IMAX Corporation (IMAX) Q2 2019 Earnings Report, Transcript and Summary

Good day, and welcome to the IMAX Second Quarter 2019 Earnings Conference Call. All participants are currently in a listen-only mode. [Operator Instructions]. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stephen Davidson, Head of Investor Relations. Please go ahead.

Good day, and thank you for joining us on today's Second Quarter 2019 Earnings Conference Call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; and Patrick McClymont, Chief Financial Officer; Megan Colligan, President, IMAX Entertainment; and Rob Lister, Chief Legal Officer are also with us in the room today. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our second quarter release and the slide presentation accompanying today's call has been posted on the Investor Relations section of our website. At the conclusion of this call, our historical excel model will be posted to the website as well. I would like to remind you of the following information regarding forward-looking statements. Our comments and answers to your questions on this call as well as the company's soft slide deck may include statements that are forward-looking and that they 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 maybe 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 net income, adjusted EPS and adjusted EBITDA as defined by our credit facility are contained in today's press release. With that, let me now turn the call over to Mr. Rich Gelfond. Rich?

Thanks, Steve, and good afternoon, everyone. Our second quarter results make it clear that our strategy of focusing on our core business by enhancing our end-to-end technology solution that drives the differentiated IMAX Experience more effectively marketing our brand and improving the performance of our China business continues to deliver as illustrated on Slide 4 of the earnings presentation. Our strong execution around our core business is reflected in the strength of key indicators we recorded this quarter, including a 7% increase in revenue, a 7% increase in IMAX Global box office to a quarterly record of $364.9 million and a 5% increase year-to-date. Our commercial network has grown 10% to 1,445 commercial theaters with an increasing presence outside of our primary markets, enhancing our geographic diversification. And our impressive performance in China where we recorded a 29% increase year-over-year in Greater China box office to $130 million, up 41% in renminbi terms versus declines for the industry. This is the eighth consecutive quarter of year-over-year box office growth. Same-store sales growth of 9% in Greater China year-to-date, up 17% in RMB terms have a significant momentum heading into what we believe will be a very strong second half. Spider-Man and Lion King have both generated strong global box office results. Spider-Man was Sony's biggest opening weekend ever, the second biggest Sony IMAX result ever, had passed the $1 billion mark this past weekend behind Skyfall. Furthermore, it was the biggest Spider-Man IMAX box office ever in China, and internationally reflected continued demand for powerful franchises like these. And Lion King is also now expected to cross the $1 billion mark and it just a few weeks after opening. As of this past Sunday, Spider-Man and Lion King have generated $110 million in box office for IMAX, kicking off a strong start to the third quarter. And remember, $11 million in Spider-Man was captured in quarter 2. These films will be followed by what we believe is a powerful slate of movies, ahead including Hobbs & Shaw, It: Chapter 2, Joker, Terminator: Dark Fate, Frozen II, Jumanji: The Next Level and Star Wars Episode IX. In summary, we believe that we are very well-positioned for growth in the coming quarters and years ahead because of our unique position in the entertainment ecosystem, the superior end-to-end solution which we leverage to eventicize contact -- content and create the IMAX Experience we offer to consumers and partners, the significant growth opportunities to have emphasized alternative content. Our China business is delivering significantly improved performance, our expanding global network and of course, our dedicated employees all around the world who make this all this happen. These are the key attributes of our model and drivers of growth. So let me update you on where we stand with each. First, let's talk about our unique position in the ecosystem as illustrated on Slide 5. IMAX's powerful position in the entertainment industry is driven by our ability to deliver unique value throughout the ecosystem to consumers, studios, filmmakers, exhibitors and more recently, streaming services. Consumers continue to show increasing demand for the IMAX Experience as they to seek out big, communal experiences and opportunities to share in cultural moments, which I will discuss in more detail later. Those opportunities to come together are often blockbuster films and Avengers, now the highest grossing film of all time is a perfect example of consumer seeing IMAX as the go-to place for event films. For studios, we are first choice partner. We are the mark of a must-see film and studios rely on us to eventicize their releases. Consolidation among content providers will only fuel this trend as a focus on franchise temples and IP intensifies benefiting the IMAX model. Remember, our core market is not the overall box office, our core market is the market for blockbusters with approximately 65% of market in the U.S. up from 54% in 2010 and we expect this market to continue to grow based on how Hollywood is structured. With filmmakers, our deep-created relationships fuel our business with increasing number of the world's best filmmakers choosing IMAX cameras to bring their creative visions to life. From Anthony and Joe Russo with the most recent Avengers, to Christopher Nolan, who is currently filming his highly anticipated epic, Tenet, entirely with IMAX cameras. Next year's James Bond, and Wonder Woman are currently shooting with IMAX film cameras. Our consistent, unique value proposition is reflected in the higher indexing on film shot with IMAX DNA. So we're very pleased, our cameras are being used in many of the biggest releases scheduled for 2020. Top Gun: Maverick is also slated for 2020 and expect to be filmed using IMAX certified digital cameras. Marvel recently announced that they will be releasing Black Widow and Eternals in 2020, and we'll also have the carry over benefit of Star Wars into the first few months of 2020. Exhibitors recognize the value we add, which translates into healthy ticket premiums they charge. The premium is supported by our ability to punch far above our weight class. With Avengers in China, for instance, IMAX theaters were only 1% of the available screens but we delivered 13% of the overall box office. We're also experimenting with alternative content through our exhibitor partners to increase the theater utilization, particularly, off-peak and non-blockbuster periods. For example, we recently partnered with Netflix to debut Anima by director Paul Thomas Anderson and Radiohead front man, Thom Yorke. We also collaborated with Live from the Artists Den screen a theatrical experience capturing Soundgarden's famed 2013 performance at The Wiltern in Los Angeles. And we recently announced that visionary filmmaker, Spike Jonze, as our first ever Artist-in-Residence for IMAX Entertainment, a role in which he'll help us identify and shape new experiences across our network. We are continuing to explore different avenues but we see these events as a clear indicator of the potential from alternative content and increasing demand for at-home film experiences that meet our customers increasing desire to enjoy communal experiences at IMAX. Finally, we believe the emergence of streaming services will ultimately reinforce the importance of theaters as premium spaces for big communal experiences where people can enjoy content engineered for the IMAX screen. Continuing on Slide 5, let's turn to how we leverage technology to create the IMAX Experience we offer consumers and partners. Our end-to-end technology solution empowers creators and drives the commercial prospects for their work. As previously mentioned, we are seeing growing demand from filmmakers to use IMAX cameras. To meet this growing demand from the creative community, we're developing a new initiative to enable even more filmmakers to shoot IMAX expanded aspect ratio scenes in conjunction with our proprietary postproduction technology. And to support our drive for more IMAX DNA and films, and we're continuing to build on our award-winning films to the fullest brand campaign we launched last year. The response from studios, exhibitors and fans around the world to the IMAX campaign and design system has been fantastic. We're developing even more custom campaigns with our partners that further differentiate the IMAX brand to a broader movie-going audience and extend our leadership position in the market. On Slide 6, as referenced earlier, we're seeing increased demand for out-of-home experiences that meet our customers increasing desire to enjoy communal experiences in IMAX. A proved point to this trend is the fact that we've experienced economy as expanding with global spending on experience set to rise to $18 trillion to $8 trillion by 2030. 4 out of 5 millennials say attending live events, made them feel more connected to other people, the community and the world. And 3 out of 4 millennials would rather spend money on a desirable experience. This is rather a tangible thing. This is why we believe our consumers are seeking out big communal experiences and opportunities to share in cultural moments. Next, I would like to update you on our China business on Slide 7 where we have seen significantly increased performance. The strategic actions we took in 2017 are continuing to pay off as you can see on this slide. We are very pleased with the record performance in China where we are the premium offering and the destination for blockbusters, which have grown to 54% of the market for 2018, up from just 32% of the market in 2016. And China opening weekend indexing is averaging 12% year-to-date on Hollywood films, up from 10% in 2018 and from 9% in 2017. Our integration into the Chinese entertainment ecosystem has only been enhanced from our strategic relationship met with Maoyan, China's largest Internet-based entertainment platform. And now Maoyan has deepened their strategic alliance with Tencent, 1 of the 3 internet giants in China. We expect that this alliance will only further enhance our growth in the entertainment industry in China. Ne Zha, our first local language animated film based on the iconic Chinese legend, generated $8 million during its opening weekend -- this past weekend setting a new IMAX record for the best opening weekend of all animated films released in China, surpassing the Despicable Me 3. We indexed at approximately 8%, surpassing previous animated films and we view this as another prove point and our further penetration of the local market. Our goal has been to achieve a leadership position in China while maximizing revenue and doing it in the most capital efficient way. Based on the trailing 12 months, the ROIC on JV screens in China was in excess of 20%. Most companies will be happy to print this level of returns all day long for investors, which is why the long-term story for China is so compelling. Lastly, with regards to trade issues with China, we believe that the Chinese government has no desire to hurt foot traffic to malls where Chinese IMAX theaters are primarily located. So we are optimistic that it will not be any impact on Hollywood content at this time. In fact, Hollywood content has been receiving more optimal release dates as shown by the release of adventures, Spider-Man and Lion King in China before other worldwide territories. The core of our multiyear growth story is our expanding global network as shown on Slide 8. We had a number of significant signings in the last month, including a 40-theater deal with CGV in China and a 15-theater deal with Cineworld for Regal locations throughout the United States. Our deal with CGV is our largest deal in China since 2017. And as a reminder, CGV is our third largest exhibitor partner globally by number of systems and our second largest client in China. We have structured these deals to ensure we are driving profitable growth to the company. The CGV deal, for example, is primarily focused on Tier 1 and Tier 2 markets under the joint venture revenue sharing model. And Tier 3 to 5 markets are under a hybrid model requiring no capital commitment from IMAX with significantly derisk the theaters for those -- in those markets. Lastly, the deal has a significant endorser of IMAX with Laser in China, which we believe will spur other players in China to upgrade to laser and should help the box office as well. This Cineworld deal will significantly grow our footprint of IMAX with Laser systems in the most successful Regal theaters in the United States The demand for IMAX systems by exhibitors outside of our primary markets represented 20% of our commercial network growth year-over-year, reflecting our ongoing geographic diversification. We also signed several deals in Japan and the Middle East, both attractive markets with strong growth prospects. Furthermore, we are very pleased that exhibitors are voting with their wallets and installing IMAX with Laser as was the case with 14 installations this quarter. On Slide 9, we highlight the cost discipline that we have exercised since we initiated our restructuring program 2 years ago. We have been able to achieve a reduction in operating expenses of 8% since then while investing in information technology systems and marketing to build our brand, differentiate the IMAX Experience and drive box office growth. All the while, growing our commercial network 25% to 1,445 commercial theaters. Lastly, on Slide 10, we highlight the key attributes of our business, which will drive our future growth and we look forward to updating you on our progress in each area. The momentum that we have established last year has continued to build, and we delivered a very solid first half of the year. We are moving strength -- from strength-to-strength with a strong slate of films for the remainder of the summer and rest of the year. The slate for 2020 is still developing but based on the movies expected, we believe it will be a solid slate with at least big 3 films shot with IMAX cameras. We are driving a greater demand for the IMAX Experience throughout the entertainment ecosystem with the powerful technology and brand that are uniquely positioned to deliver value for creators and consumers, studios and distributors. We are a global company and we believe that the trends that we are seeing in the industry as it transforms are tailwinds for us. We believe that the foundation has been set for continued strong financial performance reflected in our improving revenue generation, margin profile and return metrics. With that, I'd like to now pass the call to Patrick for review -- a review of our financial results. Patrick?

Thank you, Rich, and good afternoon, everyone. I am pleased to share our second quarter and first half results with you today, which continue to reflect the benefit of the strategic actions taken over the last 2 years designed to unlock the earnings power of the franchise. For today, I will begin with comments on first, our IMAX global box office and the positive momentum moving into our expectations of the strong back half of the year. Second, our continued network expansion with the increasing growth outside of our primary markets. Third, our financial results for the quarter and our strong balance sheet. And finally, I will close the guidance for the full year 2019. Before I begin, as part of our ongoing drive to increase transparency and provide incremental insights into power-grow model, we expanded disclosures in our earnings call deck. We welcome your feedback on this new approach. With that, let's start with our IMAX global box office, details on slide 12 of our earnings presentation. In the quarter, we delivered $365 million of IMAX global box office, $22 million or 7% above the strong film slate in 2Q last year. Avengers generate $208 million of the $365 million in the quarter. Year-to-date second quarter, IMAX global box office was $621 million is 5% above the prior year. Box office growth continues into July pick up with the strong performance of Spider-Man and Lion King. Now let's turn to our network expansion detailed on slide 13. We exited second quarter 2019 with backlog of 612 systems reflecting our ability to replenish our systems pipeline with new signings after a robust year of installs. We averaged approximately 140 to 150 new installations annually, it pays to provide excellent visibility into our revenue installations over the next few years. Turning to the second quarter, our sales team delivered 73 signings, including 19 upgrades. We installed 27 new IMAX systems in the second quarter and upgraded 8 systems. New installs consisted of 9 sales-type, 13 JVs and 5 hybrids. Now let's turn to our financial results on Slide 14. Total revenue in the second quarter is $105 million, an increase of $6 million or 7% compared to the prior year, driven principally by strong top line growth in our network and theater business as well as higher revenue in the other category, partially offset by lower new business revenue. We generated $60 million of gross profit, a decrease of $1 million, which resulted in a gross margin of 57% down from 61% in the prior-year period. I will address the slight decline in gross profit in a moment as I review segment performance. Operating expenses, which we define as SG&A excluding stock compensation plus R&D were $27 million versus $30 million last year, a decrease of $3 million or 11% driven principally by lower R&D expense. Net income attributable to common shareholders for the quarter was $11 million or $0.19 per share compared to $8 million or $0.12 per share while adjusted net income was $20 million or $0.32 per share, up slightly from prior year levels. Adjusted EBITDA for the quarter came in at $41 million, up 5% compared to prior year producing adjusted EBITDA margins of 44% compared to 43% in the prior year. Now drilling into our segment performance. In our network business, revenue growth of 6% was driven by a 7% increase in box office, including a 29% increase in China, a 10% increase in our commercial network and an additional 5 new films released this quarter. This growth was mostly offset by higher cost of revenues principally due to higher contractual partners marketing costs driven by the strong performance of Avengers and the increased number of films released. We believe that the higher contractual marketing cost relative to the incremental revenue generated by the success of Avengers and the deepening of our relationships with our studio clients are dollars well spent. Revenue growth of 13% in our Theater business resulted from the benefit of 3 additional hybrids in the current quarter as well as an STL upgrade to IMAX with Laser. And higher maintenance revenue on an expanded global network. Cost of revenues in the theater business increased due to the mix of systems installed in the quarter compared to last year as well as higher engineering support cost to ensure the successful rollout of IMAX with Laser. Average revenue per new theater systems was $1.3 million compared to $1.2 million in Q2 of 2018. New business margin decreased year-over-year due to 2018, including receipt of a onetime payment of $2.6 million related to our discontinued virtual reality initiative. Now let's turn to capital liquidity on Slide 15. We ended the quarter with $106 million in cash of which $65 million is in the PRC. In terms of capital in China, we received approximately $5 million in cash dividends from China for the 6 months ended June 30, 2019. And IMAX China repurchased 7 million shares year-to-date for a total of $17 million, which increases our share of earnings. We are always examining ways to enhance capital efficiency between corp and IMAX China. We have $25 million in debt outstanding from our revolver compared to $60 million at the end of the first quarter. So we have total available liquidity of $382 million providing financial flexibility. In the quarter, we opportunistically repurchased 88,000 shares at an average price of $19.45 for a total of approximately $2 million spent. $81 million of capacity remains on the outstanding repurchase authorization. Lastly, on Slide 16, we have our full year guidance for 2019. At the box office, we're off to the fast start to the second half of the year. And through yesterday, our July performance is up approximately 50% versus last year. For the third quarter, we expect 13 sales-type installations, 4 hybrids, and 13 JVs. Our annualized first half operating expenses are a little light relative to our full year guidance, primarily related to the timing of various marketing initiatives moving to the back half of the year. We expect these cost to be evenly split between the third and fourth quarter. In summary, we're pleased with our results for the quarter and encouraged by the momentum moving into our expectations for a strong second half of 2019. The investments we have made in our global brand, our end-to-end technology solution, our positioning in the ecosystem of the entertainment industry and our network are all beginning to pay dividends. And we believe that they have set the foundation for strong growth in the quarters and years ahead. I would now like to open the call for questions and answers.

[Operator Instructions] Thank you. And we actually do have our first question from Eric Handler of MKM Partners. Please go ahead, sir.

Thank you very much. Patrick, couple of questions for you. So you've done a great job of keeping operating expenses flat this year, they were a bit down last couple of years. As we look out over the next 2, 3 years, like how well do you think -- or to what degree will these costs start rising? Or can you keep them flat? Or maybe even there's some more cost cutting to go that could have them go lower?

Thanks for the question, Eric. I think the good news is, the work we did in 2017 took hold and we were able to change the approach and change a little bit of the culture. And that's what let us to hold expenses flat over the last couple of years. The way that we've done it is a combination of looking at existing expenses and working them down, and then also the reallocation of resources. We talked a lot about the fact that we have increased spending meaningfully in marketing. We have funded that by making sure that we're disciplined in other parts of the business. And also the recognition that we spent the money we needed to do on commercial laser. And so we were able to downsize our R&D efforts for a period of time. On the go forward basis, we're on the same approach. Our goal is to manage the expenses tightly. There is a course cost fee in different parts of the business but what we do is to look for ways to offset that with efficiencies and savings. So to add more clarity, at the end of the year, once we've been through the budget process, but our approach is to try to keep those expenses are under as much as control as possible.

Great. And then just as a follow up, with more hybrids in the mix seemingly than JVs, at least on the long-term basis, how -- should there be any meaningful impact on your overall CapEx, meaning the core CapEx plus your own JV investments? How should that be trending over the next few years?

Well, we talked about the fact that we're installing something like 140, 150 new systems per year. We're now deep into the upgrade cycle of commercial laser. And if some of those deals are -- do come with capital investment. And so I don't expect it will be a big change in terms of growth of the network CapEx for the next couple of years. Over time, some of the hybrids that are going into the backlog now start to come out of backlog, it will start to switch over and we'll see a little bit of less CapEx. But I think about the next couple of years, I think the pace that we've been at is the right way to think about it.

Okay. And then one last quick one for Rich. Rich, wonder if you could talk about in China, the current environment for a locally produced films, are we starting to see increased production or is there still some fears about government and tax evasion and some of those issues that have been going on?

I have been told, Eric, that those issues are behind the industry there. And I think you'll see that normalize over the next couple of months. And in fact, I think this month, we have 3 or 4 local produced films playing in China. So I think that period has passed. And again, hopefully, this recent weekends' movie, which opened and you look at the box office, hopefully a lot of that pent-up demand will be met for the remainder of the year.

We have our next question from Eric Wold [B. Riley] Please go ahead.

Thanks. A couple of questions. I guess one, if you think about China, you have to think about the terms of the 40-theater deal you did with CGV a couple of weeks ago and kind of following on Andrew's question here on current trends towards more hybrids especially you look into those Tier 3, 4, and 5 cities in China. Is that become more of the trend in the box office generally by the systems essentially gravy since there's no capital risk. Does that make -- PSA less meaningful in that region other than the following trend? How should we think about ROI coming out of that shipment strategy?

Yes. Absolutely. Eric, we have been saying the last couple of years that PSA is a less meaningful. And remember, you not only get the royalty from CGV or whoever did the hybrid deal. We'll also get paid on the other side by the studios. So it's not only kind of gravy, as you put it, because there's no capital investment. But you get a return on that no capital. So when you look at ROI, on overall enterprise basis, it should go up as that percentage goes up.

And I noticed you reported same-store sales yearly from China. Should we expect kind of going forward since your sales for the 3 main regions kind of give a better sense of how those trends are going?

Eric, predicting movies into the future, and you know this better than anyone because you've around a long time, is a dangerous business. In China, the reason we pulled it out is because as you know, same-store sales have been under pressure there for long time. And I think the turnaround in that for us was more an indicator that the China situation had really changed. Related to your last question, I think we analyzed these deals based on return on invested capital rather than same-store sales. But I personally think of all the statistics we had in China about our turnaround that may have been the most significant ones.

Okay. And then with Regal kind of officially launching its subscription service and confirming kind of terms of with the main difference related to IMAX being Regaled, we'll charge an upcharge for IMAX where AMC did not -- from what you have seen so far, how do you think about consumer behavior under both scenarios? Does someone give the IMAX upcharge as somewhat immaterial given the base ticket is now covered by the subscription? Or did you elevate it, high given that otherwise the ticket will be free, why pay for something on top of it?

So the good news is, there's a lot of experience in Europe, and a number of change including Odeon and Cineworld have a -- some of them have been doing this for more than a decade. And it seems to be a positive and it does not seem to be an impediment. As a matter of fact, in some of my discussions with some of the European operators, they think people already have a sunk cost in a subscription plan and it's only a small premium. So they go. And the same thing seems to be holding true. This is subject to similar Cinemarks plan, which runs very much the same way. So I really don't think it will be an impediment. And of course, in the long run, the question is, not only what creates better attendance for us but what creates better return on investment for the exhibitors. And I think they've been very happy with what they done in Europe for a long time. So we think it's a solid plan.

Perfect. And a quick one for Patrick. How many films were included in the overall cost in the quarter?

It is -- I would say 15. Yes, 15. 15 per year.

[Operator Instructions] Our next question comes from Steven Frankel [Dougherty]

Rich, I wonder if you might give us some insight into what's happening with your ticket prices in China on a year-over-year basis.

So I don't have it on a year-over-year basis. I broke it out. But anecdotally, I do know that's in the major blockbuster films, it's been higher. And in fact, one of the surprising results of some of the movies like Avengers, is that it was almost 2x higher and without a significant drop off in attendance. So it seems somewhat in the elastic which has been really good, I think for a premium experience, they're really willing on to pay up. I think that's partly contributed from the jump in index and where we said in 2016, it was like 8%. And this year, it's like around 12%, which is 50% increase in indexing. And I think price has played a part on it. And I'm quite sure that's accurate but I don't have it broken down specifically for USD.

But with the overall box office in China not growing, that might not necessarily the same price dynamic might not be happening in standard tickets or other non-blockbuster films. Is that to split the revenues?

Yes. I think that's part of it. I think -- again, back to a lot of the theme of this call, people are willing to pay a premium after something's that's been treated by the IMAX technology end-to-end solution. We eventicize experience. And that's certainly playing out in China. That's part of the dynamic and there's no question that the same kind of any last destiny that we're seeing is not a trend across all markets. I mean, we're in a different business than they are. We are in the blockbuster business. We use technology, we're on top rest of things. We're a place for social experience. We're a status brand, I mean, it's all kinds of things. So all of those things have contributed to consumers wanting to spend more.

Okay. And building on the discussion of hybrids from earlier, if you look to expand further in the markets like India and Japan, do you now think about tweaking the model for hybrid first rather than JV?

Well, it depends. I would say definitely in not because the performance of the theaters in Japan is extraordinary. As a matter of fact, we just opened 1 about a week or 2 ago. And it's first day, it did $53,000. And at its first weekend, it did $150,000. So they wanted to joint venture a theater like that, we'd be open to that all the time. And in fact, the performance of the Japan theaters are among the best in the world. In terms of a place like India, again, it depends on the markets and the locations that comparable to a first-year city. And India, we have been doing very well, our performance is very strong. We'd be happy to JV and if it's more of an unproven market, I think a hybrid would be more attractive. So I think the principle is the same that it depends on the risk/reward group, which model is better for us.

Our next question comes from Alexia Quadrani.

Just on the IMAX Laser product, where has it been rolled out? Have you done any sort of fan or consumer research or surveys in the potential reaction for the affinity for the IMAX brand that comes with that format? I was curious if you have any feedback on that. And then just a follow-up on your -- I think you touched upon your talks with the streaming service providers using IMAX as part of the exhibition run. If I still planning on -- any comment on that? Any further color on that? Are you still planning on sort of screening the Amazon film, even though they have, I think, a new release date and possible shortest theatrical window?

So we haven't done scientifically valid surveys on the places we put laser because it's very early. But we've done exit surveys and the consumer reactions have been very positive. On your second question about the Amazon film, for those who are aware, Amazon has decided to release on -- streaming only 2 weeks after a limited theatrical release. And as we've always said, when a streamer rapid comports with the windowing, we're very interested, but when it doesn't, we're not a part of it. So we don't be -- we don't expect to be a part of that release.

Our next question comes from Chad Beynon [Macquarie]

Rich, you mentioned that in 2020, there will be 3 films with IMAX DNA, and given the studios and your financial success with these films, how are you thinking about their run time for these? Is second week of an IMAX DNA film still higher PSA than kind of an average one?

So as I said, there are at least 3 next year, a Bond, Wonder Woman 2 and Tenet, Chris Nolan's movie. Although, I think with our new camera program, which I talked about a little bit about, which is certifying digital cameras, there's likely even more films with IMAX cameras. And Megan and the film team has been meeting with all the different studios and going through the benefits of using IMAX DNA and trying to sell it as a whole package. And with that package, if someone commits to use the cameras, generally comes a longer running time because we index better when the cameras are used. We want to incentivize the filmmakers and studios to do that on one of the offset is longer playing time. But it still -- whether it's 2 weeks or 3 weeks, depends on the movie, time of year, what else is out there, the economic projections that we put together. So I think you should assume there will be more than a week, but it's going to be situational-dependent on how much more.

Okay. And then Patrick, on capital allocation I believe you talked about your first priority always being investing in the business and new units. You did repurchase $1.5 million or $2 million worth of stock in the quarter. But there's still a lot of left on that plan. How should we think about kind of where you are in terms of cash that's earmarked for other items in the back half of 2019? And maybe and beyond or maybe getting a bit more aggressive with repurchasing stock at these valuation levels?

There's a not change about how we think about this. As you said, first priority is making sure that we're investing to drive profitable growth in the network where we see opportunities and we'll continue to do that. Alongside that, we're investing in making changes to the business on the IT side and to make sure that we're evolving and again to the best possible cost structure. We always want to have liquidity available to expend some project pops-up that we need to take a look at. And then after that, we conclude that we have excess cash and we see an opportunity in terms of the stock price. And that's where we're opportunistic in stepping into the market. And so you see that approach from us in the past, that's what you'll continue to see.

Our next question comes from Jim Goss [Barrington Research]

Aside from the CGV deal and the Cineworld Regal deal, a lot of the incremental theaters have been fairly scattered among various markets. I'm wondering, Rich, if you're intending to intensify concentration in any particular market you talked about Japan, Latin America, India in the past. And if so, how would you drive in that sort of approach?

We actually view, Jim, intend to concentrate on more -- on specific market. So we -- as a policy, we have decided not to break out along single-theater signings. But this year, if my recollection is right, we signed 11 theaters in Japan, which is the largest number if you have done in any part of year. And that's an example of a market we are targeting because the performance is so strong. Other ones that we're going to spend more time on include the Middle East, it includes India whether theaters are performing extremely well, on some countries in Europe, like Germany, for example, which is doing extremely well. Korea is a market is that is very strong, a performance that we're focusing on. There might be some others, Jim. But what we're doing is allocating a little bit more resource to those places.

Okay. And one other thing, we've talked over the years about the screen splitting notion in the U.S. in particular. And it's been a little easier to do in some of the international markets. I am wondering with Disney's addition of Fox, which might give it more of a mix of some acted like live-action movies in addition to the animated and the Marvel-sort-of-features, if there is any greater opportunity to do screen spitting with Disney not being offended that you would move to another studio because they can have a lot of it all within the same studio, and say, that can maybe break out this notion of a little bit more in the U.S.?

So Jim, I don't completely follow the question. But in general, if it's the same studio, they're more open to screen splitting. So Disney has back to back to films, and you committed 2 weeks to 1 and 1 week to the other, I think they're more open to sharing that nearly [one] side, whether it's the same studio. And we've done that with a number of studios. But I think the idea of sharing with another studio is more difficult, particularly as you see in your question in North America, that's more common practice internationally.

Okay. I guess I was just thinking with Disney having a broader palette now with Fox in addition to all other things. You gave them more of an opportunity to have that sort of thing to take place. But it would seems like it's easier to do within studio rather than with another studio involved.

Our next question comes from Vasily Karasyov.

I think my question both for Rich and Patrick. Looking back at the first half of the year, the box office work and we see that, that it's primarily -- not primarily, driven by China. And then Rich, in your prepared remarks, you said that China in local currency is not growing and they think in dollars, it's barely growing. So your growth is driven by very significant market share gains. And my math is assuming that you haven't had the sale of the total box office since 2015. So if we take that and then look at 2020, for you to continue growing, so you have the need to see the Chinese market to return to growth or continue this market share gains and go beyond any historical level. So I wonder how you guys think about that. I'm not asking for guidance for 2020, but just puts and takes what kind of trends you see building that can carry into the next year?

I mean, if you look at our index, which went from 8% in 2016 to over 12% this year on a fairly consistent basis, and it's not even from what we do on our screens, but still 1% of the screens. So it's been very significant, and you look at price increases, which we talk about recently. And I think there are lots of ways you can grow. You can grow our price, you can grow our market share. As you know, we went to a different programming strategy in the last couple of years, when we program multiple Chinese films at the same time. There is 2D, 3D strategies. So I think there is a lot of ways you can sustain your growth. Without necessarily having to predict the external box office. The other thing I would add and one thing pretty special about this year is as you know, and someone asked, the number of local films in the first half of this year was down and it's going to return to normal. So think there is a lot of ways that we can do better. You want to add anything?

On the local films, now what you see is that we're doing much better in terms of our indexing, our market share on local language films. And we think that's a result of our films selection strategy that gives us optionality and also much better marketing. And so as local films revamp, and they will, second half of this year into next year, we will continue to focus on that nature, we keep that market share and we can grow with the growing local market.

Yes. And I will also add to that, that the Chinese box office overall is approaching the U.S. box office. So there's going to be more production. You look at some of the experience this year, Wandering Earth, their first sci-fi film -- I understand there is another sci-fi film that's going to be released soon. So there's different genres, more genres that play to the IMAX consumer happening. So there's just a lot of opportunity.

Operator, is there another question?

There are no further questions at this time. [Operator Instructions] It doesn't appear we have any further questions at this time. I would like to hand the call back over to Mr. Gelfond for any additional or closing remarks. Thank you.

Thanks. As you can see from our results, we're fighting it all cylinders and that is translated into solid second quarter and first half results. The environment in which we operate is transforming, but we believe that all the trends and emerging from various destructive forces from seeking to work with extremists with more content to eventicize their offerings to consolidation among content generators, there are a lot of tailwinds for our business. The human need for communal experiences where people can connect with others is not going away and I would argue with all the offerings in the home is intensified. Lastly, as you can see on Slide 17, the key drivers of our business model are the expansion of our valuable network, growth in box office and disciplined cost management, which we believe will drive significant shareholder valuation over the long run. Thank you so much for your time and interest. And we look forward to updating you again next quarter on our progress. Good evening.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.+