Imax Corp (IMAX) 2008 Q4 法說會逐字稿

Welcome to IMAX Corporation's Q4 '08 and year-end earnings conference call. Today's call is being recorded.

At this time I would like to turn the conference over to Brad Wechsler for opening remarks and introductions. Mr. Wechsler, please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us on today's fourth quarter conference call. Joining me today is Co-Chairman and Co-CEO, Rich Gelfond. Also with us are our CFO, Joe Sparacio, our General Counsel, Rob Lister, and our Head of Investor Relations, Heather Anthony.

Before we begin, let me remind you of the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking in 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 outcome. During today's call references may be made to certain non-GAAP financial measures as defined by Reg G of the Securities and Exchange Commission. The full text of our fourth quarter release, along with supporting financial tables, is available on our website, www.IMAX.com. Today's conference call is being webcast in its entirety on our website.

Today we will start by reviewing strategic and operational milestones set in 2008, then I will briefly review our quarterly results before Rich takes you through our 2009 outlook in more detail. In 2008, we laid the groundwork that is dramatically transforming the company from one that was entirely film based to one that is increasingly digital. In our business model, from one of only one-time sales to one of more significant recurring revenues. While our financial results reflect the costs associated with this transformation, our top line did not reflect the benefits. We believe our revenue will significantly increase in 2009 as a result of these initiatives, and we are keenly focused on cost containment, the combination of which we believe should return us to profitability in 2009.

Let me now review some of 2008. Looking at fiscal 2008, our most important milestone was the launch of our new digital technology. Our IMAX digital product launched in July on time and on budget with 46 systems deployed in the second half of 2008. IMAX digital coupled with our joint venture model are the catalysts behind our record network growth, up 17% year-over-year, and our commercial network growth also up a record 30% year-over-year. In addition, our backlog ended at a new high for year end of up 15% over last year, and we have the largest number of Hollywood titles scheduled for release in 2009 at 10.

We are very proud and confident in IMAX digital. The systems are achieving reliability rates of 99.8%, and we are pleased that our customers are putting IMAX digital systems into their best locations and best boxes. The total of 60 IMAX projection systems were installed in 2008, with 33 in the last quarter, by far the most installations we have ever had in any given year or quarter. 18 were under sales or sales-type lease arrangement of which 15 were recognized into revenue. 41 were under joint revenue sharing arrangements, and one was under an operating lease. We ended 2008 with a total of 351 IMAX systems in operation compared to 290 in operation last year. As I mentioned, this is the largest one-year increase in unit growth in our 40-plus-year history, and we are pleased to report that even this significant increase should be eclipsed by 2009's anticipated network growth. We ended the year with 52 JV theaters compared to 11 last year. We expanded our joint venture partnerships with key exhibitors around the globe.

Following our 100-theater deal with AMC signed in December of 2007, we signed strategic JV arrangements with top exhibitors such as Regal Cinemas in the US, Hoyt Cinemas in Australia, Tokyu Cinemas in Japan and Cineplexx in [Australia]. All of these JVs position us for future growth in key markets. Also, while not a JV, our two-theater system sales deal with Odeon in the UK is very important as we work to increase our penetration in Europe. Last year, we also secured $18 million in funding in May of 2008 through a private placement of our common stock with our largest shareholder at a then market price of $6.60 per share. We also renegotiated our $30 million credit facility, such that we were no longer subject to any EBITDA maintenance covenants, so long as we were in compliance with minimum liquidity levels.

We broadened our studio relationships including our having signed a multipicture deal with Walt Disney Pictures. We are now in business with virtually every major Hollywood studio. The diversification of our studio relationships creates a pipeline of potential new titles for the IMAX network that is precedented. And we signed deals for 90 IMAX systems in 2008 on top of the 144 we signed in 2007. Of the 90, 42 are for JV theaters and 48 are for traditional sales and sales-type lease arrangements. We firmly believe that these initiatives leave us poised to transform IMAX to a company with not only a compelling consumer proposition but a compelling business proposition as well. This is a company that is now firmly in a period of execution and growth. Given the rate at which we are capable of installing the systems, the proven reliability of the systems to date, the positive feedback we're getting from our studio and exhibiter partners, and perhaps most importantly consumers, we feel very confident about our digital rollout thus far.

Now a little about the Q4 financial overview. As we look at our Q4 results, it is important to analyze them in the context of a year in which our digital product was not available until the third quarter, and as a result, customers often elected to wait for digital system to install their IMAX theater. On a GAAP basis, we recorded a fourth quarter net loss of $9 million or $0.21 per dilute share compared to a GAAP net loss of $10.1 million or $0.25 per share in the year-ago period. Included in this year's results were charges totaling $4.4 million, all related to the introduction of our digital projection system and JV rollout. Specifically, we took impairment charges on film-based inventories, we incurred launch costs associated with our new JV theaters and incurred accelerated depreciation on film-based JVs due to an earlier than anticipated digital upgrade. We've done this so that our JV partners can take full advantage of our 2009 film slate.

Last year we took a $4 million asset impairment charge that was partially offset by a one-time benefit from discontinued operations. Excluding these items from both the fourth quarters of 2008 and 2007, the company's loss per share was $0.11 and a loss per share of $0.21 respectively. The charges incurred in the fourth quarter 2008 fall under cost of goods sold. Excluding the charges our fourth quarter gross profit would be $10.8 million versus $11.5 million last year, and importantly, on the segment table, the negative margin number for our JV theaters would be a positive $950,000 compared to $300,000 last year. Our fourth quarter operating loss, excluding these charges, was $1 million, compared to an operating loss ex items of $4.9 million last year. Our progress year-over-year primarily reflects lower levels of SG&A expense. Total revenue decreased to $28.1 million compared to $32.3 million last year.

As you will notice from the segment table in this morning's press release we have pulled theater system maintenance and joint revenue sharing arrangements out of the IMAX systems segment providing for increased granularity of our business and our business drivers. I won't hit on every single one, but to review the key segments, revenue from sales-type lease systems was $11.6 million, down slightly versus a year ago, reflecting the mix of systems installed this year versus last year. Revenue from joint venture relationships nearly doubled to $1.4 million over the prior year quarter. As I mentioned, we installed a total of 33 theater systems in the fourth quarter, or more than two per week on average, compared to seven in last year's fourth quarter. Of the 33 installs, six were under our sales and sales-type lease model, including one digital upgrade, and 27 were under our joint revenue sharing model, also including one digital upgrade.

As a reminder, we do not recognize revenue upon installation for JV theaters but rather over time as recurring revenue. Both our sales-type lease installs and our JV installs in the quarter were in line with our previous expectations. Film revenue decreased to $7.4 million, and theater operations and other decreased to $3.3 million. This decrease in both film and theater operations revenue in the quarter primarily reflects the near-term impact of Harry Potter and the Half-Blood Prince moving out of the fourth quarter 2008 and into the summer of this coming 2009, coupled with difficult year-over-year comparisons to Beowulf and I Am Legend last year.

Our DMR gross box office for the quarter was $30.8 million, compared to $38.3 million last year. In September we released DreamWorks Pictures and Paramount's Eagle Eye, the IMAX experience, which grossed a total of $7 million, the vast majority of which was captured in the fourth quarter, or approximately $60,000 per screen. In November, we released DreamWorks Animations Madagascar: Escape to Africa, the IMAX experience, which grossed $11.7 million in IMAX worldwide as of quarter end and $12.2 million in total for a per-screen averages of approximately $82,000. On December 12th, we released 20th Century Fox's The Day the Earth Stood Still, the IMAX experience, which grossed $10.3 million worldwide in IMAX theaters in the fourth quarter, and $13.8 million in total, for a per screen average of $90,000. These per-screen averages support the proposition that even in these challenging economic times, consumers are seeking out the IMAX experience. Our percentage of gross box office continues to far outpace our percentage of screens. Further, if IMAX JVs were to play 10 films that generated the average box office per screen of these three films, which were relatively modest per-screen averages by historical standards, the annual IRR for those JV theaters would be approximately 40%, which is in line with our model.

Turning to the balance sheet, we remain confident that we have the necessary funds to continue the planned rollout of our digital projection systems. We ended the quarter with cash and cash equivalents of $27 million compared to $37.6 million at the end of the third quarter and $16.9 million a year ago. In addition, at the end of the quarter, we had $10.5 million available on our credit facility. Our Q4 cash position is in line with our expectations and primarily reflects our investment in joint venture theater systems and film CapEx. During the fourth quarter we invested approximately $8.9 million in our JV initiative and a total of $18.5 million for the full year. Importantly, our cost per JV system remain on plan. As a reminder, our payback period, including DMR fees, is about a year and a half with an IRR of close to 65%, so we believe a good deal of the cash spent in 2008 should cycle back to us in 2009.

All told, we believe the combination of our cash position, $10.5 million in additional availability on our credit facility, and our availability under our LC facility, continues to provide us with adequate funding to finance the rollout of our JV systems. Our backlog at year end consisted of 213 systems including 107 sales and sales-type lease systems valued at $144.8 million, and 106 joint venture arrangements which, as a reminder, once again, carry no stated backlog value. This compares to a total backlog of 186 systems last year which included 82 sales and sales type lease systems valued at $119 million, and 104 joint venture arrangements.

So, in closing, we began 2008 with very aggressive goals in terms of laying the foundation for significant future growth. We have executed on our most critical strategic goals both on time and on budget, and we believe all of this hard work will deliver strong revenue growth and return to us profitability in 2009. We believe IMAX is becoming an increasingly important partner to the studios and to exhibitors as well as we work together to deliver unique premium movie-going experiences for consumers that cannot be replicated at home. It is for these reasons that we look to 2009 with cautious optimism, even in this challenging global economic climate. Let me now turn it over to Rich to elaborate further on the year ahead as well as our outlook. Rich?

Thanks, Brad. As you have heard from Brad this morning, 2008 was largely about our introduction of digital, transitioning to a business model that generates greater recurring revenue, as well as securing top-notch future DMR titles. I'm very pleased that many of these strategic and operational goals that we laid out for you in the past were accomplished in 2008. Our team has demonstrated that not only can we execute aggressive growth, but we can do so in a high-quality fashion, and we believe our successful digital rollout has in many ways enhanced the IMAX brand in the eyes of our exhibiter partners and the studios. With the introduction of digital well underway, our 2009 goal is very simple. We believe the key drivers of our business, our digital technology, our growing JV theater base, and our high-profile movie slate, should drive significant revenue growth and return us to profitability in 2009.

Let me now get into those key drivers in more detail. Those of you who have seen our investor presentation know that we talk about our business in terms of four buckets. And we've tried to parallel that approach in these remarks to give you a sense of how to model the company on a go-forward basis. The first lever of our business is our existing network. If we were to throw away the keys and not sign another new deal or install another system, this piece of our business would generate recurring margin of approximately $30 million as it is done for the past several years. The next lever of our business is our traditional way of doing business, where we sell or lease an IMAX system, typically for about $1.5 million. As Brad mentioned, we recognize revenue on 15 of those systems in 2008. In 2009, we anticipate installing between 20 to 25 systems under sales or sales-type leases all from our current backlog, which includes a handful of upgrades from film systems to digital. In any given year we typically have several systems that are signed and installed in the same year but that number is difficult to predict.

The final two levers of our business, our JV theaters and film revenue, are the most dynamic, and I will touch on those in more detail as they have a very significant impact on our business going forward. As you know, our JV digital theaters drove our record network growth in 2008, and that will also be the case this year. In 2009, we expect to install 65 to 70 JV theaters which also includes a handful of digital upgrades. So our JV network will more than double year-over-year. Through the expansion of our JV business model we are building out a network that increasingly drives recurring revenue into our business. Each JV theater provides a significant percentage of box office to us which is, of course, in addition to the percentage of box office that we get from the studio.

Further, because our DMR costs for each Hollywood title are fixed, our film business is scalable, and with each theater we open comes not only greater revenue but opportunity for significant margin expansion. We anticipate that over half of these systems will be installed by mid-year. Again, this is all from backlog, and does not include any JV system deals that we may sign and install this year. In a joint venture scenario, we contribute the system, which has historically cost us approximately $500,000, allowing exhibitors to enter the IMAX business for roughly $150,000 to $200,000 per theater, well below historical levels of between $1.5 million and $3.5 million. As I mentioned, we, in turn, get a greater percentage of the recurring revenue through a split of the theater's revenue. At the end of December, our 52 JV theaters in operation was double the number of JVs we had in operation just one quarter ago. JV theaters that have been open for more than 12 months have average IRRs of approximately 40%. Further, our 40% initial rate of return is before taking the 12.5% of gross box office we typically receive from the studios on DMR films into consideration. And the economics of our exhibitor partners have been even more attractive.

With a total of 64 IMAX digital systems currently in operation, the majority of those being JVs, we are making good progress towards our goal of having 115 to 125 JV systems in operation by year end. As a reminder, we caution that installation slippage has happened in the past and is likely to continue in the future, usually for reasons outside of our control. I might add, however, that slippage most often occurs in new-build scenarios, and only a handful of our JVs are new builds. Assuming all these are installed in 2009 we would end the year with approximately 440 IMAX systems in operation, a 25% increase over 2008.

Let me move on to discuss our fourth business driver, our 2009 film slate. We've often said that our digital technology would allow for more DMR titles as the cost of a hard drive, which is typically less than $1,000 per theater, would be much more compelling for the studios when compared to costs of approximately $20,000 for an IMAX 2D print and $45,000 for an IMAX 3D print. We believe that rather than being capped at six or seven DMR titles per year, digital would allow for 10 to 12 movies per year, driving fresher content through the network and essentially diversifying our portfolio and making us less reliant on one particular title. And that is exactly how it is playing out in 2009, with a record 11 titles so far, 10 Hollywood DMR and one IMAX original. We can say with confidence that our overall lineup includes some of the most anticipated films of the year. January and February is typically a quiet time of the year for film release. During this period we re-released Warner Brothers The Dark Knight, and on February 27th, and on February 27th, we partnered with Disney for a one-week IMAX release of the Jonas Brothers, the 3D Concert Experience. In addition, on February 13th we released Under the Sea 3D together with Warner Brothers, primarily to institutional theaters. To date the film has grossed approximately $3 million or $60,000 per screen and is tracking similarly to its predecessor, the highly successful Deep Sea 3D. We are very proud of this film from an artistic and educational standpoint, and it is an excellent representation of how truly immersive IMAX 3D is.

Our 2009 film slate kicked into gear last Thursday night at midnight when we released Zach Snyder's Watchmen, the IMAX experience, which is being distributed domestically by Warner Brothers and internationally by Paramount. Watchmen debuted on 153 IMAX screens worldwide and generated $5.4 million domestic or 10% of the opening weekend's box office on just 2% of screens. Through yesterday, gross box office for the film was approximately $8 million worldwide or more than $52,000 per screen, and is tracking in line with our expectations. On March 27th, we will release the IMAX theater's DreamWorks Animation highly anticipated first 3-D film, Monsters vs. Aliens, which is planned to open on close to 200 IMAX screens worldwide, the largest IMAX release in history, and that's only about two weeks from now. On May 8th we will release Paramount Pictures Star Trek, directed by JJ Abrams, for a two-week run. We believe this film plays perfectly to our customer demographic and should make for the quintessential IMAX experience. Short runs like this are only possible because of our introduction of digital and give both us and our exhibitors much greater programming flexibility.

On May 22nd, 20th Century Fox's Night At the Museum II: Battle at the Smithsonian, will be our fifth film. The first Night At the Museum delivered $18.3 million of gross box office and IMAX, or $160,000 per screen. On June 24th we will release DreamWorks Pictures and Paramount's Transformers: Revenge of the Fallen. Directed by Michael Bay, the movie features three sequences directed by Michael Bay, the movie features three sequences shot specifically with IMAX cameras for IMAX, similar to The Dark Knight, our most successful IMAX 2D DMR film to date. In July we will release an IMAX version of Warner Brothers' Harry Potter and the Half-Blood Prince. This is our fourth installment of the Harry Potter franchise which has been very successful on IMAX. Our total box office per screen averages and percentage of box office has steadily increased with each installment of the franchise, ultimately leading to Harry Potter V, generating $38 million or $247,000 per screen in IMAX.

As a reminder, sequences of the movie will be featured exclusively in live action IMAX 3-D which can only be seen in IMAX theaters. We believe we will have another DMR title in the fall which will then be followed by Walt Disney Pictures A Christmas Carol, a 3D motion capture picture starring Jim Carrey and directed by Robert Zemeckis. This will be our third Zemeckis 3D motion capture film having previously released The Polar Express and Beowulf both of which were highly successful on IMAX. Finally, on December 18th, 2009, we will release Academy Award winning director Jim Cameron's groundbreaking 3D title Avitar in IMAX. We believe that Avitar ranks as one of the most anticipated film projects in recent memory. And Brad and I have taken an early look at the movie in 3D. We are very excited about this revolutionary piece of filmmaking. Of our 11 titles, five are 3D, and as I discussed, some are of the most anticipated films of the year coming from some of the best filmmakers in the business.

At a time when over 20 Hollywood movies over the next two years is scheduled to be released in 3-D, our rapidly growing network is becoming an increasingly important part of the 3-D movement. We believe our near 200 screens for Monsters vs. Aliens will represent approximately 10% of the 3-D capable screens worldwide. Couple our network growth with our historical outperformance against digital 3-D and the IMAX platform becomes even more critical to studios and exhibitors looking to extend their reach and maximize as much upside as possible. While we're very excited about the potential of 3-D, we continue to program our network with what we believe to be the best films available, whether 2D or 3-D. Much like 2008, our goal for 2009 is to have the bulk of our 2010 film slate finalized this year so that we can continue to provide ourselves and our exhibitor partners with increased visibility, a highly prized asset in today's environment.

We are speaking with every major Hollywood studio about 20 different titles for about 10 to 12 different slots in 2010, and look forward to announcing those titles as we move forward and as the year unfolds. We're also encouraged by the industry's overall box office results. According to various industry trades and reports, year to date through Sunday, 2009 domestic box office gross is up 14% over last year, and these reports also indicate that the growth is being driven almost entirely by increases in attendance. The movie business has typically been resilient during recessionary periods and so far that seems to be the case here in 2009.

So to sum up, while there are various moving parts in the IMAX business, the growth of the company really is driven by the four levers of the business we outlined this morning. Our existing network, which historically has generated a recurring gross margin of approximately $30 million. Our traditional sales-type lease deals of which we expect to install a total of 20 to 25 at a backlog, and then whatever sign and installs come along. Our JV theaters of which we expect to install a total of 65 to 70 out of backlog, and our film slate, which is the fuel that drives the IMAX car and which we believe includes some of the most anticipated films of 2009. It is for these reasons that we are cautiously optimistic about 2009, even giving the challenging macro economic environment. We are pleased to have increased the visibility into our business and believe this is a direct result of our hard work over the past two years, from the development and rollout of our digital product to strengthening and diversifying our studio relationships to landing deals for 234 systems over the past two years to securing financing to fund our ongoing JV rollout. As noted earlier, we believe that these initiatives should drive top-line growth, and coupled with our intense focus on cost containment should result in our returning to profitability in 2009. Before we open it up for questions, I think Brad would like to make a few remarks.

Thank you, Rich. As many of you know from our December press release, as of April 1st of this year, I will become Chairman of the Board and Rich will become the sole CEO. On a personal note, I just wanted to say that I'm very excited and very much look forward to working more actively with our board, and, of course, with Rich, on strategic issues, business development issues and other areas where I can continue to bring value add. I believe, as Rich and I both pointed out in our earlier remarks, in that the last couple years our team has put in a tremendous foundation for future growth. It was exciting and invigorating to be part of that, an it will be equally exciting and invigor rating to participate in the expected growth of the company sitting in a different seat. I'm also delighted to leave IMAX in the capable hands of Rich who knows this business inside and out and who I'm confident will be able to deliver on the potential embedded in IMAX. The key message here however isn't about Rich and it isn't about me. It's simply, even in this difficult environment, IMAX is very well positioned for both top and bottom-line growth, and this is something that we should all be excited about. So with that, I think we're going to open it up to questions.

(Operator Instructions) Please stand by for your first question. Your first question comes from Richard Ingrassia of Roth Capital Partners. Please go ahead.

Thanks. Good morning, everybody.

Good morning, Rich.

Can you say where you are today as of mid-March on JV installs and digital projection installs?

Yes, we can. Let's just get you the number, Rich. I think it's 54 in terms of digital installs. And what's the total number of JVs?

JVs 52, probably close to 60, in terms -- 60 to 65 in JVs, something like that.

Did you hear that Rich?

Got it. And Joe, or maybe Rich, can you remind us again the timing of the cash flow on the new JV theaters? So from date of install how many months typically before, say, a new AMC IMAX flows to the consolidated P&L here?

Well, in terms of the P&L, it's recorded as the box office is coming in. We get daily reporting on that.

So the answer to that is almost instantly.

The cash payments come in at the end of each quarter. 30 days after quarter end.

Okay. So just a typical lag with box office.

Yes.

Okay. Two more questions, if that's okay.

Yes.

Has the cost of your DMR conversions come down at all in the past six months? And more importantly, I guess, where would you put the total break even box office bogey these days?

The cost of conversion has come down. It's not going to continue to come down because what we do is not fully an automated process. We actually have producers. We have people in labor on our conversion as well as our software. The break-even, if you used a number, and each one is going to be different, but if you used a $1.5 million, and if you were in your 100 systems, that's what, that's $10 million, $11 million.

Okay. So that's really not much of a change there.

I was just giving you an example. Obviously, but you should plug in the numbers of our increasing network, so obviously for us, it does it go down. That's the network economics that we've been talking about for years and years, because these are fixed costs. DMR is a fixed cost. It's not a variable cost.

Right. It's easier and easier to hit that $10 million box office bogey with the bigger system.

Let me just say about DreamWorks. Monsters vs. Aliens is being released on almost 200 screens. So I gave you an example of a 100 theatres hypothetical. The next film we're releasing is in 200 theatres.

That's great. Last question on the adjustments related to the obsolete projection system inventory, is that going to be a charge we can expect to recur to some extent in '09? Are we going to see those writedowns?

Rich, we evaluate our film based inventory based upon current fact and circumstances, and right now we feel comfortable with the inventory levels that we have on hand. Much of the inventory that remains is for the systems where we do not have a digital upgrade. So we have systems in backlog that are GT or SR, larger SR systems, and we also have inventory which we need to maintain for our service obligations on our existing network.

Okay. Thank you.

Thank you. Your next question comes from Eric Wold of Merriman Curhan Ford. Please go ahead.

Hey, Good morning.

Hey, Eric.

Just a quick followup on one of Rich's questions. On the JV systems where the cash flow flows in 30 days or so after the end of the quarter, is that just held in normal accounts receivable line?

Yes.

Okay. And then on the film slate for this year, I don't want to nitpick too much, but if you are going to install 65 to 75 JVs this year that would get you to 117 to 127 at year end versus 115 to 125, a little bit higher. I don't want to read too much into it. But are you getting either better visibility or couple more move earlier in the year, a little more confidence hitting those numbers and raising the range a little bit?

Don't read too much into it. Also read into it the fact that sometimes we put in slippage reserves and we weren't trying to have the numbers fit perfectly.

Okay. Then on the film slate, one more question and one longer one after that. On the film slate, can you give us a sense -- you said you want to have most of the 2010 slate done by the end of this year. Besides the DreamWorks films and everything, can you tell us how many maybe signed at this point but just not announced?

There are none signed but not announced. But just to give you a general perspective, there's a Harry Potter release next year. We have a history of doing Harry Potter films. Nothing is signed. And we have an agreement with Disney for a number of films. And we're discussing with them whether any of those titles are appropriate for next year. Warner Brothers, besides Harry Potter, has approached us about a couple of other projects. There are other studios that we're discussing projects with as well. So when things are signed, Eric, we announce them, but we have a lot in play at the moment, and we're just discussing the films that are in play. Obviously you know about the two DreamWorks movies, Shrek the IV and How To Train Your Dragon, which are contractually agreed to and already announced.

Okay. And then lastly, with the tough financing environment out there, are you seeing -- I guess for theater operators, smaller theater operators, are you seeing any pressure on theaters either inability or maybe unwillingness to do kind of the upfront deal, the sales-type lease deals that might move you to be more thing do JVs where you may otherwise not have wanted to? I'm not saying risky deals, but consider a larger universe of potential JV deals.

I'll answer in that two ways. First of all, obviously whether we do JVs, Eric, is completely within our control. Certainly we're not going to do riskier deals or more aggressive deals. Part of the reason is we don't have to. If we just build out our backlog this company looks a lot different, as you know very well. So there are virtually no incentives for us to reach and do riskier deals, and that's not something we're going to do. In terms of the other part of your question, in terms of the economic environment and up-fronts, I think it's a little bit of a wait and see.

Our business is kind of funny, because the exhibition business is so driven by hit movies, and let's face it, we've had a couple of okay movies over the last -- we haven't really had a major blockbuster since The Dark Knight, and Watchmen certainly looks like it's going to be that way in its early stages. When you look at the film slate going forward, there's a lot of exciting projects. And the exhibition industry, as you know, is doing pretty well right now, and isn't under cash constraints. So at one level you would think as the blockbusters unfold and the industry is doing okay, that shouldn't be an issue, but on the other hand we need to monitor it because who knows where the macro environment has an impact.

Perfect. Thank you, guys.

Thank you.

Thank you. Your next question comes from Marla Backer Research. Please go ahead.

Thank you. You talked a few minutes ago about Watchmen looking like it could be another big hit. The numbers came in a little weaker than expected overall last week, and not for IMAX. Are you seeing strong advanced sales in the IMAX system for the second weekend in Watchmen?

I don't know the answer to that, Marla, but maybe what I can tell you, and find interesting is, our Monday business domestic was about [550], and our Tuesday business was about [470], which are very strong weekday numbers for us. So there seems to be pretty good follow through. And historically, the weekday numbers tend to be the best predictor of the weekend, but I just haven't looked at next weekend's advanced sales yet. But I think in our estimation, as we said during the call, it's performing pretty much as we expected, which is a strong film for us.

Okay. And then on the film front again, another question, I'm hearing that there's a sequel to 300, either planned or maybe even in preproduction at this point. Is that something that we should think about in terms of another potential IMAX franchise?

This is embarrassing for us, Marla, because maybe you're ahead of us. We're not aware of that. I'm not saying that it's not true, but I would -- given Zach Snyder's enjoyment in terms of working in IMAX and the success of 300, if that movie comes about and fits into our slots, because increasingly there's more competition for our slots, and we find ourselves committing to those slots further out, that would clearly be a movie that would be interesting in IMAX given the performance of the last one. It would be great.

Yes, thanks. And then two questions. On the --

Marla, sorry, just to give you a sense on the first question you asked, on Monday and Tuesday, the IMAX theaters did about 14% of the domestic gross on less than 2% of the screens.

Wow, okay, thank you. On the international JV front, I think that you have said in recent months that that was an area where you felt you could still tap into substantial market growth. Any conversations there that you think may lead to new signings in the near term?

Lots of conversations. I think we're -- the question near term, I think we're being as cautious as anybody on this, back to what we said before, about the deployment of our own capital. I think our main focus at the moment would be to try and open the ones in Japan and monitor the ones in Australia and see how the Odeons do in the UK, and use that as a springboard. With that said, there are a number of discussions going on in other territories, and something could happen sooner rather than later, but in this environment where we have this huge backlog and we build it out and this company is in a separate place, we're going to be judicious about where we use our capital. Did you have another question, Marla? I'm sorry.

Hello?

Operator?

Thank you. Your next question comes from Jeff Blaeser of Morgan Joseph. Please go ahead.

Hi, good morning and thanks for taking my question. Question on the operating cost side. It's come down steadily sequentially this year. Is that primarily from legal and R&D, or are there other areas that you have been looking at for reductions, and what are your expectations for next year?

Well, in '08, I mean, if you are looking at the '08 numbers, yes, it was mostly legal and R&D and SG&A. '09, obviously, Rich is implementing real cost containment issues looking across different areas in the company, and it involves the areas that we just discussed as well as other discretionary spends, but it's more on a watch list than anything else. Joe, were you going to add?

That's fine.

Okay, great. Then on the film side quickly, obviously the digital appears to allow you to have shorter release dates. Does that change the terms at all if you're looking at a two-week period, and do the theaters have the right, if you will to -- let's say, Star Trek turns into a Dark Knight, could they extend that past the two weeks, or are they tied to the next film, just to use that as an example?

Unfortunately, they're tied to the next film. Frequently in the real world there may be a little slippage, so if it turns out Star Trek is a huge success, it may be that the next film is Night at the Museum II, that Fox would be willing to let a midnight show run or something like that, but contractually they're limited. I think in the real world there's a little bit of flexibility.

Okay. Great. And finally, you mentioned profitability, IRR on your side on the joint ventures, 40% in line. Any feel for the theater's return? Looks like they're doing well. What does that compare to what your expectations were?

Remember, the capital they're putting in is less than us. They're also putting in the real estate, but their IRRs are significantly higher than ours, and we have every reason to believe that they're very satisfied.

Thank you very much.

Thank you. Your next question comes from Robert Cheung, Hedgehog Capital. Please go ahead.

Hi, good morning.

Hi, Robert.

Regarding the estimate you gave for installs, I think it was 20 to 25 for '09?

Yes.

Should I look at that as like four to five a quarter, or is that loaded for the summertime?

Robert, if we've learned one thing in this business, it's that you can't really predict quarterly installs. And that whether something goes in on March 29th or April 4th is completely beyond our control. So I just think that's something we're not going to give guidance on. The other thing we added, though, and we did it quickly, I want to make sure you understand it, in any typical year there are a certain number of sign and installs, which means the client signs that year and it goes in the same year. We're just not giving guidance on. And again, that that can fall anywhere in the year as well. So it's very difficult to give quarterly estimates of installs.

Can you break out the 20, 25 number in terms of how many are upgrades from existing projection systems versus like new?

I think four or five are upgrades where we haven't yet recognized the revenue, Robert.

Joe, correct me if I'm wrong. That 20 to 25, those are all backlog. So that does not include sign and installs, obviously.

Okay. And are the majority of the ones that aren't upgrades international?

No. The majority of those are domestic.

Okay. So --

Actually, I think, three of the five are domestic, two are international. I take that back.

Some have the digital upgrade.

On the upgrade, yes.

Two are international upgrades.

Yes.

In terms of -- so the new system, international installs --

He's asking about new systems, Joe.

It's really a mixed bag for next year. It's in all our territories.

And Robert, just to be clear, I mean, as you know, we could be wrong with this guidance, because things slip, but our guidance is based on on-the-ground examinations of where these projects stand today and the level of construction that's been done. It's not based on abstract contracts. It's based on the real world.

Yes. I guess that was kind of leading toward my next question is given the economic environment, are you seeing some of these -- some of the international malls that are being developed?

Not the ones that we're giving guidance on in 2009.

Okay, great. That's great. Thanks. That's all I got.

Thank you. There are no further questions at this time.

Rich, you have anything? From my perspective, thank you very much. I think Rich and I expressed our excitement. For us, '08 was putting in what we think is an excellent foundation for what we think will be a pretty exciting 2009, in a year that is going to be, for the world, difficult on a macro basis, but I think for the exhibition business, and IMAX in particular, we're looking forward to some very positive things, particularly compared on a year-over-year basis.

The only thing -- two things I would like to add. One is that frequently in one-on-ones I get asked about risk, what are the risks to all that's happening, and I think as you go through the years, we've continued to narrow the risks. So now as you look at this year, it's more how the films perform and do you get the theaters out in time. And as we said, stuff happens, but I think we've tried to limit the parameters to that and risks we had in earlier years, such as are we going to invent digital, and is digital going to work and could it be rolled out, and do we have the financing, those things have gotten increasingly narrowed. So I think 2009 is frankly a year for us to deliver numbers. I hope on future calls we deliver those numbers, and then the last thing I would like to say is this will be the last call that my partner Brad is joining. On a personal note, although our partnership will continue at a different level, it's been a wonderful 15 years, and it's been -- it's certainly had its ups and downs, and a lot of good things have come out of it, and I think you'll see a lot of those good things in 2009. So thank you, Brad.

Thank you. Bye, everybody.

Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line, and have a great day.