Good day, and welcome to the IMAX Third Quarter 2019 Earnings Conference Call. [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. Sir, please go ahead.

Thank you, Cady. Good morning and thank you for joining us on today's third 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 joining us today. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our third quarter earnings press 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 the questions on this call, as well as the accompanying 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 non-GAAP financial measures including adjusted net income, adjusted EPS and adjusted EBITDA as defined by our credit facility are contained in this morning's press release. With that, let me now turn the call over to Mr. Rich Gelfond. Rich?

Thank you, Steve and good morning everyone. Thanks to our continued focus on execution. IMAX again delivered a strong financial performance in third quarter with results that demonstrate the inherent operating leverage in our model. On Slide 4, we have the highlights for the quarter, which include 19% growth in global box office, as we outpace the industry of the dynamic portfolio of Hollywood blockbusters of Spider-Man, Fall From Home, Lion King, Hobbs & Shaw and local language hits, like the Chinese animated smash, Ne Zha and Weathering with You in Japan. 9% growth in our commercial theatre network as we continue to diversify our global footprint, 5% growth in revenue, 26% growth in adjusted EBITDA, reflecting our ongoing cost discipline and a 50% increase in adjusted earnings per share. We are on track for a strong fourth quarter to tap off our record breaking year. As we look ahead to a 2020 slate, which features more blockbusters than ever filmed in IMAX. With a strong momentum in our core business, we continue to spark new opportunities for growth, including IMAX enhance our strategic initiative to capitalize on demand for IMAX content in the home theatre experimentation with new content and experiences to drive increase utilization across our network. On Slide 5, the IMAX ecosystem you'll see our continued ability to deliver impressive results of the unique privileged position we built in this ecosystem. Consumers seek out the IMAX experience for immersive blockbuster entertainment, with its audiences turning out at record numbers for Joker, Chinese movie goers driving best ever box office over the national holiday where music fans around the world seeking out our recent project with Kanye West. Studios value IMAX’s the mark of our must see film and a powerful partner in marketing and driving box office…

Thank you, Rich. Good morning everyone. I'm pleased to share our third quarter results with you today, which reflects our continued execution and the inherent operating leverage in our model. With a 5% growth in revenue and continued cost discipline driving a 26% increase in adjusted EBITDA and a 50% increase in adjusted EPS. For today's call. Let's begin with our review of our box office performance followed by an update on installations in the quarter as well as a review of signings and backlogs. Then we will discuss our financial results for the quarter and our balance sheet. Finally, we will close guidance for the fourth quarter and full year 2019. Let's start with our IMAX global box office detailed on Slide 10 of the earnings presentation. In the quarter, we delivered 246 million in IMAX global box office representing a 40 million or 19% increase and clearly illustrating the geographic diversification of our global network. A 40% increase in international box office excluding China led the year-over-year growth as well as a 23% increase in domestic box office. Slightly lower box office in Greater China, which was down 2% was driven by a slower September in advance of the national holiday. We had only two films, one of which was a documentary. October box office rebounded driven by our strong performance during the national holiday in China. Turning to Slide 11, year-to-date through September IMAX global box office of $867 million exceeds the prior year by 9% and we expect a strong fourth quarter. Strong performance throughout our global network contribute to the year-to-date box office growth including Greater China, up 27% local currency or 17% U.S. dollars and other international growth up 14%. Specifically, we delivered attractive growth in Asia Pacific where Japan was up 26%, Europe…

[Operator Instructions] Our first question will come from Eric Handler with MKM Partners.

Couple of quick things, I guess Patrick one, can you maybe talk about why you're sort of looking at the low end of your new system install range. Is this just a timing issue with new theatres being built or is there something other going on. And then I'll have a follow-up question after this?

So, Eric, I'm going to answer that. There's absolutely nothing going on. The bottom end of the range on that was related primarily to one client who has historically exceeded its annual rollout commitments, but this year was in line with its commitments. So at the beginning of the year, when we give guidance, we looked at what they did in prior years, and they exceeded it and this year, they met it. But for next year, they're online for more installs and it certainly a one-off situation.

And then Rich I wonder if you could provide just a little color of some of the things going on in China with your ticketing partnership that you have with [Molly on] and how your market share is looking now that for the local films versus the Hollywood films?

As you know, we're having an extremely good year in China and on the local currency basis we're up almost 30% in box office. We changed our programming strategy, where we’re programming multiple Chinese films around the holiday times of year, as we mentioned in October for the national holiday we were up 160% from where we were last year. Ticket prices are strong in China. The local language films , as s I mentioned in the call, we're over $100 million this year for the first time, and it's a record for us. So China, I would say, it's a very good quarter in a lot of ways, as you know, but the year-to-date, China's probably the brightest spot on a year-over-year basis in IMAX overall, it's going very well.

And then - one of the things within that the - how you're seeing the differential between your market share for the local language films versus the market share for the Hollywood films?

Yes. I mean I don't have the exact number but it’s up significantly, the local language number do you know it off hand, Patrick.

Well just - if you think about our business being up close to 30% in total box office and in the market right now in China is up about 4%. They have very strong New Year so the market has turned positive. But that just tells you that we took a lot of market share this year, right. We're growing at such an accelerated pace. So, and that's both on the local side and the Hollywood. And we attribute it to a number of different things. As Rich mentioned, some of it is better marketing and some of that's with our partner Maoyan; and a lot of it is better film selection, where we've got more optionality. Local language 2019, year-to-date we are now just North of $100 million and we're up 7%.

Our next question comes from Eric Wold with B. Riley.

Kind of a follow-up question to one of Eric's, [for the cameras] install timing. I know, Rich, you mentioned that nothing kind of was behind the, kind of, the shift in mix of installs this year, but that one client kind of going from more in line to exceeding. I guess looking out into 2020, I'm not looking toward kind of the exact guidance in terms of installs, but maybe just a sense of, you obviously have internal scheduling of when they're supposed to come. Has there been any shifts because of original install thoughts for 2020 timing versus what you're seeing now, especially kind of what's been going on within China?

Well, Eric, we haven't really looked at our - we're in the midst of looking at our 2020 budget. So on a preliminary basis, the answer is no. And in fact, in preparation for this call, we kind of scrubbed through the backlog. And I'd say going into 2020, that looks, not in terms of numbers because we haven't done that, but the risk profile looks the same. There's no systemic risks that we see at all.

And just on that backlog, around 600 some systems, I assume it's not evenly spread over the coming years, it's probably more front weighted. Anytime you can give some broad idea of kind of how much of that backlog is maybe within the next couple of years?

Well, we haven't scheduled it out that way Eric. But it's consistent with how the backlog has run off in the past. And what we've said is a fair amount runs off in three years. And again, we haven't scheduled it. But it's the same as it's been. Its no, it's a longer-term. And as a matter of fact, and I don't want to make too much of this, but because Saudi Arabia is a new market that's coming online, has an awful lot of building going on there, some of that is more frontend loaded.

Perfect. And then just finally, I know there is some spending timing around kind of installs and openings. But I guess given your balance sheet flexibility in and kind of the improving cash flow, somewhat surprised that there's only been less than $3 million of buyback here on the, kind of, on the corporate level this year. Any thoughts around why that hasn't been higher in kind of your capital allocation priorities?

I think we've said before, Eric, that we're going to be opportunistic about it. And we have been opportunistic, we have approval to buyback a lot more, as you know. And as you also know, over the last several years, we bought it in hundreds of millions of dollars' worth of stock. So we have the firepower, we have the authorization. When we think it's the right time, we'll do it.

Our next question comes from Alexia Quadrani with JPMorgan

Hi, this is Jiayun Pan on for Alexia. Thanks for taking our question. I would just love to get more color on your slate in China. It seems to be a little more heavy, Hollywood heavy between now and year-end. And what's the outlook for Chinese New Year? Besides Detective Chinatown 3, I believe there's going to be a sequel to Ne Zha or at least that in the same universe. Would love your thoughts on how you might capitalize on the success of the last film?

Well, I'll add to the New Year part of it, and then I'll ask Patrick, maybe to comment on the fourth quarter. But we have three films for Chinese New Year. The only one I remember by name is the one you mentioned, filmed with our cameras. But I think our team is feeling very good about Chinese New Year. And we think we kicked out - again, remember how we kind of pivoted in strategy. We used to choose one and now we try and pick three that are all considered to be contenders for this top place, and we think we've achieved that for New Year's 2020. In terms of the rest of the year, Patrick, I don't have that off hand. I don't know if you could add color to that.

For the balance of the year, we've got the Hollywood titles. In terms of local language, there's a question mark around the title 800, which was originally planned to come out over the summer. And now the expectation, it will come out sometime in the fall. But we don't have a date for that yet. So that could be a big swing factor that does more of the local language. And the next year it does, as Rich mentioned, kickoff with the New Year holiday. And we've got three titles: Detective Chinatown 3, Lost in Russia, and the Rescue. And right now, the market is enthusiastic about all three. And similar to what we've done in other Hollywood periods, we'll have all three available and we'll ride the one that's doing the best in IMAX. So we're optimistic heading into 2020 for the local slate.

Our next question comes from Steven Frankel with Dougherty.

Just a follow-up on this local language theme in China. Given the success here, are you looking to show multiple films in more parts of the year other than the big holiday, blockbuster periods?

Yes, they're available, Steve, sure. And I'm - you also give me an opening a little bit to talk about it in a broader sense. Because the box office in China has been increasing over the years, so materially there's more money in China going in to production, which is higher quality production. And also, they've been exploring new genres such as - which is the one from earth? The one that was highly successful?

Wandering Earth.

Wandering Earth and Ne Zha. So Wandering Earth was sci-fi and Ne Zha is animation. And because they've been so successful, I think they're putting higher budgets and more into different genres; specifically, like sci-fi, which does very well in IMAX. So I think if you look at it structurally and from a little bit longer-term, there'll be more movies going, more high quality movies and more IMAX wheelhouse movies going into production. And I would expect that we would continue to play more of those. And as to your specific question, I think if there are multiple movies same time and they have IMAX potential, we'll play them.

And then Patrick, maybe some insight into how the mix is changing in China towards theaters that would be less capital intensive for you?

Sure. As we've discussed, we're certainly headed in that direction. I think that's even reflected in our most recent large deal that we did with CGV, where it's a mix of partnership deals and also hybrid deals. And what we're doing is, we're looking at each opportunity, each market, each theater, and deciding what the right risk allocation approach is. And so over time, you'll see that our backlog and therefore our mix of installs in China will start to skew more towards the hybrid structures and the sales structures. Previously, when we were signing up these very large deals, it made sense to do those on a portfolio basis and do them with the partnership structures. Now as we continue to grow the network, we're looking at more in a theater-by-theater basis and figuring out what the right solution is for each instance. And so you will see it start to skew towards the sales and the hybrids.

And then on this notion of certifying more cameras; are the cameras that you're certifying, able to reproduce the full aspect ratio of IMAX?

Well, remember, there are different aspect ratios on different theaters, and there are different cameras. But Megan, maybe you want to give some color on our camera program?

Yes. The concept is with - working with, we're identifying the best-in-class cameras that they have. We're identifying it through the blended and an operating system that allows for the full scale and scope of IMAX to be utilized. And it's really to increase the flexibility for film makers, so that they're capable of using the digital camera that they prefer. And that we're working as a concierge service to be able to adapt any camera to our system, so that you're capable of achieving that full aspect ratio. So the answer is, yes.

Our next question comes from Mike Hickey with Benchmark Company. [Operator Instructions]

Just a few. I guess, Rich, it's hopeful, you could update us on your view of some of the pricing schemes, domestic that we're seeing in terms of subscription, discounting and sort of how impactful that then I guess in the business in the quarter, maybe Q4 and beyond?

So as you know, a lot of these programs are new. Regal is only put in place a couple of months ago. But we obviously have done some detailed analysis of them the AMC stuff program, which has been around longer. We've taken a deeper dive into, and we've concluded that it's helped us in terms of revenues and attendance and various matrix. The Regal one, again, we don't have data on, but we've been working with Cineworld in Europe for years with a very similar program and we concluded that spin positive, but I think to the extent any of these plans kind of provide it’s not an exact word, but it's similar to a subsidy or an incentive to go to IMAX. They seem to be working and they seem to be moving people into, the premium category. So early but so far feeling pretty positive.

I guess the next question it's good to hear your enthusiasm for the 20 box office domestic. Obviously, you pointed out a lot of potential blockbusters, but I guess when you look at sort of the size of the individual films, or perhaps that they're not the usual fan boys suspects that you would think of driving the box office in prior years. How do you sort of strategize, I guess your 20 slate given that you may have as many blockbusters, but maybe smaller in size. And I guess, any initial view on what your growth view is for 2020 - for your total box office would be helpful? Thank you.

So in terms of growth units, as I said we're still in our budget process, so I can't do that. But, as we said, I avoided saying that on this call I might as well do it now. We don't correlate to being a North American exhibitor. So we set our growth this year and box office, globally it’s going to be in the low double-digits and that's not where the North American box office is. And I think, a lot of people in the U.S. tend to look at Box Office through a different lens then we do. And as I said, we have at least five films using our cameras in Dunkirk we did 23% of Chris Nolan's last film, and its filming the whole thing and it's some. No I think, that's going to be a very big movie for IMAX, Bond, virtually the whole movie was shot with IMAX cameras. The next Wonder Woman, IMAX cameras, Top Gun, IMAX cameras, China, IMAX cameras as I said during my prepared comments. And in the last more than 10 years, we've had 16 films. And this year we have at least five we said, I think it'll be more than that. I think on those on the blockbusters that are clearly identified, you have a basis for IMAX significantly outperforming. We also have a network growing close to 10% around the world, and that provides a very good basis. You have local language films doing significantly better for us. You have two key high ticket box office markets growing rapidly and coming online, Japan and Saudi Arabia. And when we look at it we have a different view than people looking at North American exhibitors. And I didn't even mention the two Marvels that are coming out next year and the two Pixar and Disney has some big movies including Move On. So we just think the slate is pretty good next year.

Our next question comes from Jim Goss with Barrington Research.

I was wondering and Rich you just mentioned Disney Pixar Marvel. I'm wondering about the concentration of Hollywood power in Disney and now with Disney Fox. And to the extent that you've always been very relationship focused, has that concentration worked to your benefit or – as they've dominated in the blockbuster space and the movie space in general or has that hurt in anyway?

I have to say, mostly positive Jim, because we have such a good relationship with them. We're fully integrated into their leases and their marketing efforts. And I know, you've seen some of the marketing that came out around Endgame and some of the other Disney and Marvel releases. I think the integration of our two organizations, from a box office point of view has been a real positive. But again, that's kind of a headline, I think, especially in 2020. You need to parse through that because of the films we mentioned, that we use in our cameras on, those are all non-Disney films. So I think 2019 you know, Disney really dominated the blockbuster business as you said, they're an important partner with love working with them. But I think this will be a little bit more spread out in 2020. And, that's fine, too. We have a wonderful relationship with Warner Brothers, with Sony, Paramount with Universal. I think, it's good when it works, but we're not tied to them.

And I know there still a comment that upgrade IMAX with laser was sort of running a bit higher relative to new installs. And I am wondering if you could talk about the value of laser. Is it more in terms of cost, quality and therefore demand for seeing films at the IMAX and the IMAX screens are there specific issues that are driving that continue to rollout?

I think it's mostly differentiation Jim, it provides more of a differentiation from their regular screens and the PLF. And we done some early work on it and again, I underline the word early. But from the research we've done, there is an uptick in box office at the theatres versus the DNA in those theatres that have converted to laser. And I think there is to be more there. And one reason there could be more, as we haven't really marketed heavily around the ways that we've kind of left word of mouth and the image speak for itself. And going forward, starting in 2020, we’ll be marketing a little bit more aggressively around laser. And so I think, like you would expect, ultimately it comes down to that differentiation, leading to abundant seeds.

And finally over the years, you've tinkered with optimizing the nature of your film schedule, and you have seemed to converge to say no more than one or two weeks per title unless it's something unusual perhaps Star Wars. I'm wondering and I think the DMR costs have gone down as it's been used Marci compared a fast turnaround. So I'm wondering, are you happy with how things are working at this stage. And I've asked probably over the years about the notion of split screen, when you do have only one week say with that week's blockbuster, is there anymore inclination or receptivity to doing something like that either in terms of the screens or to the screens during the week, as time has gone on?

So to your first question, Jim about are we happy with the way kind of the slate has fallen. The answer is yes. We've used our position in the ecosystem and our relationships with filmmakers and studios to try and optimize the schedule for us. One asterisk on that would be people who film with our cameras, where we over index. I think that's where we're going to try and carve out more screen time for them. So historically with Chris Nolan's films, we've done that. And I think as there are more films, film with our cameras, you'll see us protect those filmmakers more both for relationship reasons and as we believe it will be in our economic interests. In terms of split screens, we've done more of that internationally than we have in the past. And it's worked out pretty well for us, especially a couple of films that are more likely play to PG kind of audience. You run that in the daytime and more than our movie later in the day. I think in the U.S., there is still a resistance to that by the studios. So, we would certainly be open to doing more of that, but that's not really the model. They're following I think another thing you might see is more carve outs for us. So as our worldwide network continues to get bigger, and we probably can carve out a certain number of screens to show something else and particularly on the second week and we think that fine tuning might help grow the box office.

[Operator Instructions] I am currently showing no further questions in the queue. I'll now like to turn it back over to IMAX for closing remarks.

Thank you, operator, and thank you all for listening in on our call. As you know, we delivered a very solid quarter. We sort of promised that we would control costs over the last couple of years and I think we've done a very good job doing that. I think with the box office increase and the revenue increase, you've seen more of that slow down to the bottom line. We think this year is going to turn out to be a record year for us with the fourth quarter coming up capital off by Star Wars and 2020 particularly because of the IMAX Cameras and the IMAX DNA and the growth in the network we feel very good about where we're going. We're experimenting with a few newer ideas and IMAX Enhanced and trying to emphasize different contents. The early results there are quite positive. So we think the business going very well and we thank all of you for your support.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.