't want to comment on any particular day, Townsend, on what we are going to do. But we didn't put the plan in place just because it looked good in a press release.

Got it. Okay. Thanks. I will leave it there.

Thank you. We’ll move to our next question from Ben Mogil of Stifel Nicolaus. Please go ahead.

Hi, good morning and thanks for taking my question. When you sort of look at right now, what you would sort of categorize as highly probable installs for 2015, both straight sales and JRSAs, how does that compare to sort of this time last year as you look out to 2014, are you seeing it sort of stronger, weaker, similar, and maybe even some geographic would be helpful, too?

I think at this point, it’s comparable, maybe a little bit better given some of the recent deal that we've signed especially the deal we signed with Shanghai Film, so it could be comparable or a bit better, Ben. That’s how I would categorize it.

Okay. And then in terms of big installation quarter, you're sort of keeping guidance the same on the installs. Did what you see in 2Q, is that sort of largely what you view to be sort of people installing ahead of Transformers, and sort of just taking out 3Q, is that what we should be thinking about it?

I wouldn’t call it particularly taking out of Q3, but I would say that, yeah, you did see a shifting of units into the second quarter, and our yearly outlook for the year remains the same.

Okay. And then Joe, last, while I have you on that, what was the average sale price for the straight sales in the quarter?

1.2 million, which again was up versus last year at 1.1 million.

Okay. That’s great. Thank you very much.

Thanks, Ben.

Thank you. We will move to our next question from Eric Handler of MKM Partners. Please go ahead.

Thanks for taking my question. Rich, it’s kind of interesting this year, nearly all of the signings that you’ve done this year are straight sales, versus last year and the last couple of years you’ve been extremely heavily weighted toward the JVs, any particular reason? A little bit more focus this year on the sales versus the JVs, how you are thinking about that balance going forward?

I really don't think there is a particular reason except maybe regions of the world. So for example, you know in Russia that we won't do JVs, we will only do sales. And there are a number of signings in that area. Similarly in the Middle East, that's an area we tend to lean more heavily on sales than we do on JVs. The deal we just did in China was really motivated by Shanghai Film. They wanted to do sales rather than JVs and given our mix in China which is very heavily towards the JV side, as you know Eric, we like to have a balance between the two. So we really didn't push back and they were consistent with the margins. The sales prices were good. So we were comfortable with that. Western Europe is another place where it tends generally to be more hybrids in sales than there are JVs, but I don't think we could get a long term trend out of that at the current time. I think it was just sort of people wanted to do that and we didn't push back in order to have a fair balance. That's about all I draw from that right now.

Okay. Thanks. And just as a follow-up, you know, as you go into like the slower months of September and early October, you guys have done some re-releases in the past, you know you’ve had some success with like Jurassic Park and Titanic. As you look at some of these big franchises that are going to be released in the not too distant future, what are your thoughts about maybe doing all the Star Wars as re-releases, or you have – you do have other Jurassic Park films you could choose from or just going through the Marvel library again?

Greg, you want to answer that?

Sure. We are doing a re-release this September of Forrest Gump along the lines of what we did with Raiders of the Lost Ark and Top Gun, et cetera. The time to explore those are obviously in the shoulder period. There have been lots of conversations that we’ve had especially over the last couple of months, so the timing of your question is gratuitous about doing exactly that. I am obviously not naming specific titles. It wouldn't be appropriate, but I think people have noticed there is a great way to get an enhanced bite at the apple when you do re-releases. It is also good for other downstream markets. It is certainly not a core part of our business, but it is a nice way to bridge the gap between some of the blockbuster, and its something that we are looking to, but again, more in on opportunistic way and not something its going to completely move the needle but it is an idea that we agree there is some merit to it.

Thanks a lot.

Thank you. And we’ll move to our next question from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my questions. Just a couple from me. I want to start off with the laser projectors. I know you are thinking about rolling it out at the end of 2014. Any kind of clarity or update with respect to what the economic model would be, are you thinking about maybe set of an upgraded model with a smaller margin or would it be more comparable to the newer sales that we see?

We are still working through the economics, Aravinda. Obviously, it is coming out as I mentioned of the prototype phase and going into more of the productizing phase. We are in negotiations you may have read during the quarter that we entered into an agreement with Nextel, which was our laser supplier. And we continue to work with Barco on ways to get cost of good sold down, but it’s not nailed down yet in a way that I’m comfortable talking about it.

Okay, great. Thanks. And just moving onto the lower DMR cards that, I know, Joe touched on. Obviously, because of the lower – because of – most of the movies were digital, but is there any kind of read through to the rest of the year or even on a full year basis as we look beyond 2014 that maybe the DMR cost would be lower versus what you’ve seen historically, or is that just simply a Q2 event?

Well, I think we started this process in the third quarter last year starting to wean off the film releases, so I would expect the impact in the third quarter to be a slight reduction over last year. Fourth quarter, oddly enough, because of the effort that will be put into inner stellar, both in terms of that being a full film and digital release, I would not reduce costs in the fourth quarter.

Okay. Thanks for that. And then just lastly for me, with respect to the LA Studio, the new LA Studio that you talked about building, any sense around the timing of that CapEx, are we already seeing some of that in the cash flow statement?

Yeah. I mean, we've spent about 14 million, 15 million to-date. I would expect that a big chunk of the capital will be out by the end of the year and as we go into next year, there’ll be a piece next year, as well.

Yeah. And just to remind you that we’re going to take out a – we’re in the process of finalizing a facilities loan against the property, so we'll take that cash back and we'll have most of it when we close that loan, which will be in the next month or two.

Okay. Thanks. I'll leave it at that.

Thank you. We’ll move to our next question from James Marsh of Piper Jaffray. Please go ahead.

Great, thanks very much. Two quick questions here. One on Mockingjay that apparently is not going to be released in IMAX and domestic screens until the end of the year, I guess if you could give us just a little bit more color on that? I realize films like Hunger Games and Divergent might typically not playing as well as you know that same hardcore fan boy, it’s just hard for me to imagine that Interstellar could be running that strongly in its third week. So can you help me just understand that decision? And then secondly, just related to Russia and Central Europe, obviously it has been a great market for you guys, probably your best international market outside of China over the last few years. Just help us think about how this impact of the unrest in Ukraine affects your business either directly in that market or indirectly in Russia and Eastern Europe, does it any impact on operations in your mind, any impact on future system sales or should we worried about any sanctions or anything like that just kind of flush that market out for us? Thanks.

Sure. So on your first question James about Mockingjay and Interstellar, as you know one of the things that’s been the key to IMAX in success has been our relationship with film makers and their willingness to do things like use IMAX cameras, promote the film, put IMAX DNA into the films, and some of the most successful films we have ever done have been with Chris Nolan and have surrounded his use of the cameras and infusing IMAX DNA. And I have not seen Interstellar or those several people and our organization have including Greg and we’ve signed NDAs so we can’t talk about it. But let’s suffices it to say that Interstellar from our point of view lives up to everything we expected and then more so. And about half of the film is films with our cameras. We cannot expect someone like Chris Nolan or other filmmakers like J.J. in Star Wars or Michael Bay in Transformers, which just happened to not only technically use IMAX’s part of the film but also go out of the way to promote the film. And as you know I mentioned it before which J.J. tweeted best format ever. If we treat them like one weekend and out or two weekends and out. So, yes, there is always a short term cost in not rotating the film out because maybe there is a good film and it will play for a weekend really nicely. That’s for 35-millimeter guys to do and that’s PLT guys to do. And we’ve looked at our results on a PSA basis and we looked at the last five years where we have been, and we think that’s where we are positioned as a company. So, yes, you are right, I wish we could do everything all the time, but strategically it is much better for us to align ourselves with the preeminent filmmakers in the world and to get special treatment and special play gates and create a differentiated experience. On your second question, we haven't seen any affect yet in Russia or the Ukraine from the events going on there. As a matter of fact, the PSAs were surprisingly good in both places for Transformers 4. Obviously you never know how situations evolve and how the world changes, but none of the sanctions apply right now. As a matter of fact, we have a fairly robust number of discussions going on for additional theaters. So at the moment there is not a big concern there.

Okay. Good. Thanks very much.

Thank you. (Operator Instructions) We’ll move to our next question from Steve Frankel of Dougherty Company. Please go ahead.

Good morning. Maybe if I could ask Greg, given the success of Transformers in China and the way it’s swung the pendulum back towards a Hollywood films as a percentage of the overall box there, what do you expect in terms of blackout periods between now and the end of the year, and what is your pipeline of local content look like?

Well, first of all, that’s the right question. And there is a local title coming out August 1st, which we’re actually a part of called White Haired Witch and that will play into a couple weeks in starting around August 15th when How to Train Your Dragon 2 comes out, all of the sudden they go back to the Hollywood products. So, it does fits in starts, but one of the advantages of having our international film development business, which Anthony Vogels runs is that we’re able to see these in advance and be able to have plenty of content to move into those periods of time. They don't call them official blackouts anymore. They just kind of happen and you have to be on the ground and have your eyes and ears open. And so what we've been able to do for the last two plus years, I think quite successfully is make sure that whether there is an unofficial blackout and they are playing only Mandarin titles or the Hollywood titles are getting in, to get our name on all the paperwork. So again we’re covered on both ends. As you look into the end of the year, there is always a China-only title situation in December. And we’re very covered on that. I'm sure many of you have heard that we’re doing Gone with the Bullets. And then I think right now between the 1st of January and at the end of Chinese New Year, we've been offered 11 Chinese titles to pick from. We obviously won't do all 11. We will do a handful of them, but we are covered on both ends I think quite successfully.

And what do you anticipate will happen with Guardians, will that play in China?

I believe Guardians will in fact I believe there is already a date. As a matter of fact, I know there is already a date.

Okay. Thank you.

Thank you. And we’ll move to our next question from Daniel Ernst of Hudson Square. Please go ahead.

Yes, good morning. Thanks for taking my question. Two, if I might. First, Rich, on your prepared comments about China and how your thought was that U.S. investors didn't fully comprehend the business there. I am curious to understand better what you think they don't understand I mean clearly we know here domestically your per-screen metrics over index, the industry have, and I think most people know that China has been one of the fastest growing markets, I think is the number two or three market in the world so maybe it's just me, but it seems like the opportunity there is reasonably obvious I don't know what they don't understand? And then my second question, just to clarify on the marketing points that you guys made, are we talking about a shift in spend in how you approach marketing and branding of IMAX, are we talking about an absolute dollar amount? And then, either event, as you tie IMAX to certain film releases, is there any gaining factors in working with the studios to enable them – enable you to say see this film, see Transformers, see Star Wars in IMAX? Thanks

Okay. So on your first question in terms of China, what I don't believe U.S. investors understand us, I don't think they understand how good the backlog is in China, how we get a lot of questions about the backlog in China. And in fact, for every single year since we’ve been in business with Wanda, we haven't only met what was sort of laid out at the beginning of the year in terms of installs from the backlogs, but we have exceeded it every year. You know, we continue to get questions everyday at every investor meeting is the backlog in China real? And I don't think they understand that Wanda is the largest exhibitor in the world and the largest real estate player in China and in fact, the backlog, I believe, in China is as good as anywhere and certainly better than some other countries. That would be one thing. Another thing is I don't think people understand how broadly our brand is known and accepted. I mean, my statistic, 75 of the top 100 theaters in the whole country for Transformers had an IMAX theater in them. We do not have that brand drawing power anywhere else in the world. Remember, our backlog is over 400 theaters. So, we are doing over 10% of the country with only roughly a third of our theaters open there. Another thing, I think people put too high a discount rate on China. I think people talk about a slowdown, but you will get other markets and during economic slowdowns, the exhibition industry and seeing movies and entertainment does pretty well. I think in terms of the remaining territory, I think there is a lot more to go. I think in terms of other products and services, our brand –…

Great. Thank you.

Thank you. And we’ll move to our next question from Jim Goss of Barrington Research. Please go ahead.

Okay, thank you. I was wondering if you could talk a little bit about the softness in the PMA -- PSA in the latest quarter and the first couple of quarters based on the tough comps and how you are feeling about the third quarter and fourth quarters this year with the schedules you have vis-à-vis the movies from last year?

So Jim, first of all I have to rephrase part of your question. I mean I think there has been softness in the PSAs in the domestic market, but certainly in many of the international markets there hasn't been softness in PSAs. And since we are in 58 countries, obviously it affects us differently than companies that operate only in the domestic market. In terms of North America, we spend a lot of time thinking about it and debating it and there are a lot of possibilities, the 3D percentage has been tracking lower. That could be a factor. The economy is not so great. Price could be a factor in it. There may be a certain burnout on sequels. Certainly the World Cup did better domestically than anyone expected it would have, so that could have affected it. Some of the films just aren't working this year the way people envisioned. That’s just a function of a film by film thing. On the other hand, if you look at measures of IMAX and how we are performing compared to the domestic box office, it is completely consistent with other years. Meaning, you look at measures such as percentage of the Multiplex. We have done virtually identical percentages of the Multiplex. When you look at indexing, which I talked about in my remarks, our indexing has been very consistent with where it’s been before. So, there is no evidence that we are doing any worse other than the fact that the domestic market isn't having as good a year as people expected. I tend to think, and you know, either I have been here long enough and I am right or I have been here too long and I am burned out by it, but I tend to think that people always look for trends in the movie business. After two weeks there is a trend and after four weeks there is another trend. I think the movies just haven't touched the movie-goers this year and we haven't built a sense of momentum in the market. There hasn't been one movie going into another movie. And I think people will say the domestic box office is troubled until it isn't. And I don’t – for the last five years, as you know, our box office – our PSAs worldwide have been between 1-1-and-1-2 with the exception of 2010 when we were way higher because of Avatar. And I think it’s collection of the movies. And I think in any given year it can be somewhat lower and then in any given year it could be somewhat higher, and I think all those factors go in, but I don't think it’s a permanent kind of trend.

In the second quarter, the blended average was down, so the domestic was enough to do that. And I’m wondering if you're hitting a tipping point, where international shares 57% in that show and grow, and international has higher PSAs, you would think you would have something that should take that metric higher on sort of a trend line basis from this point, shouldn't it?

Well, as you grow your international, and that’s a bigger percentage and has higher PSAs, that’s right, Jim, it should. But I always issue the caveat it’s the movie business. Look at last year we’re kind of in a very similar place to where we were this year. And then along came Gravity and changed the paradigm and we still have a lot of good movies to go at the second half of the year, including Interstellar, which hasn’t been actively marketed yet, and I think it’s a portfolio, and we have to see that played out. So just by way of concluding, internally we thought it was a good quarter, we thought we demonstrated a lot of operating leverage. I think you especially have to look at the operating cash flow number, which I think was quite impressive. And I think we’ll see how portfolio theory works for the rest of the year and 2015. But for particularly 2015 and 2016, I think, we have a really strong slate. And I think, because of the global issue, just following up on Jim's question, I think we’re well positioned to do well over the next several years. And thanks for everybody, for joining our call.

Thank you. There are no further questions at this time. Please continue. There are no further questions at this time. Please continue. Ladies and gentlemen, this does conclude your conference call for today. We thank you kindly for your participation. You may now disconnect your lines and have a great day.