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Why Is Imax (IMAX) Up 27.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Imax (IMAX). Shares have added about 27.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Imax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

IMAX's Q3 Loss Narrows Y/Y, Box Office Growth Aids Revenues

IMAX Corporation reported an adjusted loss of 5 cents per share for third-quarter 2022. The Zacks Consensus Estimate was pegged at earnings of 3 cents per share. The figure improved from a loss of 8 cents per share in the year-ago quarter.

Total revenues of $68.7 million missed the Zacks Consensus Estimate by 2.54%. The figure however increased 21.5% from the year-ago quarter’s levels.

Revenues in the quarter were negatively impacted by $700,000 as the theaters in Russia, Ukraine and Belarus continued to be on non-accrual status. As of Sep 30, 2022, the IMAX network includes 54 theaters in Russia, nine theaters in Ukraine, and one theater in Belarus.  The company's backlog includes 14 theaters in Russia, one theater in Ukraine, and five theaters in Belarus, with a total fixed contracted value of $22.9 million.

At the end of September, IMAX closed the acquisition of SSIMWAVE for $21 million in cash and IMAX shares and a potential $4 million in future earnouts.

Category-wise, Image Enhancement & Maintenance Services, technology rentals and technology sales were up 18.5%, 22.7% and 37.3% year over year to $36.2 million, $12.5 million, and $18 million, respectively. Financial income generated revenues of $1.9 million, down 27.2% from the year-ago quarter’s levels.

Segment Details

IMAX Technology Network Business

IMAX Technology Network revenues increased 27% year over year to $32.5 million in the third quarter of 2022.

Within the segment, IMAX DMR revenues increased 26.9% year over year to $19.9 million. Total IMAX Gross Box Office (GBO) increased 25% year over year to $177.1 million, with 30% of box office coming from local language blockbusters.

In the third quarter of 2022, GBO was generated by the exhibition of 36 films (27 new films, four carryovers, and five re-releases), including Thor: Love and Thunder, which generated GBO of $39.8 million in the period, and Top Gun: Maverick, which generated GBO of $20.4 million in the period.

Local language films released to the company's global theater network generated $53 million in GBO, representing 30% of the company's total GBO in third-quarter 2022.

In China alone, the company generated $24 million in box office on 14 screens. The company partnered with 84 Chinese exhibitors in 207 cities across 31 provinces in Mainland China.

IMAX has nearly 800 theaters open in China and another 200 in backlog. During the third quarter of 2022, approximately 82% of the IMAX theaters in Greater China were open at various capacities, on average.

The joint revenue-sharing arrangements contingent rent increased 26.8% to $12.5 million.

IMAX Technology Sales & Maintenance

IMAX Technology Sales and Maintenance revenues increased 19% year over year to $33 million in the third quarter of 2022. The increase in revenues was driven by one additional system installation, the impact of amendments to existing theater arrangements and higher revenues from aftermarket sales.

Within this segment, IMAX systems revenues increased 20.6% from the year-ago quarter’s levels to $15.9 million. IMAX maintenance revenues increased 6.8% year over year to $13.9 million.

Joint revenue-sharing arrangements-fixed fees were 998K, down 3.7% year over year. Other theater revenues were $2.1 million in the reported quarter.

Film Distribution & Post-Production

Film distribution and post-production generated revenues of $2.04 million, up 28.2% year over year.

Network Growth Statistics

As of Sep 30, 2022, there were 1,703 IMAX Theater Systems in 87 countries and territories, including 1,622 commercial multiplexes, 12 commercial destinations, and 69 institutional locations in the company's global theater network. This compares to 1,664 IMAX Theater Systems in 85 countries and territories as of Sep 30, 2021, including 1,580 commercial multiplexes, 12 commercial destinations, and 72 institutional locations in the Company's global theater network.

As of Sep 30, 2022, the company’s backlog included 157 new IMAX with Laser systems and 95 upgrades to IMAX with Laser systems.

Operating Details

Gross margin contracted 250 basis points (bps) to 46.1% in the third-quarter 2022.

Adjusted EBITDA per credit facility was $16.5 million compared with $13.1 million in the year-ago period.

Selling, general & administrative (SG&A) expenses increased 16% year over year to $32.9 million.

Research & development (R&D) expenses decreased 44.9% on a year-over-year basis to $1.11 million.

The company reported an operating income of $4.2 million compared to the year-earlier quarter’s operating loss of $853K.

Balance Sheet & Cash Flow

As of Sep 30, 2022, the company had $87.2 million in cash and cash equivalents compared with $110.1 million as of Jun 30, 2022. As of Sep 30, 2022, total debt, excluding deferred financing fees, was $237.6 compared with $224.37 million as of Jun 30, 2022.

As of Sep 30, 2022, the company's available liquidity was $437.4 million, including its balance of cash and cash equivalents of $87.2 million, $300 million in available borrowing capacity under its credit facility and $50.2 million in available borrowing capacity under IMAX China's revolving facilities.

Cash flow used in operating activities was $481K compared with $5.29 million used in the prior quarter.

Negative free cash flow was $3.9 million compared with a negative free cash flow of $8.9 million in the prior quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -57.58% due to these changes.

VGM Scores

At this time, Imax has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Imax has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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