IMAX Corporation (IMAX) Q4 2014 Earnings Report, Transcript and Summary

Good day and welcome to the IMAX Corporation Fourth Quarter 2014 Earnings Conference Call. All participants are currently in a listen-only mode. Following the presentation, we’ll conduct a question-and-answer session. [Operator Instructions]Today's conference is being recorded. At this time, I’d like to turn the conference over to Ms. Teri Loxam, Vice President of Investor Relations. Please go ahead.

Thanks, Michelle. Good morning, everyone. And thanks for joining us on today’s fourth 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 Greg Foster, our Head of Entertainment; and Rob Lister, Chief Legal Officer and Head of Business Development. I’d 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 and 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 these 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 fourth quarter earnings release, along with supporting financial tables is available on our website www.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. For IMAX, 2014 was a year of setting the stage to optimize growth for the long term. We launched our world-class laser projection system, sold 20% of our IMAX China business to two prominent Chinese funds, signed multi-year picture deals with Disney and Universal and Legendary, restructured our marketing organization, began rolling out our new brand campaign and continued to grow the network and sign new theater deals globally. We believe these accomplishments and many others position us well to take advantage of what looks like to be a blockbuster film slate for 2015 and beyond. Kicking off with our network growth, we had another solid year of building new theatres and globalizing our network. We installed 121 theater systems in 2014 resulting in the expansion of our total network to 934 theatres globally. In fact, we expect to pass the 1,000 theater mark in the second half of 2015 which is an important milestone for IMAX. We also signed a 118 theater agreements last year, which helped to replenish our backlog to almost 400 theaters and provide us with a good pipeline for network growth in future years. We now operate in 62 countries worldwide with 55% of our commercial network and 61% of our box office coming from international markets. Over 70% of our signings in 2014 were for international theatres spanning 26 countries. Given this fact we continue to expect a greater proportion of our box office to be derived from international markets as we continue to expand our theater network globally and take advantage of positive international box office trends particularly in China. China continues to generate healthy growth for us throughout the year with about 40% year-over-year revenue growth. And we will look forward to what’s to come from this market in 2015 and beyond. We installed 62 new theatres in China in 2014 bringing our Chinese network to over 200 theatres. Between our installed base of theatres and theatres in backlog, we are well over 400, the 400 zone that we have originally estimated for China. We are in the process of reevaluating our potential network size for the country and we will update you on our zones forecast in the coming months. We also saw significant growth in our Chinese box office which grew roughly 40% compared to 2013. In 2014, we exhibited a portfolio of 28 IMAX films in China, by far the most we've ever played in the region, with six of those being local Mandarin language titles. Looking at our China business over the past two years, we more than doubled our theater network and yet maintained a per screen average of $1.2 million which we believe bodes well for our growth going forward. 2015 is off to a great start in China with the final installment of Peter Jackson's The Hobbit, which open in January and is on track to generate almost $20 million in IMAX box office in China which represents roughly 15% of the country's total box office for the movie, while IMAX accounted for about 1% of the screens. As we move into the Chinese New Year, we have several local language titles that we are playing which is an important part of our portfolio films each year. Although it is early into Chinese New Year, the films have started to perform in a very strong fashion. We also closed a significant deal at China last year by selling 20% of our IMAX China business to two prominent Chinese funds which helps us positions us for ongoing success in that fast growing market. In addition, we are pleased to see the recent IPO success in China of our largest partner, Wanda Cinema, whose stock prices more than quadrupled since their IPO in January. We believe this demonstrates the growth prospects for the cinema industry in China and Wanda's importance in that growth story. Moving on to our film performance more broadly. While 2014 was a difficult box office year for the industry, especially domestically, there were some important highlights for IMAX. As we look at our entire portfolio of domestic films for last year, we are encouraged that IMAX's market share on the titles we played continued to grow, demonstrating the increased demand for the IMAX experience. Chris Nolan's Interstellar was very successful for IMAX grossing over $105 million globally in Q4, our third highest grossing title ever with IMAX doing over 30% of the total domestic box office. Chris' use of IMAX cameras continue to pave the way for movie goers to choose IMAX as the preferred way to see Interstellar. The Hobbit also generated significant box office for IMAX in December bringing in over $50 million which is a nice start for the film even before its strong opening in China in early 2015. As we saw in 2014 with movies like Guardians of the Galaxy and Interstellar and with America's Sniper so far this year, audiences will come out for the theater to see quality films. As a result, we have increased our focus on marketing to let audiences know that the unique experience that they will get when they see a film in IMAX which we believe is unparallel to any experience in the world that they can get in any other theater. For example, we believe the exclusive sneak peak IMAX exhibition of 70 minutes of Guardians of the Galaxy, a month before the film's release; help Disney in establishing its new Marvel franchise in the minds and heart of the film goers globally. In 2014, we also began to launch of our new brand campaign with the tagline - Never Comprise. We believe we are seeing strong trends from these recent marketing efforts. Brand equity research firm, Milward Brown tells us that IMAX is by far the most differentiated brand in a theatrical space with more than double the awareness of any specific exhibitor or format brand as measured across nine countries. We also continue to innovate on the technologies front. We are happy to announce that we successfully launched a laser projection system in December and the product exceeded very high expectations. We recently debuted the new system to several institutional and commercial clients to rave reviews. We are on schedule to continue our laser upgrades throughout this year to the largest theatres in our network such as AMC, Lincoln Square, Metreon and Citywalk as well as the TCL Chinese Theater in Hollywood, the BFI in London, the Smithsonian and many more. The new laser system is truly a ground up development and unique among the other products being developed in the industry. We designed a whole new optical engine for the system to capitalize on all the benefits of laser beyond just a brighter light source. Leveraging IMAX's 47 years of experience our license KODAK patent, new space age hardware, the system is capable of projecting a digital image at a full 1.43 to 1 aspect ratio with maximum sharpness and perceive resolution even beyond 4k even when you are sitting close to a 100 foot wide screen. The system's attribute and could tremendous 3D brightness and substantially greater contrast, which combined with our unique optical design, has created not only unprecedented sharpness in detail but also an expanded color gamut allowing filmmakers to present more vivid and exotic colors than ever before. In addition, the new laser system comes with an upgraded 12 channel IMAX sound system that will allow us to deliver a more visceral audio experience that positions sounds around the auditorium with even more precision and clarity. We believe this new technology is a giant leap forward in a quality of cinema presentation. And has cemented IMAX's position as the leader of providing the most differentiated premium experience to consumers around the world. Before moving to 2015, I want to quickly highlight the strength of our balance sheet. We ended 2014 with a strong cash position of just over $106 million which is up almost $77 million for the same time last year resulting from $87 million of operating cash flow in 2014. As we have talked about at the beginning of last year, we've been constructing new office in Los Angeles and we are happy to announce that the facility is nearly complete and the construction is expected to be completed on time and on budget. We also repurchased about 27,000 shares in the quarter. In terms of future uses of cash we continue to invest in joint revenue sharing theatres which continue to generate strong returns. In addition, we remain committed to our share repurchase program over the next three years and we will continue to explore new business opportunities such as our in home initiative. On the new business front we continue to invest in a measured way, wrapping up our investment as specific benchmark goals are obtained. As we round the corner into 2015, we are excited for what's to come. The year is certainly gotten off to a good start with a strong opening of The Hobbit in China, the launch of Game of Thorns and our domestic release of American Sniper which is an example of how we are being more flexible and nimble in our film programming making changes opportunistically and quickly maximizing our box office throughout the network. The remainder of the 2015 slate is shaping up to be very promising with a number of IMAX centric, well spaced films slated for release. The blockbuster season officially kicks off on April 3 with Furious 7 followed by the Avenger sequel Tomorrowland, Jurassic World and the new Terminator to name a few films. In addition, Mission Impossible 5 has moved and it is now set to release at the end of July which is a great addition to our summer slate. And of course we can't talk about 2015 without mentioning the releases of Star Wars - The Force Awakens in December which features select scenes filmed with IMAX camera. We continue to expect to invest behind our brand and the blockbuster films this year as well as continuing to innovate in R&D. And also we remain very focused on controlling cost overall and creating additional operating leverage and cash flow in 2015. I am happy to announce that we will be hosting an Investor Day this June in Los Angeles, California in our new facility. [Technical Difficulty] at the company will be a great time to get everyone together to layout our long-term strategy in more detail. You can expect a press release but more specifics to come out sometime next week. With that I'll turn it over to Joe to go through more details on the 2014 financials and 2015 guidance. Joe?

Thanks, Rich. Let's start with box office. In the fourth quarter we generated $226.9 million in global box office with $134.2 million or almost 60% coming from international markets. Our global PSAs in the fourth quarter came in at $292,000 with the domestic PSA of $248,000 and an international PSA of $333,000. Our annual global box office of $750 million was up roughly 3% from last year. Global PSAs for the year came in at $1.020 million with domestic and international PSA coming in at $800,000 and $1.235 million respectively. As Rich mentioned based on our solid indexing in 2014 especially domestically, we continue to believe that our decline in PSAs in 2014 was a function of the challenging film slate. The 2015 film slate is stronger and we are off to a solid start to the year so far. It was another strong box office year in China with about quarter of our annual in Q4 box office coming from this region. Annual PSAs for the country came in at $1.2 million which is consistent with the previous two years despite [Technical Difficulty]. We are back with you, sorry for the interruption. I'll start in terms of talking about the company's revenues for the year. The Company generated $102.5 million in total revenues in the fourth quarter, down from $105 million in the same period last year. Full year revenues of $290.5 million was up about 1% from the prior year and overall gross margins for the year as a percentage of revenue increased 250 basis points to 59.7%. Revenue from sales types and installation was $33.2 million in the quarter compared to $32.6 million in Q4 of 2013, reflecting the installation of 26 full new sales type theater systems in the most recent fourth quarter compared to 24 in the fourth quarter of 2013. The Company also installed two digital system upgrade under sales and sales type lease arrangements in the fourth quarter of 2014 compared to three in the same period last year. JV revenues totaled $23 million in the fourth quarter which includes revenue from the installation of 10 new hybrid joint venture theatres. This compares to 2013's Q4 JV revenue of $24.5 million which included the installation of six hybrid joint venture theatres. The lower JV revenues for the quarter were largely the result of lower domestic box office receipts in 2014 versus the same period in 2013. DMR revenue for the quarter was $25.6 million resulting in Q4 DMR margins of 77.2%. DMR margins for the year was 75.7%, 850 basis points higher than 2013. This is the result of lower than average DMR cost in 2014 of $20.3 million driven by a predominantly digital film slate and fewer big blockbuster movies in 2014. As we think about DMR cost for 2015 we would expect to be somewhere in the lower end of our typical $25 million to $30 million range. While we expect to continue to see savings from being fully digital to benefit of having no film print cost is expected to be somewhat offset by higher marketing spend on films this year given the anticipated blockbuster titles in 2015. This increase in the number of films we plan to DMR also contributes to the expected increase in DMR spend in 2015 over 2014. Moving on operating expenses. SG&A excluding stock-based compensation came in at $21 million in the fourth quarter, an increase of about $900,000 over the same quarter last year. Included in the Q4 cost is an FX hit of about $525,000. Our full year SG&A excluding stock comp was $78.2 million or 7.3% higher than the $72.9 million spend last year. When excluding the one time $2.2 million curtailment benefit incurred in 2013. Our full year FX impact on SG&A was $1.5 million in 2014. Excluding FX and the curtailment benefit, SG&A grew roughly 6% in 2014 as compared to 2013. Stock based compensation for the quarter was $3.8 million resulting in a full year 2014 stock compensation expense of $15.1 million. In terms of guidance for this year, we expect full year 2015 stock compensation of approximately $90 million. R&D for the quarter came in at $4.69 million resulting in full year R&D cost of $16.1 million. The higher than expected R&D costs were related to the completion and launch of our laser projection system. For 2015, we expect our combined OpEx spend including both SG&A excluding stock comp as well as R&D to grow approximately 5% to 8% over 2014 total OpEx which was $94.3 million. Throughout the year we expect to have to make decisions around allocating our discretionary spend including decisions around spending on marketing initiatives and R&D. These decisions will be driven by how well our film slate is performing as well as the value and timing of various R&D projects. In terms of tax, our fourth quarter tax rate was 25.4% translating to a full year tax rate of 25.2%. Our full year tax rate came in a bit lower than expected due to shifts in jurisdictional income mainly to China. We expect our full year tax rate to be around 26% including an estimated $15 million to $18 million of cash tax. Moving along adjusted EBITDA for the quarter came in at $45.5 million resulting in annual EBITDA of $108.5 million. Remember that our adjusted EBITDA like our adjusted net income and EPS are after our China minority interest is removed. For Q4 minority interest reduced adjusted net income and EBITDA by $1.5 million and $2.2 million respectively. And for the full year reduced adjusted net income and EBITDA by $2.4 million and $4 million respectively. For Q4, adjusted EPS before and after minority interest was $0.36 and $0.34 respectively. And for the full year was $0.78 and $0.75 respectively. For 2014, the minority interest reflects our investors 10% stake in the China business. The second installment of the China investment closed on February 10, therefore the China minority interest in 2015 will reflect our strategic investors full 20% ownership for both our adjusted net income as well as our adjusted EBITDA calculations. We expect the impact on net income for the full year 2015 to be about $6 million to $7 million and the reduction in adjusted EBITDA to be about $10 million to $11 million. In addition, we continue to make progress on our in-home initiatives with the TCL joint venture in China. In 2014, $1.1 million of investment from this initiative due to our loss from equity account investments line on our income statement. At this point we expect the loss from equity investments to be about $2.5 million for the full year in 2015. We will give more color on our in-home strategy on our Investor Day in June but we currently aim to rollout a product over the next 12 to 18 months most likely in China and the Middle East to start. Looking at cash flow, we generated $14.7 million in operating cash flow in the quarter and $86.6 million in operating cash flow for the year. The highest in the company's history resulting in a $106.5 million of cash at the end of the year compared to $29.5 million at the end of 2013. Our yearend cash position reflects $28 million of cash expanded by the company in connection with the purchase of land and the completion of our LA facility. And the $40 million in cash that we received in April for the first installment of the China transaction. We received the second installment of $40 million last week which will be reflected in our 2015 cash balance. Moving on to our network. We installed 121 total theater systems in 2014. 113 of which were for new commercial theatres. We installed almost 50% of these in the fourth quarter with 55 new theater systems in Q4 including 29 JVs and 26 sales type and installations. All of these were commercial theater installations. Our total commercial network now consists of 809 theatres of which 451 are JVs. In addition in the fourth quarter we signed deals for 16 theater systems bringing our full year 2014 signings to 118 of which 104 were for new systems. As a result our backlog at the end of 2014 was 397 theatres, 370 of which are for new theater systems. Consistent with our recent trending roughly 90% of theatres in backlog are new builds and 90% are scheduled for installation in international markets. As we announced on our Q3 call in October, we continue to anticipate installing a similar number of new theatres in 2015 as compared to 2014. Furthermore, the mix in 2015 looks to be about 35% to 40% sales and sales type lease theatres and 60% to 65% of our installation expected to be JVs of which about 20 are expected to be hybrid. You can also expect the similar rollout cadence to what we saw in 2014 with about 50% of the installation expected to take place in Q4 of this year. Similar to 2014, we expect our first quarter installs to be like with three to four STL installs and probably one full JV and one to two hybrid installs expected this quarter. In addition, as we discussed on our October call, we continue to expect to install about 10 to 15 laser upgrades in 2015. Several of these laser upgrades are expected to be JVs so no upfront margins are associated with those in the year. For sales type upgrade the revenue and costs are quite variable based on screen size with more lasers required as the screen size increases. Thus it is difficult to give an average margin per theater. For the full year 2015, we continue to expect these upgrade will deliver total incremental gross margin in the neighborhood of $1 million. In terms of schedule, we continue to anticipate a few theatres to be upgraded in the first half of the year most likely on the institutional side. With the remaining upgrades to occur in the August, November timeframe. Overall, 2014 was a good building year for the company with expanding gross margins and strong cash position, consistent network growth, continued signing activity around the globe and film deals with all the major studios. This progress sets us up well for 2015 and beyond. With that I'll turn it over to Q&A.

[Operator Instructions] Our first question comes from Eric Handler of MKM Partners. Please go ahead.

Yes. Thanks for taking my question. Wonder if I could focus a little bit on China right now. Would you be willing to give what the total revenue and EBITDA was for 2014 in China just so that we can start thinking about the progression as you move towards an IPO? And then along those lines, do you have any idea what multiple was given for the movie theater IPO there? I am blanking on your biggest partner there. But does that accelerate your thinking about a possible IPO from what Wanda came out at their IPO and does that change your thinking at all from IPO perspective there?

So first of all, Eric, we can't yet breakout the revenues and the EBITDA and the earnings in China, although during my remarks I went through that on general based. Did you want to add something there, Joe?

Yes. We have in the K which will be published today, the revenues in Greater China was $78.8 million for the year. So that we can disclose.

Okay. In terms of your second question, it's Wanda which is our largest partner in China that went public and they went public at 22 RMB and the last I heard it was trading at about 80 RMB. I have no idea what multiple that is, Eric. You probably can get that through one of the services. But I don't know. The answer is since we brought in our partners in China we have mentioned that part of our long term strategy would include the possibility of an IPO of our China business at some point. And there are lots of things to monitor on the health of the business, our growth curve, signings, and the films we are playing, all sorts of things as well as the capital market in China. And I would say we continue to monitor all those things when we decide what we are doing it, if it is an IPO or some other route.

Thank you. The next question comes from Townsend Buckles of JP Morgan. Please go ahead.

Hi, thanks. Can you - for Joe maybe, can you give how much of your backlog of new screens and upgrades is laser systems? And maybe for Rich, as you talk to exhibitors about building new screens, what is the receptivity to building new larger laser screens and should these be a bigger part of new signings going forward?

So I'll answer that first and then Joe will give you the numbers. There is a lot of interest in building larger screens. As you know just to make sure everybody else understands it, because the laser system throws out more light there is a potential to build larger screens over time and as we keep engineering it will be larger and larger and it won't surprise you Townsend that there is an appetite for building larger screens particularly in Asia and in developing parts of the world where is obviously capacity constraints in smaller theater so you take a market like India which has a lower ticket price but you can put a lot of people in those theatres. That's why we are seeing increase about that. And I would be surprised if over the next several years you didn't see a generation of IMAX screens that was materially larger than the large ones that are out there today. And Joe the other part of the --

Yes. In terms of the total numbers in the backlog at the end of the year it was 71 systems including 25 upgrades.

Lasers, you are saying.

Laser upgrades, yes.

Okay, thanks. And, Greg, you tried a lot of new things this quarter. And it seems like they have been pretty successful. Looking ahead beyond your real tent pole titles that you will devote the full network to, do you see the model shifting more towards playing the top movie at the time regardless of genre, and giving exhibitors more of a choice what they want to play at least in this fuller months like we are seeing right now with Fifty Shades.

So we are definitely going to continue to support more than anything else our pillar titles, that’s the sort of hallmark of what we do. The Chris Nolan movies, the Marvel movies, Star Wars et cetera. But we’re definitely going to continue to show within shoulder periods more flexibility to meet demands of customers, of moviegoers. What we can't do is -- the word I am using is a sort of fundamentalism, we can't say this is the movie that we are going to play and we only play fan boy movies and that's that. We have to be careful to not cross the sort of boundary of what an IMAX movie is and what's not. But at the same time like we did with the American Sniper which obviously proved to be quite successful and which we picked eight days before the movie came out or Game of Thrones or what we did last weekend with Fifty Shades of Grey, we have to show flexibility particularly in those shoulder periods and that's what we will continue to do.

Thank you. The next question comes from Ben Mogil of Stifel. Please go ahead.

Hi, good morning. And thanks for taking the questions. So Townsend got my one on programming. So my questions sort of more broadly, you have sort of accelerated install run rate if you will on the fourth quarter. Can you talk about what your -- sort of preliminary what kind of comments you are getting from exhibitors as they head into 2015 slate? Are you seeing accelerated RFP activity or you are seeing, you sort of given the cadence so when you see the installs, but I am kind of curious in terms of what's not yet in backlog but what you think is probable going forward, what kind of sort of commentary are you getting from your partners.

Well, every year when we put together our budget, part of our budget and what we give you as our proposed -- our analyzed installs for the year as the sign and install bucket and what we have done this year is we’ve done it consistent with past practices. So what that sign and install bucket is. I think what you are -- kind of what you are asking indirectly is it possible that that could be more than we think because the slate is so strong this year. And the answer is yes, that is possible. That's not the way we forecast it, that's not the way we are setting up expectations. But there is a lot of excitement about the 2015 slate throughout the industry and one thing it is important just to remind everyone, is that so much of our business is international. So films that you guys may never have heard of like we open Dragon Blade in China today and we had Wolf Totem last week, those are exciting Chinese exhibitors in a way that they are not particularly exciting US exhibitors. So you have to break it out on a country by country basis and look at it. But there is a lot of optimism around the world in the exhibition industry about the slate. And I should add, we are optimistic too. I mean we think it is going to be really good year for film.

And Rich, and I want to follow up to that. I mean in some markets where the economics are really weak and or the currency is really weak and maybe we can even just set aside Russia because that's obviously very unique situation. Are you seeing any kind of more tentative scope in some of the exhibitors there who were previously sort of much more gung-ho and adding installs.

Well, remember that a lot of -- about half of our business is joint venture. So the currency may affect their proposed payback terms and but we are putting up the money so in a sense the stronger dollar helps our investment side in some of these countries because we are putting up the capital. But the shorter answer is no. Really haven't seen much of a change. You nicely didn't ask but happy to comment on Russia as well, which is that in Russia few things are going on. One, if you look at the box office in ruble it is actually just as strong as it has been. It is doing very well including in the Ukraine by the way. If you look at in dollars obviously the conversion makes it look somewhat different. One way we are protected in much of the world is our royalties are paid in dollars with minimum royalties in dollars. So we are less subject to movement of the dollar than many other companies. That doesn’t mean in a place like Russia we are not interested in making some short-term concession and we've done that in exchange for concessions from the other side of the table. So we’ve spent a lot of time thinking about currency risks. But because of -- and the fact that the minimums are generally paid in US dollars, we don't think we are as sensitive to currency risks as many other multinationals companies might be.

And those minimum you are talking about sort of on the JV side. It is the usual formula but there is a floor. Is that where you are referring to?

Yes. On the sales type leases, there is a minimum royalty which is payable on dollars. So there is no currency risk with that happens on the JV side, there are mix things and obviously in local currency if we are investing in dollars, we can get more our dollars at local currency. So that might help our cost on some of the JVs. On the ticket price side, obviously it could have somewhat of an impact if the dollar weakens but overall we don't it is going to be a big deal for us. It definitely could impact us a little bit. But I don't think you should think about as a typical multinational company because of the fact that of this natural hedge from the dollar minimums.

Thank you. The next question comes from Eric Wold, B. Riley. Please go ahead.

Thank you, good morning. So couple of sort of follow up questions to previous questions asked. I guess one on kind of the pipeline the guidance for installs includes assumption of some deal signs, does it get inherently more difficult for signing and installs in a given year? Especially you move through with more the business focused on international and new theater builds versus retrofit?

Really good question, Eric. The answer is in general yes. And that's why we have taken a fairly conservative approach to signing and install this year in our guidance. On the other hand though when you have a year like this one which the films slate is so expected to perform very well, I think that would cut against it in certain ways. And we have seen some early interest in signing and installs that we hadn't seen before. So I don't think we are going to get bite by your observation but again who knows it is too early in the year. But I do think it is possible that there are more signing and installs than we expect.

Perfect And then second question. I know you are trying to voting more dollars towards marketing to build the brand. I guess question for maybe Greg, as you think about the choice of films that are put on the screens like 75 towards Fifty Shades of Grey and Game of Thrones and maybe some smaller limited run, is the goal always to make a profit on those runs above the DMR cost or are you going to kind of take a little bit loss as kind of marketing development brand and keep those screens filled?

I think the answer is we are not looking to not make a profit. But at the same time if there is something that we could do like Game of Thrones that generated so much chatter and was clearly beneficial to what we are trying to build in terms of alterative content et cetera. We are willing to do it. We are always looking for new and innovative ways to create 52 weeks of compelling programming for our theatres. That's what our goal is. And when I looked at our slate before this conversation, we basically have one week this year that I don't know what we are programming, that's it. That doesn't mean all the movies are going to work. And when they don't work we will be able to move things in and move things out obviously in consultation with our exhibitors and studio partners. But we are in a pretty good spot right now with 51 of the 52 weeks present and then again just directly answering the question that we will take some risks if we think it is in a long-term benefit of our brand and our customers.

By the way, Eric, I think Game of Thrones was profitable.

Yes. It was literally profitable for sure. It was even more profitable on a brand basis.

Thank you. The next question comes from Steve Frankel of Dougherty. Please go ahead.

Hi, good morning. Given the slate this year and next year, have you had any discussions with your domestic partners about splitting some of the zones to increase your density in some of the bigger metro markets in the US?

They always had been able to put a second theater in their zone, Steve. And you know that something that we encourage in the fact there are number of them that have a second theater in their zones. But specifically the answer is no, not in relation to that but that something we always talked to them about. We are always like with our major clients say why not go on this multiplex in this zone, why not go on this multiplex in that zone. And that's ongoing. We do it all the time not specifically in relation to the 2015 slate.

Okay. And in China, the PSAs continue to look impressive. But if you kind of broke that down and looked at the more mature markets, maybe the ones you went in to a couple years ago, have those PSAs held up and is it just the new builds that are maintaining the average or are you still getting good performance in some of those older markets?

No, there does not appear to be any deterioration because of the new building which is another way of answering your question. But no Steve, its pretty much uniform across.

Thank you. The next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my questions. Rich, I was wondering if you can comment a little bit more on the signings outlook. You had 104 new systems signed in 2014, as you look to 2015 in addition to China, is there any sort of other international markets you’re starting to see more traction from, wanted to get some commentary on that. And secondly, with respect to the TCL joint venture, I know you touched on the timing there. But I wanted to maybe see if you can provide some additional commentary around what progress has been made on that front thus far. And what to the extent that you can, how you see the magnitude of that opportunity, thanks?

So first, your question about signings, our level of business activity is really good. Aravinda, we have a monthly call with their sales force around the world, and we had it, I think, last week. And in fact, the level of activity seems to be as it’s been the last several years quite strong. I think lot of stuff going on in Europe, in the Middle East, believe it or not, Russia there’s a number of things that surprises you and surprises me. Japan, we had a very key strategic signing with Toho. And Toho is the number one exhibitor in Japan, as well as the number one studio, and they’d never been in our business. And their opening is in early mid-April actually, and I think that’s from – and it’s in downtown Tokyo. So I think if that one goes well, that could certainly open up that market in a more material way. Latin America is starting to open up a little bit more than it had before, the Middle East, China as you alluded to is just a juggernaut. So our budget is consistent with our past years budget for signings, and you haven’t seen any slowdown. And then maybe to add a little more to that, usually when it’s a good film year, there tends to be an uptick, we didn’t budget for that to happen. But when people – remember 80% of our signings come from existing customers. So when people see really good results come, they tend to want to go more into the IMAX business. So I feel pretty good about the top that tone. In terms of the TCL, I think you’re mixing two TCLs. One is a TCL theater in California, where we’re converting to laser, and that’s expected to open at some point in April. I think when you were asking about TCL, were you asking about the home theater business? Aravinda, I think that’s what you’re asking about?

Yes, Rich, the home theater system in China.

Okay. So that business, we recently hired a CEO to run that business with some good experience. There are some very straightforward benchmarks that we’re putting in, and our commitment as well at TCL's commitment to that venture is based on meeting those benchmarks and that rollout. And I think by later this year, we’ll understand more and one of the reasons we said Investor Day, for June, is I think we’ll talk in a lot more detail at that point, about that overall strategy.

Thank you. The next question comes from Daniel Ernst of Hudson Square. Please go ahead.

Yes, good morning. Thanks for taking my call. Two questions if I might. First, you’re looking at your operating cash flow, up 57% year-over-year. I think that speaks to the benefit of the scale you’re seeing in the size of your network, and so as you look at how you deploy that cash. Does it make more sense, giving success you’re seeing from that scale to invest in more scale, or can you grow your network faster understanding that rollout, the new builds in China, are you waiting in property development but around the world or even domestically you’re making smaller zones. Is there a way to grow the network quicker than you have been, which is arguably, has been faster, but given a success for cash flow it seems like there’s an opportunity to potentially accelerate. And then secondly as it relates to China, notwithstanding the success of the Wanda Cinema IPO the property market in China declined or the growth rate declined substantially in 2014, that’s having the impact on the pace of new builds for Wanda, your other partners in China? Thanks.

So your first question, can we accelerate the growth of the network because of our cash position? The answer is, we’re always trying to do that, but the limitation is really new builds internationally so that you can’t build a mall faster than you can build the mall. So if it takes two years to build a mall in India no matter how much cash you have. You can’t build it in four months. So through conventional ways it's difficult to accelerate or build out just because of the inherent timing of building new buildings which is a lot of our international growth. With that said though and I’m really glad you asked the question. IMAX’s place in the ecosystem of Hollywood has changed radically over the last number of years. So when days are set for release of movies, most studios virtually all for blockbusters consider the possibility of an IMAX date and when that movie might be released. And it's not a complete coincidence that this year a lot of the blockbusters at three weeks apart and that we are involved with virtually all of them or the vast majority of them. So from those relationships with studios and from those relationships with filmmakers has come a lot of interesting opportunities our way. And they include things like Game of Thrones; they include things like Crouching Tiger. They include a lot of things that we're experimenting with. And I think some of those things, there’s a lot we are not talking about because we want to flush them out farther. And I think if we flush them out and if we get convinced that there are good opportunities, I think there would be places where we would feel a high, like of a very good return on our cash investments but the way we run our company is to really explore it, meet the benchmarks and then talk about it, and not to talk about it and spend money before we know we're going to make money. So I think again in June we’ll talk in more detail about those things but we do have our eye on that ball. We do understand what the cash balances are, I think we're going to find some very profitable places to put it. But we're not going to talk about it until we're sure and we're ready to do that. As to your second question about the property market in China, we have not seen any slippage at all. As a matter of fact China I would say is the most reliable market in the world in terms of slip and in terms of lack of slippage against schedules to build out theatres. And I think the Wanda IPO of Wanda Cinema as a matter of fact, helps give us comfort on the Wanda side of it which is a large part of our backlog about their ability to fulfill those commitments because they raised a large amount of cash and I think that just adds to our comfort level. And remember the Chinese kind of central plan is to invest more in domestic consumption and the movie business has been growing at 30% a year in terms of number of screens and box office. So I really think it’s highly unlikely that anyone’s going to take their foot of that pedal because that’s a pedal that’s really working very well. I don’t see that as a risk.

Thank you. The next question comes from Mike Hickey with The Benchmark Company. Please go ahead.

Hey, guys, great quarter. It's sort of a fun question I guess but I’m sort of curious what you think your top three films would be for your domestic market? As it relates to your fiscal 2015 performance opportunity and maybe China if you can. And then any local China films that you see potential that we should consider. That would be helpful. Thanks. And a quick follow up.

Well, there’s no way I’m going to talk about 2015 without talking about Star Wars. So that’s the safest but most honest answer I’ve ever given in my entire life. Obviously, the Marvel titles are always have a built-in audience but I think what’s really interesting this year is and this is not the place for me to be a prognosticator. So I’m not going to do it but on this call, but if you go and look at the slate you’ll see that there are handful of really, really interesting movies that I think have the potential to breakout. And one of the things that are most interesting about this year as I was relating to the fact that we have 51 of our 52 weeks already programmed. Is there a pretty interesting amount of films that have moved to what you would traditionally call the shoulder periods? One I will point out which I’m personally quite interested in is a movie called , The Walk which is the Bob Zemeckis movie which comes out in early October. There’s just a lot of really interesting movies that have moved to different timeframes which gets to the bigger notion that seasonality is a bit of the thing of the past, it's not completely but we have a movie like American Sniper opening up in the middle of January and it does $300 million plus and you combine that with the year earlier when Gravity opened up in early October and did what it did. I think there’s lots of opportunity to kind of come in different areas. So anyway that’s the answer to that one and obviously Jurassic World there’s just so many of them, Terminator, but the other things, Hunger Games -- the other thing that I think is interesting in China is that the amount of movies that we've gotten in is quite fascinating and significant as we mentioned on the call it's 28 last year, and my guess is it’ll be about that if not more this year. But five, six, seven of those movies are always local language films as Rich mentioned Dragon Blade opened up very nicely and Wolf Totem already had this week which is Chinese New Year there’s more to go with that. And I think you can find, you can count on a robust international Mandarin language slate for us so there’s my answer.

Thanks, Greg. And you touched on this briefly, by the way that’s helpful. And I guess you don’t always have the most visibility on this as you would want when you look at sort of your top films for 2015, I’m curious how you see those films successful entry into China. And maybe any comparable launch timing issues I guess or relative to the domestic launches that we should consider. Thank you.

Yes, that’s all about China film group and I think it's not something that we're in the middle of. Obviously, our goal is for to be as fast as we can in terms of day and date but that’s not something that -- we don’t have any behind the scenes impact in that, that’s all done through the studios and through China Film. And that’s we go along for the ride. So, so far, so good but we’ll see what happens as the year progresses.

Thank you. We have time for one more question. Our last question comes from Rob Peters of Credit Suisse. Please go ahead.

Thanks. And thanks very much for squeezing me in. I was just going to -- I just wanted to clarify I think Joe may have already touched on this but you’ve got a very strong start to year. And it looks like there are a number of titles coming out in Q1 and just kind of how we should think about the number of releases for the back half of the year and I know previously you’ve done kind of mid 30s but should we be looking above that going forward?

I mean globally we’ll hit 40 this year between the Mandarin titles, the quick switches and the shoulder periods and the slate that we've already announced. I would be very surprised if the first number and the number of titles that we released globally didn’t have 4 in it.

So I’d like to wrap it up and just kind of share with you a little bit about how we think about our own business. So I stole this comment from someone else at a recent conference, but what the person said was when trains dominated transportation. People in the train industry saw the advent of alternative means of transportation like cars and eventually planes and boats as competition because they thought of themselves as being in the train business. I just want to make sure everyone understands that we don’t see ourselves as being the IMAX business as narrowly defined as it exists today. We are seeing ourselves as being the entertainment technology business. And we think there are unbelievable opportunities jumping out around us from all the changes going on and we think we're just extremely well positioned in the infrastructure and we see ourselves as innovators, we see ourselves as not holding on to the status quo for dear life, we see changes in area of opportunities for us and as I alluded to and we'll pull -- put more meat on the bones later. I think these are among the most exciting times at IMAX and I think you could focus on the 2015 slate and you could get really excited but unintended you could focus on the bigger picture. And I think IMAX is really well positioned. Thank you.