IMAX Corporation (IMAX) Q2 2024 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Second Quarter 2024 IMAX Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Horsley, Head of Investor Relations for IMAX. Please go ahead.

Good morning and thank you for joining us for IMAX's Q2 2024 earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer and Natasha Fernandes, our Chief Financial Officer. Rob Lister, Chief Legal Officer, is 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 earnings press release and the slide presentation have been posted on the Investor Relations section of our site. Our historical Excel model is posted to the website as well. I would like to remind you of the following information regarding forward-looking statements. Today's call, as well as the accompanying slide deck, may include statements that are forward-looking and that pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause our actual future results to not occur or occurrences to differ. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information, future events or otherwise. During today's call, references may be made to certain non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures, as well as the reconciliation to non-GAAP financial measures are contained in this morning's press release and our earnings materials, which are available on the Investor Relations page of our website at imax.com. With that, let me now turn the call over to Mr. Richard Gelfond. Rich?

Thanks, Jennifer and thanks, everyone for joining us today. IMAX powers awe-inspiring experiences. We are a go-to end-to-end technology platform for the world's greatest filmmakers and creators. We deliver the biggest Hollywood and international blockbusters, original documentaries and immersive events at scale worldwide across 90 countries and territories. These attributes have been on full display. IMAX delivered one of the best years in its history in 2023. And while last year's Hollywood strikes dealt the entire entertainment ecosystem a temporary setback, it was just that temporary. Now, with the strikes and the lingering effects of the pandemic firmly behind us, we are in the excellent position to fully realize the benefits of our strong asset light business model. We're on a tear in network growth with both system sales activity and installations. And the slate through '25 and '26 looks as good as we've ever seen. As we predicted, we began to see this pivot back to progress during the second quarter. The record performance of Inside Out 2 led a succession of recent box office hits demonstrating that supply, not demand, depressed the global grosses of the early summer. The third quarter is off to a strong start. Twisters easily beat expectations at local Chinese title successor open bid leading IMAX to a $21 million global weekend. Deadpool & Wolverine is set to continue the trend and deliver a massive opening this weekend. IMAX is commanding a healthy percentage of presales, in line with what we saw for the big debut of Doctor Strange 2, which opened to $33 million in IMAX's global network. And the fourth quarter looks strong with buzz building for Wiccan, Gladiator 2 and Joker 2, which was filmed without cameras and will receive a select run in IMAX film. Furthermore, we continue to strengthen our strategic position. We locked a landmark deal in China with our biggest exhibition partner worldwide Wanda Film. A record of at least 14 releases in 25 are being filmed with IMAX cameras. And we successfully launched our original documentary, The Blue Angels, further diversifying our content portfolio. Several signs in our financial and operating performance demonstrate our growing momentum. Our second quarter financial performance significantly beat consensus estimates across most key financial metrics. We expect to achieve year-over-year growth in installations. On this call, raising the floor of our guidance from 120 installs to 130 new or upgraded systems this year with the high-end remaining at 150. Through the second quarter, we've installed 39 IMAX systems, compared to 29 over the same period in 2023. We've signed agreements for 99 newer upgraded IMAX systems worldwide year-to-date compared to 84 over the same period of '23. And cash from operations climbed to $35 million in the quarter, up significantly year-over-year from $5 million last year. Consistently, IMAX has navigated periods of disruption to deliver strong results. Yet, we know it's not about what we've done, it's about where we're headed. And we believe IMAX is entering a new very productive era with clear catalysts for growth over the next several years. This is a very promising moment for our business and our shareholders. Today, I'd like to offer updates on our global network and then our content slate. Then, I'll hand it over to Natasha before we take questions. On the global network, first, this positive pivot across our business extends to our global network, where both sales activity and installations accelerated during the second quarter. IMAX signed agreements with nine different exhibition partners including four new clients covering priority markets including India, France, Southeast Asia and more recently Saudi Arabia. And ongoing conversations with existing and new exhibition partners around the world are robust. Our deal with Wanda Film spanning up to 123 upgraded new and renewed IMAX system holds significant strategic promise even beyond the 100 of millions at the box office that these locations stand to generate over the next decade. This is our first agreement with Wanda since Tencent-backed Ruyi Holdings acquired a controlling interest in the company last year and a strong vote of confidence by its new management team. Many of the upgraded systems are in Tier 1 cities and among the top 40% of IMAX China locations. The deal includes collaboration on the content side. We see powerful potential for delivering alternative content with Wanda Pictures and Tencent, especially when you factor in the interest of Rui and Tencent, the latter of which owns a significant stake in Epic Games and is the exclusive streaming partner for the NBA in China. We're very encouraged by the upcoming content slate in China and we believe the market is on the cusp of a rebound. In the past two weeks, local hits have reignited the box office including successor, our biggest local opening in the market since Chinese New Year. We have two local film for IMAX releases this summer, Decoded and The Traveller. And early indications are that next year's Chinese New Year holiday will offer an exceptionally strong slate including a local film for IMAX title. Additionally, more Hollywood films are securing Chinese release dates even edgier R-rated fare like Deadpool and Wolverine. And the region remains a fertile testing ground for new events, experiences and technologies. Last month, we partnered with the NBA to stream the NBA finals live to IMAX locations in Hong Kong and Taiwan. The event sold out in hours and 73% of attendees were first-time IMAX consumers, which is obviously significant for the way we see the network growing. We can see a role for IMAX as an immersive event platform for North American sports leagues looking to grow global franchises. We also announced that IMAX Enhanced will be featured on the world's first Android-based spatial computer, which debuts in China in October. It's similar to what Apple did with Vision Pro in the U.S. The positive pivot in our business is also very evident in the content pipeline with the film slate set to come roaring back over the next several years. We have more film for IMAX titles than ever in 2025. Every IMAX release from May through September is filmed with IMAX cameras including Mission Impossible 8, Marvel's Fantastic Four and Thunderbolts. Apple's F1 starring Brad Pitt from Top Gun: Maverick Director, Joe Kosinski and producer, Jerry Bruckheimer and Superman: Legacy. Our Film for IMAX program has become a key driver of sales for IMAX systems worldwide. Film for IMAX releases like Top Gun: Maverick, Oppenheimer and Dune: Part Two prove that films shot with our cameras deserve to be experienced on IMAX screens. Exhibitors value that and the premium ticket prices and the incremental box office that IMAX delivers. Our slate is almost fully committed for the entire year in 2025. 2025 ends with Avatar 3 and then 2026 kicks off with the carryover box office in January and it also includes installments of Avengers, Star Wars, The Batman, Super Mario Brothers and Toy Story. Alongside our expanding portfolio of local language documentaries and events and experiences, we continue to make progress in opening our content aperture to deliver a greater diversity of experiences for our audiences and drive capacity utilization for our global network. The Blue Angels was an excellent first outing for our newly-revamped original documentary strategy. In its one week IMAX exclusive commercial release, the film scored the highest grossing theatrical documentary opening year-to-date. It has earned more than $2.2 million in IMAX box office so far. We sold the streaming rights to Amazon Prime Video, where it was the most watched original film on Prime of any kind documentary or feature in its first weekend. And in its first full week, it was the third most watched original film on any streaming service per variety insight with 1.9 million views. In early 2025, it will release across IMAX's institutional network. The sale to Amazon drove significant incremental revenue and we will continue to reap the benefits across its institutional run, where it could conceivably play for years. We have several more original doc-busters in our pipeline including the upcoming Stormbound with producer, Adam McKay, which will capture the most powerful hurricanes with IMAX cameras. We continue to build out a robust pipeline of music content as well including an IMAX exclusive event from Donald Glover next year, our exclusive recent live event for the Beach Boys documentary ahead of its debut on Disney+ and Queen Rock Montreal, which continued to deliver with a one way bring back in Japan in May and its Chinese debut at the Shanghai International Film Festival. We're experimenting in additional verticals from recurring programming like our partnership with A24 to market activations including our multi-city launch event for Prime Video's hit Fallout. We held our biggest live event to-date with an interactive fan event for Twisters across 180 locations, which helped IMAX drive strong over 11% indexing on the film's domestic debut last week. And tomorrow, we'll host a special presentation of the Paris 2024 Olympics Opening Ceremony with Comcast, Universal, NBC. To close, we believe we've reached a pivot point in the post-strike rebound. Given surging demand for the IMAX experience among filmmakers, studios and audiences worldwide, we stand on the verge of an extremely exciting time for our business. Our global network at less than 50% estimated penetration worldwide is well-primed to grow and drive even more attractive scale economies for our business. The pipeline of blockbusters over the next several years is truly without precedent representing incredible filmmakers and the most valuable IP in entertainment and will further diversify our content portfolio with awe-inspiring experiences to drive greater utilization of the IMAX network. We look forward to continuing to deliver results in our business and for our shareholders. Thank you, again. With that, I'll turn it over to Natasha.

Thanks, Rich and good morning, everyone. As Rich stated, it is clear our business is at a positive inflection point with global box office, system sales and installations accelerating ahead of a strong Hollywood and local language slate. We are also very encouraged by the growing diversity of our business and revenue mix, highlighted by contributions from new and emerging revenue streams not tethered to studio product. Event and experiences The Blue Angels, Queen Rock Montreal and The Beach Boys further diversify our business while driving capacity utilization across our global network. Our Streaming and Consumer Technology business also adds revenue diversity by bringing in high-margin licensing and software revenue. Given the incrementality in our business model, we believe the momentum in our core business, coupled with the growing contribution from emerging revenue streams, creates a potent combination, one that will enable us to drive accelerating and sustainable growth. Turning now for a recap of our Q2 results, where we exceeded consensus expectations across most metrics. We delivered revenue of $89 million. Within that, Content Solutions revenues of $35 million grew 12% year-over-year, driven by the sale of streaming rights of the Blue Angels documentary to Amazon and growth in alternative content that more than offset the lower strike impacted box office performance. We are very encouraged that our strategy to unlock value for our documentaries in our commercial network and unstreaming platforms is bearing early fruit. Turning to Technology Products and Services, system installations grew 20% year-over-year, and this quarter's mix included a higher level of joint revenue sharing arrangements than last year. Overall, revenues of $51 million declined 20% year-over-year driven by the lower box office impact on rental revenues, as well as the installation mix that led to lower upfront system sales. SG&A excluding stock-based compensation was $31 million, a 4% improvement year-over-year. As a reminder, Q2 is generally our highest spend for global sales, marketing and events. Even with these costs, we saw lower spend year-over-year, driven by operational efficiencies and cost initiative benefits. Overall, the second quarter total consolidated adjusted EBITDA of $31 million was at a 34.8% margin, compared to 36.7% in the prior year, with declines in gross margin from lower box office and revenue mix being partially offset by SG&A and R&D savings. For the first half, total adjusted EBITDA margin was 37.5% and in line with our full-year guidance of high-30s percent. Lastly, adjusted EPS in Q2 was $0.18, which easily beats consensus and compares to adjusted EPS of $0.26 in the year-ago period. Turning to our global network. System installations and signings both showed very good growth in Q2, as demand for IMAX continues to grow in advance of the expected strong box office slate that Rich described. During the quarter, we completed 24 system installations, up 20% over Q2 2023, which puts us at 39 installations for the first half, a growth of 34% year-over-year. Of the Q2 installations, 67% were new locations with over 60% of these in the Rest of World outside of North America and China. Signings activity increased dramatically to the 87 in Q2 versus 46 in the prior year with more than a quarter of these signings expected to be installed in 2024. The accelerating pace of installations and signings along with our significant backlog of over 500 systems at the end of Q2 gives us confidence in our network growth trajectory. As a result, we have raised our 2024 full-year system installation guidance range to 130 systems to 150 systems from 120 systems to 150 systems with the low end of the range above full-year 2023 installations of 128 systems. Turning to cash flow and the balance sheet. We had a strong operating cash flow in Q2 of $35 million that compared to $5 million in the prior year. The higher year-over-year operating cash flow reflects the timing of box office receipts, as well as improving working capital. This has been a focus and I'm pleased to see the progress. Our capital position remains very strong with $91 million in cash and $287 million of debt excluding deferred financing costs, reflecting a sequential reduction in net debt of $25 million. As a reminder, $230 million of our debt comes from our convertible senior notes due in 2026 that bear an interest rate of 0.5% per annum with a capped call leading to a $37 per share conversion price. Our current available liquidity is $392 million, which includes $300 million in available borrowing capacity under the company's varying revolving facilities. From a capital allocation perspective, year-to-date, we spent $15.6 million on CapEx, including $10 million on growth CapEx and $18 million on IMAX share repurchases. IMAX repurchases were weighted towards the first quarter when our share price was pressured following the Hollywood strikes. We determined the level of repurchases by considering the share price, available excess cash and the cost of borrowing, while also factoring in competing uses of cash including growth CapEx to expand our IMAX network. We are focused on driving shareholder returns and have spent $175 million to buy back 11.5 million shares or approximately 19% of our shares outstanding since 2020. This share reduction gives us the potential for meaningful adjusted EBITDA per share and adjusted EPS expansion in 2025, given the expected box office trajectory. We'll continue to focus on shareholder returns following the approach I outlined. In total, we have $151 million available remaining under our share repurchase authorization. While we are pleased with our financial performance and our resilience through a disruptive period for the entertainment ecosystem, we have also been focused on continuing to improve the way we run the business from an operating and financial perspective. Over the past nine months, we have looked closely at the global operating structure of our business. That evaluation has led to operational improvements and savings, as well as a better alignment of our intellectual property ownership structure to maximize earnings power and improve tax efficiency. We have taken several steps, of which the results are reflected on our financials this quarter, and we expect to manifest more benefits going forward. First, we have begun to streamline our global operations, including restructuring IMAX China to gain greater efficiencies with IMAX Corporation, which has resulted in the elimination of certain roles and reductions in overhead expenditures. These organizational and tax efficiency gains have allowed us to capture a number of benefits we were aiming to realize from the IMAX China privatization effort we engaged in last year. Thus, our incentives to taking that business private have decreased. Secondly, as previously discussed, we have been adversely impacted by tax valuation allowances most quarters since the pandemic, resulting in an unusually high tax rate. During the second quarter, we reorganized our legal entities to optimize our tax structure to reflect the mix of our business and where we are making investments and realizing the most profit. As a result, we recognize a tax benefit in Q2 stemming from this reorganization, and we expect in the future, this structure will result in the creation of additional value from our IP and a more effective global tax rate. These are some very positive outcomes that help support greater IMAX profitability and earnings in the future. To conclude, we have real momentum across the key drivers of our business, global box office, system sales and installations ahead of an extremely promising diverse film slate over the next several years with more IMAX DNA than we've ever seen. At the same time, new revenue streams are contributing to our growth and driving greater capacity utilization across our IMAX global network. A strong opportunity given one point of utilization can drive $75 million to $100 million in additional box office. Along with our increasing confidence on network growth from system installations, the third quarter is off to a great start. We're on the cusp of 100 system signings and delivered three consecutive hits in Twisters, China's Successors and the strong presales for Deadpool & Wolverine. Given the strength of our business model, the tailwinds in the market and our continued focus on streamlining our operations to unlock efficiencies, we believe IMAX is poised to deliver strong growth, expanding margins and increased cash flows for years to come. With that, I will turn the call over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Chad Beynon with Macquarie.

Hi. good morning. Thanks for taking my question. Rich, Natasha, let's please start with the installation improvement in the low end. Natasha, I know you talked about what's out in the market, kind of what you've already achieved in the first half. So that alone would bring up that low end. But then, you also talked about some of the signings for the year are coming in faster. So, can you maybe just talk about general dynamics? What's going on in terms of anticipation for the slate, maybe signings being delivered faster, kind of what you've seen? And if this could also be a positive trend beyond '24? Thanks.

One of the reasons, Chad, why there was such a wide range this year was, there was a lot of uncertainty around China. And the Wanda agreement and other things cleared up that uncertainty. So, it gave us the confidence we needed to raise the lower end of the range. Aside from that, there have been a lot of signings, as you know, from the text of our speech much more than the work in the first half of last year and certainly in the second quarter from last year. And that increase in signings has given us more confidence about the range in itself, not just the low end of the range. I think it's too early to raise the high end of the range. But I'll give you one example. The movie deal, which we signed in Saudi Arabia, before theaters, three of those are opening this year. And although Saudi Arabia has been a very promising market for us, a lot of the signings are in backlog and haven't moved out of backlog. So, we're starting to see that trend happen, and I think that's a function of the strong slate in 2025 and 2026 and frankly, just being practical about it. If you're an exhibitor anywhere in the world and you look at that '25 slate, you've got to say, I better get those things open. I mean, I can't imagine that again, as we've said between May and September, there are eight film for IMAX titles in a row. So, I don't know if you had a multiplex anywhere, why you wouldn't want to get open before that, you miss out on a big opportunity and obviously have a shorter payback period. So that's kind of the dynamic. I don't know if you want to add anything, Natasha.

I think the only thing to think about is the fact that we've already installed more this year than last year and we're on the right trajectory. And as we've talked about before, we have a really detailed process, where we go through a full schedule of what we know to be coming through the pipeline. And so we feel very confident in the range that we put out there of raising the lower end. And also the raise of the lower end is more than our full-year installations last year. And so that also gives us the growth that we've been talking about that we will have year-over-year.

Thank you. And then with respect to the NBA Operas that Hong Kong and Taiwanese consumers experienced. Can you just talk about what kind of the ceiling could be for alternative content opportunities, whether it's sports or other artists, particularly outside of the United States. Rich, you talked about this being very successful in terms of new attendees, but what is the ceiling for what you've started there?

I think we're just learning right now and that's one reason we're experimenting with different kinds of content. So, as a matter of fact, as we said and you know, tomorrow, we're doing the opening ceremony of the Olympics. I think it's so hard to predict these things. We just found out in the last 24 hours that Celine Dion and Lady Gaga are the talent doing that. So, people are going to buy tickets at the last minute. So, I think I use that as an example. but something like the NBA finals, you may know far in advance -- far enough in advance to, where it pretty much sold out when they went on sale, other kinds of events are later breaking. And we're going to try and do a very much be in a test phase. I've tried a number of different things. We've done the NHL. We've done a soccer before. And I think we really like the early feelings of some of these initiatives, but it's way too early to say what the ceiling is.

Thank you very much.

I think one other thing I would -- one thing I would add though, my context is a lot of these leads are trying to go outside North America and build audiences for their sports in other parts of the world. And I think IMAX can be somewhat of a tool for them. So, when you look at the NBA in Taiwan and Hong Kong, was a limited release. It wasn't a meaningful number. But I think the leagues themselves are really happy to get those kinds of sellouts and I think it really helps the franchise to just migrate. So, I think there'll be a lot of interest in testing it out. and certainly, we're interested in that.

Thank you.

Our next question comes from the line of Eric Wold with B. Riley Securities. Thanks.

Good morning. So, Rich, obviously, a lot of focus has been on showing the shot of IMAX DNA and shot of IMAX camera. I guess, what have you experienced so far? What do you feel is reasonable box office share delta over time from those films shot with IMAX cameras without? And I'm just curious as the number of films shot with IMAX increases over time, how do you think that generally impacts your share? And then as you add additional cameras and resources to the market, what do you feel is kind of the maximum number of films each year that could have IMAX DNA given that it may not work for every genre out there? And I have a follow-up.

So the historical evidence, Eric, is we index higher and there's more demand for IMAX when things are shot with IMAX cameras, whether it's film or digital. And there are some outstanding examples, which I know you know like Oppenheimer and Dune, where we both -- for both of those, we did around 20% of the global box office, which is much higher than we would traditionally do. But for pretty much all the movies across the board, we were talking before this call. but I think the world has looked at Furiosa as the box office not being all that successful overall. But for IMAX, I think, was our third best title in the second quarter and we had really high indexing on it. So, you can look at it two ways. One way, you can look at is kind of an insurance policy if the box office doesn't meet expectations, then it kind of guarantees some kind of minimum, because people seek out seeing it in IMAX. And on the other hand, like with Dune and Oppenheimer, it's a tremendous boom to the box office. And as I've said several times, next year, we have 14 films in North America shot with IMAX cameras. You've got the entire period from May through September, the whole summer. There are other blockbusters, Eric, that we can't do, because we're filled with film shot with IMAX cameras. And we haven't spent a lot of time talking about this. But in China, over the next two to three weeks, we're releasing two films shot with IMAX cameras, local language films. And I think we have seven in production now between this year and next year. And we're also having discussions in India, in Korea and other places about the possibility of using IMAX cameras. So, if you ask me, among all the reasons, what excites me most about IMAX, the future of IMAX going forward. And by the way, there's a number of films in 27 using our cameras. We haven't announced those yet. We haven't announced the use of our cameras yet. But I think that's a really important pivot point for us. because again, predicting both box office is like predicting stock markets. It's very difficult to do. But I think if you look at the historical data, when things are shot with our cameras, we index much better. So, we're feeling very good about that opportunity.

And the follow-up to that, I know you don't control pricing in the theaters with your distributor partners. but obviously, you've been experiencing your elevated box office share coming out of the pandemic, plans to have a lot more films shot with IMAX cameras that drive higher demand. Are you seeing evidence of exhibitors or do you feel that there could be some pricing power for the IMAX format in terms of the premium charge versus baseline tickets over time?

Yes. I mean, as you know, exhibitors globally charge a premium for IMAX and generally a pretty decent premium. I thought about that, I don't know the answer. But when you looked at like, again, go back to Oppenheimer and Dune, where you couldn't buy a ticket for weeks or some cases, even a month, I've often wondered why exhibitors don't charge more under those circumstances. As you said, we don't control the prices. That's up to our exhibitor partners. But certainly looking at the data, I think there's an opportunity to do that.

Thanks, Rich.

Thank you, Eric.

Our next question comes from the line of David Joyce with Seaport Research Partners.

Thank you. I was wondering about the content revenues. With some of IMAX's growth story tied to the rebound of the theatrical releases, how should we think about the cadence of the film remastering portion of the revenue?

Hi, David. As we look at film remastering, it's based on essentially the box office performance. And generally, historically, you look at our take rate runs about 18% on every dollar. And so as the box office increases, that's where you start to see the incrementality on that remastering line that our revenue will increase accordingly and then that will flow right through to margin and straight to the bottom line. And so, as Rich is even mentioning about '25 and '26, that's why we feel like those are going to be really good great years. because we have a huge amount of leverage in our model to be able to have incrementality that our costs don't increase as we run films, but and distribute films. but our revenue flows right through in our model and that's where you can see us capitalize on that. And you would have seen that through other quarters that we've had like Q3 last year, and varying other quarter and last year when we had Avatar as well.

Thanks. And I guess, similarly, there was a year-over-year pressure on the tech products and services revenue and margins. Is that due to an acceleration in the installs and sales? In other words, is there timing of expense recognition with growing the network here in the near term?

That's definitely a function of the mix of types of systems installed in a quarter. And so, as I mentioned just a few minutes ago, last year Q2, we installed less than this year up to the year-to-date Q2. And it's just a function of where system is, the type of system as well, and whether or not the mix is heavier on JVs or sales type lease, for instance. If you're installing a JV system, you'll have some upfront costs that come in right now. But all of the revenue will come in later at box office, as titles get released across our network. And so simply a timing function and a mix function, it's not necessarily reflective of a consistent margin going forward.

Okay. That's helpful. Thank you very much.

Our next question comes from the line of Steven Frankel with Rosenblatt Securities.

Good morning and thank you. Rich, maybe you could give us a little insight into what's going on in India, especially in terms of your ability to take local language titles there and play them in other markets and leverage it that way?

Yes. I mean, I think the second part of your question, they're both interesting. but it's probably more interesting than the first, because Indian films tend to play very well outside India, because there are a lot of Indian expats in England and Canada, U.S., a lot of other places. So, we continue to hit very hard on finding the right titles to play. But it's not only the titles, the titles have to be available at a time that we're not playing other titles. So, for example, going into Deadpool this weekend, we think it's going to be a very strong box office. We wouldn't play an Indian movie this weekend. So, it's both the availability and how the dates line up. But there's a lot of local language film coming in the second half of the year. I'm probably wrong and Natasha will correct me. but I think it's something like 20 of local language films that we have coming still for the second half of the year, and that's been very good. Some of the results this year, in particular, have been among the highest we've ever done in terms of local language box office. You didn't ask this. but on the other part of India, there was network growth, India is certainly a place where we're underpenetrated. And if you look at the per-screen averages there, we do extremely well there. So, there's a lot of room to expand our network and it goes hand in hand with the films. because I think the local exhibitors in India like a mixed slate of Hollywood films, as well as local language films. So that's another strategic reason for doing it given how underpenetrated that market is from a theater point of view. We have a number of theaters in backlog there. There's been some consolidation there. As a matter of fact, breaking news, we signed another deal in India this morning. No, it's Australia. I'm sorry. I'm not very good at geography. But I'm good enough to know the difference between Australia and India. But there's a fair amount of activity going on there. So, there's obstacles in that market inherent to the structure of that market, the exhibition structure and the judicial issues there. But overall, I think in terms of getting more movies and expanding the network, long term, we still have confidence in that market.

Okay, great. Thank you so much.

Our next question comes from the line of Omar Mejias with Wells Fargo.

Good morning. Thank you for taking my question. Maybe, first on China, box office has been relatively weak. Just recently, I think there's just been a direct content. But maybe, can you elaborate on past what's been driving the weakness and your expectations going forward, over the back half of the year into 2025?

Well, Omar, I think you know we've guided to a box office for 2024 similar to 2023. And 2023 for IMAX was on par with 2019, which is our best year ever. So, when you talk about box office and IMAX, it hasn't been that weak over the last couple of years. I think if you're asking about exhibitors at large, why their box office has not done that well. I think you have to look back to the strike, and I think there's no question in the first half of this year, the strike impacted the release slate. Remember, it just ended towards the end of last year and you can't pop out a movie in a couple of weeks. It takes a year or more to put a movie out. And I think that's going to start to turn in the second half of this year. Well, it's already starting to turn with Inside Out, Twisters and Deadpool coming this weekend. In terms of '25, using a terrible analogy, it's almost like Murderers' Row in terms of what the box office looks like, movie after movie after movie. As I mentioned, 14 are being filmed with IMAX cameras for us. So, for us, I certainly feel extremely good about the box office, especially because our box office isn't only Hollywood box office. 20% of our box office is local language film. I think we proved out this quarter with Blue Angels, documentaries, I think alternative content, which we're putting out. So, I feel very good about IMAX. In terms of the industry as a whole, I do think that '25 is going to be a much more positive of the year. And I think some of the trends apply for different reasons. but I think the fact the strength is farther behind us and the fact that the pandemic is pretty much over in the world mean that even traditional exhibitors playing traditional movies are going to do better in 2025 than they've done over the past couple of years. And then as I've said, when you look at '26, it's kind of crazy good in so many ways. I mean, in January of '26, you have the holdover from Avatar, which is coming out Christmas 25, you have Star Wars, you have a bunch of Marvel movies. it's just a really incredible year. I mean, you have Super Mario Brothers, you have Avengers, you have Toy Story 5. We're starting to book movies out for 27. So, I think as was the theme of my remarks that we're really at the pivot point now with the second half of '24 is going to really pick up, because the stripes are farther in the rearview mirror. And I feel like '25 and '26 will really be turnaround years.

Rich, I appreciate the content. I was -- I don't know if I got caught up, but I was referring to the China box office, not the overall box office. Just curious on what trends, you're seeing and if the volume of films coming to market, it's expected to pick up and if you guys are seeing any improving trends there?

Yes. So, the second half of the year in China, we believe will be better than the first half of the year, as I mentioned to an earlier question. And we just did success service last weekend and we did $8.5 million over the weekend, which is our best weekend of the year. So far, we have two films in the next three weeks that were filmed with IMAX cameras that we're pretty optimistic about. When you look at next year's Chinese New Year, they've just started to date some of those movies, but with the caveat that it's really early, it looks like a stronger slate around Chinese New Year than it looked this year and it certainly looks more promising. The reason I'm not going harder in, Omar, is because there's less visibility in China as to exactly when movies are being dated. As you know, that's a government function. They are not a private function. So, I feel good about it, but until we know the exact dating, it's hard to bang the table.

Very, very helpful things. real quick on the Blue Angels documentaries and the recent success. Maybe, can you elaborate on how you envision this strategy evolving over time and how big can this become as part of your overall portfolio? And maybe, touch on how capital intensive is this strategy or asset light is? Thank you.

So, we've been talking about on earlier calls, this model, which is to put up some money, start production of more documentaries than we have and to try and sell off the streaming rights, if possible, earlier in the process, which makes it definitionally more capital light, because you don't have to finance the whole movie. You finance some of it out of the proceeds you get from the streamers. So, for example, in Blue Angels, I don't think we had a lot of capital up and we have some up. but I think it was in the neighborhood of $2 million or $3 million something like that. Natasha's giving me a dirty look.

I'm not.

I think I'm right about that. But that's part of the reason we're attracted to the model, because you can do really good documentaries without putting up a lot of capital. And right now, I think we have four or five in production. We have one called Stormbound with Adam McKay, and we'll probably bring that to one of the festivals to follow through on the financing model. We have one in China, about Elephant Migration, which doesn't sound exciting. But think of it as like March of the Penguins with elephants. It's actually quite interesting. We have another couple that we haven't really announced the substance. but they have, I think, pretty good upside potential. So, we've been saying on these calls for a while that we have a strategy to diversify away from Hollywood content. And in the first quarter, if you remember, we had the Queen event. We had our deal with A24. I think people don't realize the extent to which we are subsidizing the Hollywood slate with other films and then of course, our global film slate. And this is another quarter, where a lot of our colleagues unfortunately in traditional exhibition suffered, because of the strike and they didn't have alternative sources. But obviously, the financial results were pretty strong and they were driven by things like Blue Angels, but also installations and foreign language and parts of our business model, our asset light model that are very different than exhibitors. And I think the first two quarters were good examples of that.

Thank you very much. Great color. Appreciate it.

Our next question comes from the line of David Karnovsky with JPMorgan.

Hi, thank you. Maybe, following up on the prior question. but for Natasha, is it possible to frame it all the gross profit or EBITDA contribution from Blue Angels in the quarter? And then free cash flow conversion, pre-growth CapEx looks better year-to-date. I know you don't guide it. but any framework for how to think about it for the year or even a target on a long-term basis? Thanks.

Hi, David. As in every quarter, there's lots of puts and takes in our model, just as Rich was talking about with our diverse revenue streams. And so, Blue Angels, of course, was a significant contributor in this quarter. We haven't gone through and disclosed all of the details of the arrangement, because it's an arrangement between other parties. But you can definitely see the contribution through the other content solutions line item in the models. And I think part of it is that, that other content solutions also includes alternative content. We had multiple events in the quarter, including the NBA, but also a Suga release for Korean content. We did the A24 series. We did a Beach Boys documentary as well among other items. And so, it's just all a function of the mix of revenues that are coming in, which is something we've been talking about creating and increasing utilization for our network. It's the opportunity ahead of us without laying too much on to the Hollywood contribution. And so, yes, we're going to reap our benefits and really continue to put capital behind the Hollywood content. but we have other opportunities too in order to make sure that we diversify and create financial growth year-over-year each year is our goal. And so -- and even when you look at cash flow, actually, we had a really good quarter. As you saw, we had our cash flow was $24 million in the quarter, sorry, $35 million in the quarter versus $5 million last year and we had first half we had $24 million. And there's still significant runway for further improvement. I mean, even if you look -- you can see that our cash flow is essentially converting our balance sheet into cash. We had our accounts receivable balance at March was at 140. We brought it down only to 120 now at the end of June. And so, it's the opportunity before as our exhibitors start to get healthier as well with all of the great box office, the cash conversion, we believe will continue to strengthen and provide further strength to our working capital as well.

So, just to be mindful of people's times, we're pretty much out of time. But out of respect to have people in the queue, we have three more questions in the queue, and I'd like to get through them. And so, if you could make -- phrase the question as succinctly as possible, we'll try and give a shorter answer, because just want to make sure everyone could get out with their days.

Our next question comes from the line of Mike Hickey with The Benchmark Company.

Hey, Rich, Natasha, Jennifer. congrats, guys on the signings. Thanks for squeezing us in, Rich. Appreciate it. Briefly, I guess, on SSIMWAVE, I know you guys repositioned that asset. I know you're excited for growth opportunities. but I guess, so part 1, curious if you can update us there, Rich, on the success you're having. And I guess the flip side, if it doesn't sort of scale like you think, do you think you're able to sort of pursue any sort of strategic alternatives for that asset? Obviously, there could be a fairly large margin unlock, if you got it off your books. The second piece, Rich, just curious your view on the Sphere experience in Vegas. Obviously, it's not your model. It's very unique, but curious what you're thinking there. And if you think in the future, there might be an opportunity for a standalone IMAX experience that maybe has some of those immersion qualities that the Sphere has in terms of the haptic and the temperature and the smell and the wind and the sound that really drive that immersion. but maybe, able to sort of leverage traditional Hollywood content or local language? Thanks, guys.

So, Mike, I'm going to give you a relatively short answer just because of time constraints. but happy to schedule a time to go in more depth if you'd like. In terms of SSIMWAVE, we continue to generate a lot of leads. This year was a breakthrough year for us technically, as I believe we mentioned this before that initially the product, stream smart, was to help streamers save money with what they stream out to their audiences, but we've actually expanded the product offering, where we could do live content. So, if someone is sending live content into a broadcast network or a streaming network, we could save them a lot of money. So, we continue to develop the business. The number of leads continues to develop. but I think it's premature to say how well that's going to do. And we'll certainly let you know when we have a clearer outlook on where that goes and we still feel good about it. But again, I don't want to jump the gun on where it's going or it's not going. And as a follow-up to that, it's completely premature to speculate what we might do with that business. I mean, my hope is it becomes a significant margin contributor and we'll keep you posted. In terms of the Sphere, I went to it, I saw you too there. I thought it was an amazing experience. I think it's very well done. I think the technology is really good. For me, the question is what's the addressable market like outside Las Vegas, how many of these can you have? And we've been in kind of a related business for 55 years. So, we have kind of a perspective on scalability of different kinds of things. And I'm not negative, I'm just not positive. I think we just need to see how the model plays out and it's going to take some time. In terms of the last part of that question, the answer is yes. We've been impressed enough with it, where we've looked at whether we could create kind of a similar experience in IMAX theaters. The answer is they're not that big and not that costly. So certainly, it can't be that experience. but probably, we could create an experience like that on a smaller scale with less capital investment and probably needing being able to address smaller markets. But again, it's early. It's just one of the many things we're thinking about. So, I'll move on in the interest of time to the next question.

Thanks, Rich.

Our last question today will come from James Goss with Barrington Research.

Hi. Thanks for squeezing me in. I was just going to ask, in terms of the growing number of blockbusters you alluded to and the alternative content, are you getting and the studio's bending in terms of screen sharing. I'm wondering if that's part of the solution. And what is the nature of the relationship with studios now, given that you have a lot of content you want to put on those screens?

So, I'd say our relationship with studios is not just in North America, but the world is better than it's ever been. And I think that's a function of increased market share and as well as directors and producers wanting to put more movies in IMAX. So, we have a terrific relationship and we try really hard to accommodate all of our studio partners. We can't always do that 100% of the time. but I think studios appreciate what we protect the window they negotiated for. So, I think they understand the concept of conflicts and work with us, and try and get around them. And this one I can't really talk about right now, but it's two movies are opening at the same time. And we're trying to accommodate both of them by maybe splitting the network. So, what you're suggesting, Jim? And I think people are more open to that. In terms of the alternative content and its impact, we try and do most of the alternative content like on Tuesday night, not Saturday night. And when you look at the statistics about utilization, certainly opening weekends for blockbusters, things are frequently sold out. So that's a more difficult case. But when you look at overall utilization, it's still low enough that I think there's plenty of room to fit all this content in. So, while hopefully, it becomes a bigger and bigger problem, we're still at a place where we can work around it.

Are you veering toward maybe one week as an rather than two as the typical run for new movies if you get to that stage?

Jim, I hope not because, we also wanted people to film their movies for IMAX. And under that program, when people invest in doing that, they have a two-week minimum run. And we really value that too. So, I think it becomes a little bit more of an art than a science. But we're going to try and work with all our partners, filmmakers, studios and accommodate as much as we can, as long as we can. And as I said, our relationships are pretty good. And I think as long as you're transparent and you're honest and you don't play favorites, so you treat your partners equally, I think they work with us and that's how we're planning on moving forward.

All right. Thanks. Seems like a good problem.

I would agree.

That concludes today's question-and-answer session. I'd like to turn the call back to Rich Gelfond for closing remarks.

Yes. I mean, I think I said most of it earlier at the beginning of my call. We've been talking for a number of years about our strategy going forward, more content, international growth, more film for IMAX, more local language content. And we've been delivering that over the years and I heard you back to 2023, where we have a near record year when a lot of our clients weren't that fortunate traditional exhibition was off by 20%. And we were saying it and saying it, and I think there was some skepticism. But I think after the results of the first two quarters, you see it playing out in the numbers. And I think we've -- the last four years or so, have not been, easy between the pandemic and the strikes. And I think that's finally in the rearview mirror. So, I think you put the two pieces together, what we've done internally and strategically. And then you look at the external environment, which is really sorting itself out. And as I said, when you look at '25 and '26, very much at a pivot point, we feel really good about our business and we are appreciative of the analysts, who have seen this coming and most of them have understood the underlying values and have talked about it. And we appreciate all of you and we think the shareholders are finally aligning themselves with what the analysts have been seeing for a while. So, thank you all and we hope to keep delivering for you.

This concludes today's conference call. Thank you for participating. You may now disconnect.