IMAX's Q3 Earnings Surpass Estimates, Revenues Rise Y/Y

IMAX Corporation IMAX reported third-quarter 2019 adjusted earnings of 21 cents per share that beat the Zacks Consensus Estimate by 2 cents and increased 50% year over year.

Total revenues of $86.4 million increased 5.2% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $87 million.

The year-over-year revenue growth was driven by an upside in the network business segment.

Category-wise, services and rentals revenues were up 12% and 21.8% year over year to $44.2 million and $17.6 million, respectively.

However, equipment and product sales decreased 14.1% from the year-ago quarter to $21.7 million. Finance income decreased 1.5% year over year to $2.8 million.

IMAX Corporation Price, Consensus and EPS Surprise

IMAX Corporation Price, Consensus and EPS Surprise

IMAX Corporation price-consensus-eps-surprise-chart | IMAX Corporation Quote

Segment Details

Network Business

IMAX network business revenues were $43.2 million, up 17.8% year over year due to an increase in both IMAX DMR revenues and contingent rent received from joint revenue sharing arrangements due to the success of The Lion King: The IMAX Experience, Spider-Man: Far From Home: The IMAX Experience, Hobbs & Shaw: The IMAX Experience and local language blockbuster Ne Zha: The IMAX Experience in China.

Within the segment, IMAX DMR revenues were up 19.2% to $26.7 million.

Gross box office from IMAX DMR films increased 19.2% year over year to $246.1 million in the reported quarter. The increase was primarily due to 39.8% increase in international gross box office, excluding China, and 23.3% year-over-year increase in domestic gross box office.

Notably, Greater China is currently IMAX’s largest market measured by revenues and has accounted for roughly 31.6% of total revenues on a year-to-date basis.

IMAX’s largest single international partnership is in China with Wanda Film. Wanda’s total commitment is for 359 theater systems in Greater China (of which 344 theater systems are under the parties’ joint revenue sharing arrangement).

Notably, IMAX released 26 films (20 new and 6 carryovers) compared with 29 films (24 new and 5 carryovers) in the year-ago quarter.

Joint revenue sharing arrangements-contingent rent was $16.5 million, up 15.5% year over year.

Theater Business

IMAX theater business generated revenues of $37.7 million, which decreased 7.4% year over year, driven by one lesser system installation under sales and sales-type lease arrangement in the quarter.

Within this segment, IMAX systems revenues decreased 10.2% from the year-ago quarter to $21 million. Theater system maintenance revenues were $13.7 million, up 10%.

However, Joint revenue sharing arrangements-fixed fees was $1.44 million, down 48.6% year over year. Other theater revenues declined 24.9% to $1.56 million in the reported quarter.

New Business & Others

New Business generated revenues of $0.54 million and other revenues were $0.77 million in third-quarter 2019.

Network Growth Statistics

As on Sep 30, 2019, 71% of IMAX theater systems in operation were located within international markets (defined as all countries other than the United States and Canada), up from 68.8% as on Sep 30, 2018.

There were 1,568 IMAX theater systems (1,473 commercial multiplexes, 14 commercial destinations, 81 institutional) operating in 81 countries as on Sep 30, 2019.

In third quarter 2019, IMAX installed 30 new IMAX theater systems and upgraded 9 systems. New installs consisted of 14 sales-type, 12 JVs and 4 hybrids. Notably, total signings were 30 in the third quarter.

There were 607 theaters in backlog as of Sep 30, 2019 compared with 635 in the corresponding period of 2018.

In the third quarter, the company signed deals across regions – Saudi Arabia (12 new systems), China ( 6 new systems), Austria ( 2 system upgrades), India ( 2 new systems) and more.

The company’s large deals include CGV deal in China for 40 theaters and Cineworld (Regal) deal for 15 U.S. theaters.

Operating Details

Gross margin expanded 320 basis points (bps) on a year-over-year basis to 54.5% in the reported quarter.

Network business gross margin expanded 200 bps on a year-over-year basis to 63.4%, driven principally by higher box office, partially offset by 11.8% increase in cost of goods sold.

Theater gross margin was 48.9% in third-quarter 2019, down from 49.6% in the year-ago period due to fewer systems installed in the quarter.

Adjusted EBITDA was $32.4 million in the reported quarter compared with $25.8 million in the year-ago period. Adjusted EBITDA margin expanded 610 basis points to 37.5%.

Selling, general & administrative (SG&A) expenses increased 10.6% year over year to $29.5 million.

Research & development (R&D) expenses decreased 66.3% on a year-over-year basis to $1.4 million primarily due to decreased spending on the company’s updated laser-based digital projection system compared to the year-ago quarter.

Operating income margin expanded 500 bps year over year to 16.7% in the reported quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2019, IMAX had cash and cash equivalents of $102.5 million compared with $106.5 million in the prior quarter.

Cash flow from operating activities was $67.3 million compared with $49.2 million in the prior quarter.

Free cash flow was $7.77 million compared with $34.1 million in the prior quarter.

2019 Guidance

Box office is expected to grow in low double digits compared with the earlier guidance of mid-to-high single-digit range. IMAX is anticipated to install 185-190 theater systems. The company expects to upgrade 45 screens to IMAX laser.

Total theaters equipped with IMAX with Laser are now expected to be slightly below the previous guidance of approximately 140 systems.

Additionally, adjusted EBITDA margin is anticipated to increase in the range of 41% to 42% indicating an increase from 39.6% in 2018.

The company anticipates its box-office performance to be strong in 2019, owing to popular releases like Avengers: Endgame, Spider Man: Far From Home and Lion King.

IMAX stated that films including Bond 25 will use IMAX cameras in 2020. Notably, Comcast’s CMCSA Universal Pictures is one of the producers of the film.
    
Zacks Rank & Stocks to Consider

IMAX currently has a Zacks Rank #4 (Sell).

Twin River Worldwide Holdings, Inc. TRWH and Liberty Broadband Corporation LBRDK have a Zacks Rank #2 (Buy) are couple of better-ranked stocks in the broader consumer discretionary sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Twin River Worldwide and Liberty Broadband are set to report their quarterly earnings on Nov 11.

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