Imax Corp (IMAX) 2009 Q3 法說會逐字稿

Welcome to IMAX Corporation Third Quarter Financial Results Conference Call. Today's call is being recorded, today being Thursday, November 5, 2009. At this time, I would like to turn the conference over to Richard Gelfond, CEO, IMAX Corporation. Please go ahead, sir.

Actually, it's Heather Anthony, Head of Investor Relations, and good morning, everyone. Thanks for joining us on today's third quarter conference call. Joining me is our CEO Rich Gelfond and our CFO Joe Sparacio. Also with us is our Senior EVP and General Counsel Rob Lister.

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 and that may pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes.

During today's call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. Discussion and Management's use of these measures and the definition of these measures are contained in the Company's financial filings. The full text of our third 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.

With that, let me turn the call over to Richard Gelfond.

Thanks, Heather. We're pleased with our third quarter and nine month results. This year, we ended up outgrowing our theater network and beginning to deliver the financial value of our new business model. We believe our third quarter results represent meaningful consistent progress on both of these fronts, and we continue to expect full year profitability in 2009.

In addition, we are very pleased to announce that we have received a commitment letter from our commercial lender, Wachovia, with participation from Export Development Bank Canada for a $75 million credit facility, which when finalized will increase our borrowing capacity and support our future growth initiatives. We also commented today that we expect to repay our remaining senior notes by year-end.

Financial highlights for the third quarter include total revenue up 33% to $43.6 million. The primary driver of Q3 revenue was the high level of installation activity for sales type lease installations in the quarter as many of our exhibitor customers are eager to capitalize on upcoming key IMAX 3D DMR titles like Disney's A Christmas Carol and Fox's Avatar. In addition, we experienced another strong quarter from our JV business, which was up 175%, and our film segment, which also posted a strong quarter.

Net income of $1.1 million or $0.02 per diluted share, which includes a $0.06 charge for stock based compensation expense due to the increase in our stock price, which impacts employee stock appreciation rates -- in other words, if not for the run up in our stock, our earnings would have been significantly higher even -- and third quarter adjusted EBITDA of $13.5 million or $40.3 million on a trailing 12 month basis as defined by our credit facility. Remember, that 12 month trailing EBITDA as of December 31, 2008 was just $8.3 million, and again, repeating, now, it's 40.3. So again, this is a very tangible reflection of what our new business model can provide.

Today, I'll reviewing our refinancing efforts, provide a JV update, review Q3 film performance and our future film slate, the fuel that drives IMAX's recurring revenues.

Let's start with our efforts to improve our capital structure. We started the year with $180 million of total debt, $160 million of our nine and five-eighths senior notes and $20 million drawn on our revolver, both of which are due in late 2010. Our two successful equity raises in June and August of this year generated net proceeds to the Company of approximately $130 million. We subsequently repaid $55.6 million of our senior notes, and in early October, we called another $75 million, which we'll repay on December 1st of this year. That leaves us with $29.4 million of senior notes left to repay and the $20 million draw down on the revolver.

Given our improved capital structure and our $40.3 million of trailing 12 month adjusted EBITDA, we were able to work with Wachovia and EDC and received a commitment letter to increase our credit facility from $40 million to $75 million and to extend the facility to October 2013. Further details surrounding the facility will come once finalized. But, as currently contemplated, it's a variable rate loan with current interest rates approximating 4% per annum.

As you'll recall, prior to our recent debt repayments, annual interest expense was approximately $18 million. Given our early retirement of the senior notes in 2009, we expect interest expense to decrease to approximately $14 million this year, and then under the terms of the new credit facility, decrease further to approximately $3 million in 2010. Put another way, we expect to save about $15 million of interest expense on an annual basis going forward.

After redeeming the remainder of the notes, which we expect to do by year-end, we anticipate having about 15 to $20 million of cash on hand, $25 million of availability under the revolver, and about $50 million in aggregate borrowings under a facility.

We look forward after documentation for the new credit facility has been finalized to operating under a capital structure that should enable the Company and our shareholders to further realize the potential for the IMAX brand. Completing this refinancing will, without a doubt, be one of the most important milestones in our Company's history, a milestone that will take place during what is still a very challenging credit market.

Moving to our joint venture revenue sharing business, we ended the quarter with 96 JV theaters in operation compared to 26 as of the end of last year's third quarter. We continue to be pleased with the performance of our JV theaters and with the value we are delivering to our JV partners.

AMC and Regal JV complexes open for the year-to-date period ended September 30th are significantly outperforming other non-IMAX complexes in their circuits compared to the same period last year. Moreover, our analysis continues to demonstrate that box office revenue generated from adding an IMAX theater to a multiplex is highly incremental to the overall complex.

Since quarter-end, we have installed another 11 JVs for the opening of A Christmas Carol, bringing our total JVs in operation today to 107 or 37% of our commercial theater network. We continue to expect that approximately 120 JV systems will be in operation by the end of 2009. Recently, we announced the expansion of our JV relationship with Europalace's Pathe in the Netherlands from one theater to three, and we continue to be optimistic about other JV appropriate international markets such as Japan, the second largest movie-going market in the world. In fact, in Japan, for the playing of This is It, the Michael Jackson film, we've done almost $300,000 in one theater in Kawasaki in a week.

Moving to film performance, DMR gross box office per screen across the entire network averaged $272,000 and $846,000 for the third quarter and the nine month period respectively. As a reminder, our JV model calls for full-year gross box office of $800,000, so we feel confident that, given our year-to-date results and our upcoming titles, that on average, JV theaters open for the full year will exceed that level.

Total gross box office in the third quarter was $57.6 million compared to $66.7 million last year. Last year's third quarter was driven by the unprecedented success of The Dark Knight, the highest grossing DMR title in IMAX history, which generated over $60 million of box office on approximately 144 screens. The two main drivers in this year's third quarter were the last three weeks of Transformers Revenge of the Fallen - the IMAX Experience, and the delayed release of Harry Potter and the Half Blood Prince - an IMAX 3D Experience. While the delay in the IMAX domestic release of Harry Potter was unfortunate, we experienced strong consumer demand for the exclusive IMAX 3D version resulting in generating over 20% of the film's total box office on less than 2% of the screens for the weeks in played in the IMAX network.

Our third new title of the quarter was Sony Pictures' successful movie Cloud With A Chance of Meatballs - an IMAX 3D experience. We over-indexed compared to conventional digital 3D venues and delivered 8.5% of the box office on 3% of the screens, representing our highest percentage of box office for any fall title we had ever done prior to Where The Wild Things Are. The third quarter also benefited from our limited rerelease of Star Trek - the IMAX Experience, which again showed that the important fanboy demographic continues to seek out the IMAX experience.

Overall, we continue to enjoy a record year at the box office for IMAX DMR titles. Through the nine month period, IMAX gross box office has increased 67% to $170.3 million compared to $102 million last year.

Looking at the remaining 2009 film slate, the fourth quarter began with Cloud, which as mentioned earlier, performed above our expectations and has delivered worldwide IMAX box office of $10.5 million to date. Where The Wild Things Are, our 20th Warner Brothers title, was released to 145 domestic only IMAX theaters on October 16th. Through Tuesday, we generated over 9% of the box office or approximately $5.8 million, which is in line with our expectations.

At midnight on October 27th, we released Sony Picture's Michael Jackson's This Is It - the IMAX experience to 96 domestic digital theaters for evening show times and only 27 international digital theaters, which ran full show schedules. The title has generated approximately $2.1 million in gross box office worldwide so far and will continue to play in a handful of international territories. The 10 day limited run of This Is It in IMAX theaters was only possible due to digital and reflects a level of programming flexibility that our studio and exhibitor partners and IMAX fans are enjoying.

An interesting comp which we've looked at is last year during this period, we ran Eagle Eye, which did about $7 million. But, if you compare, Cloudy, Where The Wild Things Are and This Is It, because of digital, which gave us that flexibility, we generated about $20 million in box office.

Tonight at midnight, we will release Walt Disney's Pictures' A Christmas Carol, a 3D motion capture picture directed by Robert Zemeckis on a record 181 domestic screens and many of the 57 international IMAX theaters will also have opened it today. A Christmas Carol is our third Zemeckis 3D motion capture film, the others being Beowulf and Polar Express, both of which were very successful IMAX releases.

And on December 18, 2009, Twentieth Century Fox will release James Cameron's highly anticipated 3D title Avatar in IMAX theaters. Portions of the movie have now been viewed at various industry conferences, and on August 21st, the public enjoyed complementary screenings of select Avatar footage exclusively at IMAX theaters domestically and at IMAX digital 3D screens internationally.

I don't know how many of you have seen the World Series over the last several days or Fox Football over the weekend, but you will note that the Avatar marketing campaign and trailer feature IMAX quite prominently, and we're grateful to Fox for that treatment. We're excited to be such a prominent aspect of the release plan and the marketing associated with this innovative piece of film making.

Also, while not a DMR title, we continue to be pleased with the performance of Under the Sea 3D, which we produced in partnership with Warner Brothers. The film has generated $20.9 million in box office as of quarter-end, primarily in institutional settings. During the third quarter, we had back to back titles that featured differentiated content in IMAX beyond only the DMR conversion treatment that all IMAX titles go through.

Transformers II, the top grossing domestic title of 2009 to date, featured sequences shot by director Michael Bay with IMAX cameras. Harry Potter VI featured our 2D to 3D proprietary conversion technology resulting in a 3D element to the movie that could only be seen in IMAX.

A similar scenario will play out in the fourth quarter. For A Christmas Carol, the IMAX 3D version will be differentiated from other forms of 3D. Zemeckis is an expert in IMAX 3D and takes advantage of our proprietary technology and patented theater geometry to pull objects out of the screen resulting in the most immersive 3D experiences available.

For Avatar, the IMAX version will be different from conventional digital 3D venues in that it will be shown in our 1.78 to 1 aspect ratio versus the traditional 2.4 to 1 aspect ratio, which it will be shown in in traditional theaters. I just want to bring this to everyone's attention, because while we are very much known for being a hardware provider, we can also offer significant IP to a title that provides for a differentiated movie going experience. This is something we want to continue to strategically pursue as it makes the programming shown within the IMAX network even more unique for our various constituents - studios, film makers, exhibitors and customers.

Now onto 2010 - as good as 2009 has been for IMAX, we look forward to 2010 with even more enthusiasm. Our install base at commercial theaters will be significantly larger than where we started in 2009, and if we were only to install systems from backlog next year, we would install 35 to 40 JV theaters and 15 sales type lease theaters. So, that gives you a sense of what the base case is for installs in 2010.

Of course, our ability to capitalize on this increase theater base all rests on the strength of the film slate. And as of course, as in any given year, we expect to have signed installs on both the JV side and on the sell type lease side.

To date, we have officially announced six commercial titles and one IMAX original title and look forward to announcing additional titles as soon as possible. We believe that Avatar should carry on from December and be our main title for January and February, which is typically a slower time of year for big budget pictures.

We'll then move into Disney's and Tim Burton's Alice in Wonderland 3D on March 5th, followed by the releases of our fourth and fifth DreamWorks animation titles How To Train Your Dragon 3D on March 26th and Shrek Forever After, also in IMAX 3D, on May 21st.

We also recently announced that on July 16th, we'll release Warner Brothers' 2D title Inception - The IMAX Experience. This will be our third title with acclaimed film maker Chris Nolan. Staring Leonardo Dicaprio, Inception is an international sci-fi thriller that we believe will pay well to IMAX's fanboy demographic.

If I could just pause here for a second, I think it's important to reiterate that we believe very strongly in balancing our film slate between 2D and 3D titles. While there's been a lot of media and investor attention on 3D, it's worth remembering that some of our best performing titles have been those that provide the IMAX experience in 2D. Ultimately, we are looking for the best title in a given timeframe that has the broadest appeal and is appropriate for our consumer demographic. And I should remind everyone that we receive price premiums on both the IMAX 2D experience and the IMAX 3D experience.

And on December 17th, 2010, we'll release Disney's 3D title Tron Legacy to IMAX theaters. We will announce several more titles in the weeks and months ahead, but we're very pleased to be so far along in the process so early.

Speaking of being early, in October, we announced that will release Columbia Pictures' Spiderman IV to IMAX theaters on May 6, 2011. This is our third Spiderman title and we're pleased to be working once again with director Sam Raimi. We're also encouraged at how early we have already locked in a key title for 2011, which we believe is a reflection of the value the studios are putting on our release windows.

Also, while this is not intended as a formal announcement, the seventh installment of Harry Potter, which we call 7A because the book is split into two movies, will be released to theaters November 19, 2010, and Harry Potter 7B will be released to theaters July 15, 2011. Given that we have participated in the last four Potter films and preliminary discussions that we've had, we would expect that would be the case again for the next two and that, as in the past, they would feature IMAX differentiated content.

Finally, we're also working on an IMAX original film in partnership with NASA and Warner Brothers titled Hubble 3D, which was shot with IMAX 3D cameras and captured the final repair of the Hubble Space Telescope, and will also show fly-throughs of the universe shot from the Hubble Telescope and converted into IMAX 3D, which is scheduled to be released exclusively to theaters starting March 19th.

Beyond our film slate, our goals for 2010 will be to sign more JVs, and of course to increase our level of profitability over 2009. We also expect to invest strategically in our business through our measured increase in R&D spending versus 2009 and we anticipate that SG&A dollars, excluding any impact from SARs, to be up slightly compared to this year, given the cost associated with new business initiatives and the strength of the Canadian dollar.

In closing, we've worked very hard over the years to provide consumers, studios and exhibitors with a premium product offering that cannot be replicated at home. Exhibitors are responding, studios are responding, the most sought after film makers are responding, and perhaps most importantly, consumers are responding.

With our premium brand comes the need and responsibility to deliver the best movie experience out there, whether in 2D or 3D, and that happens to be exactly how consumers defined IMAX in our most recent research study. As we look to the future, we'll continue to push the envelope as it relates to technology, programming and exploring future growth opportunities. Certainly key to all of this will be our new capital structure and business model.

Before I turn it over to Joe, I'm sure many of you saw yesterday the lawsuit filed by Cinemark in which they're seeking a judgment to declare that their XD theaters do not infringe on two of our patents related to theater design and claiming that our patents are not valid. While we found this course of action surprising, we will vigorously defend any and all challenges to our patents and other intellectual property rights.

Thanks, and now Joe will take you through our financials in more detail.

Thanks, Rich. We continue to be pleased with the financial progress made this year from both profit and debt reduction standpoint. We generated third quarter net income of $1.1 million or $0.02 per diluted share compared to a net loss of $2.1 million or $0.05 per share in the year ago period. As Rich mentioned, our results this quarter include a year-over-year increase of $3.4 million or $0.06 a share in share based comp expense, which is largely due to the increase in our stock price over the course of the third quarter and its related impact on our employee stock appreciation rights. Total revenue increased 33% to $43.6 million in the quarter compared to $32.9 million in last year's period.

Looking at our key business segments, revenue from IMAX systems, including sales and sales type leases, increased 130% to $20.1 million compared to $8.7 million in the period last year. We installed and recognized revenue on 13 theater systems under our sales, sales type lease model, including five digital upgrades, compared to three sales, sales type lease installs in the third quarter of 2008.

Revenue from our joint venture relationships increased 175% to $3.4 million from $1.2 million in last year's third quarter. As discussed on prior calls, the summer months are typically a slower time of year for installation as our JV partners do not want complexes disrupted during peak movie going months. Reflective of this, we installed six JV systems for the quarter including one digital upgrade. The weighted average number of JVs in operation during the third quarter was 93.

Total film revenue decreased 4% from $12.5 million in the quarter compared to $13 million in the third quarter last year. The primary driver of the decrease was our DMR business, the comparison of which were to The Dark Knight - the IMAX Experience released last year and the delayed release of Harry Potter this year, which left some box office revenue on the table that we were unable to capitalize on.

Total gross profit increased to $18.7 million in the quarter compared to $15 million in last year's third quarter. Our gross margin rate decreased to 42.8% compared to 45.5% last year.

While our IMAX system margin was essentially unchanged and we experienced significant margin expansion in our JV segment, this growth was primarily offset by the lower margin experienced within our film segment, reflecting higher DMR costs associated with three titles falling in the third quarter versus one title last year and lower revenues year-over-year.

Moving to SG&A, we continue to drive expense leverage. SG&A as a percentage of revenue decreased to 29.2% for the third quarter compared to 32% in last year's period. SG&A expense overall increased to $12.8 million in the third quarter of '09 compared to $10.5 million in the third quarter of '08. The primary driver of the increase in SG&A expense was the impact of stock appreciation rights and is largely driven by the higher price of IMAX shares, which ended the third quarter at $9.41, a $1.29 or 16% increase over our closing share price of $8.12 at the end of the second quarter.

No new stock appreciation rights have been granted since 2007, and at present, we have no intention to issue any additional SARs. We are also looking at ways to address this issue so that we experience less variability within this line item going forward.

Benefiting G&A in the quarter was a $1 million gain in foreign exchange translation adjustments, which reflects an increase in exchange rates for foreign currency denominated receivables as well as our hedging strategies put in place at the end of last year, which have resulted in lower operating and capital expenditures.

R&D decreased to $1 million in the quarter from $1.6 million in last year's period. Last year's high level of R&D expense reflected the investments we made early in the quarter related to the launch of our digital projection system in July 2008. And operating income increased 93% in the third quarter to $4.7 million compared to $2.4 million in the year ago period.

I just wanted to mention one housekeeping item. During the third quarter, we closed one of our owned and operated theaters, which resulted in income from discontinued operations of $22,000.

Moving to systems signings and backlog, during the third quarter, we signed contracts for 13 new systems, all under the sales, sales type lease arrangements compared to 11 systems signings a year ago, seven of which were JVs. Our backlog at the end of the quarter consisted of 163 systems. 102 were sales, sales type lease systems valued at $127.3 million and 61 were joint venture arrangements, which as a reminder, carry no stated backlog value. This compares to a total backlog of 238 systems as of September 30th last year, which included 106 sales and sales type lease systems valued at $149.5 million and 132 joint venture arrangements.

Moving to system installs, through the first nine months of the year, we have installed 27 sales and sales type lease systems, including 10 digital upgrades. Given new signings that have occurred during the year, we now expect to install a total of 30 to 35 sales and sales type lease systems in 2009, including upgrades, above our most recent install guidance of 20 to 25 sales and sales type lease systems, which also included some upgrades.

We've installed 52 JV systems through the first nine months of '09, including eight digital upgrades. As Rich mentioned, at this time, our JV guidance remains unchanged, which should put our year-end JV total at approximately 120 units. As we have cautioned in the past, installations can and do slip from period to period, often for reasons outside of our control.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $98.7 million compared to $27 million at the end of December, primarily reflecting the proceeds from our public equity raises in June and August and subsequent repurchases of 55.6 million of our senior notes, which matured in December 2010. We have currently done a partial call of 75 million of the notes, and as Rich mentioned, it is our intention to call the rest by year-end.

Our Q3 cash position also reflects our continued investment in joint venture theater systems, and that was $5.3 million for the quarter.

To sum up, we continue to be pleased with our 2009 results. Let me now turn it back to Rich for final comments.

Thanks, Joe. So, to quickly wrap up, we're pleased with the progress made on many strategic fronts this year. We believe we have nice momentum going into the fourth quarter, look forward to the 3D releases of A Christmas Carol and Avatar and are very optimistic regarding our growth prospects for 2010 and beyond.

With that, I'd be happy to open it up for any questions.

(Operator Instructions.)

Your first question comes from Richard Ingrassia of Roth Capital Partners. Please go ahead.

Thanks. Morning, everybody.

Hi, Rich.

Rich, I assume that facility was struck for an amount that gives you some comfort you'll have funds to roll out any subsequent JV agreements. Can you just maybe size up what you think that opportunity is? I know you mentioned Japan, but what do you see domestically as the opportunity, either to follow on AMC and Regal -- obviously, we can't expect anything with Cinemark now, but any other larger exhibitors that you think might be a potential customer going forward?

Well, let me just back up and go into the strategy again, which was internationally, we planted seeds in various territories this year, much as we did with AMC and Regal in prior years. So, this year, we opened new joint ventures in Austria, in Japan, at the end of last year in Australia, we're expanding it in the Netherlands, quazi JVs in the UK with Odeon.

And so, the plan internationally was to open a number, a small number of JV theaters, let them get traction, and then expand those relationships. And I think, Rich, as you look for JV growth, the bulk of the JV growth will be in the international territories as those theaters perform, or I should if they perform, and then growing out those markets.

In North America, there really aren't large swaps left with other exhibitors. And in fact, just to be clear, we were not in discussions with Cinemark about any JV theater arrangements over the last several months. And I think I've probably made that clear in prior calls.

I think you'll see growth from the regional chains domestically, because when you look at our map, big parts of the country are covered and you've got to fill in, and also, I think both Regal and AMC aren't looking at the number in their agreements as kind of a stop point. I think they're looking at if there are other good locations. That's something they would consider, as well. So, I'd expect to have some discussions about that.

The third place, Rich -- we talked about this before, and it's way too early to say, but I would say, given the success of some of the numbers, the possibility of putting a second IMAX within a certain zone of exclusivity is certainly something we will discuss with the exhibitors going forward.

Okay. Yes, I didn't mean to suggest there was something in Cinemark. But, do you have a proxy in any market? I mean, a market today that demonstrates at least in some preliminary way what the IMAX theater -- how an IMAX theater performs when there's another in fairly close proximity or inside the typical geographic clearance that you have and others?

That's one thing we're studying fairly carefully, which is you look at the California market, which had not that many IMAXes, or the New York market, and all of a sudden has a lot of IMAXes, and what's the impact on one from having another one. I'd say the results are still inconclusive. But, if you look at kind of a per screen, which I referred to earlier, in the overall network, it seems like there's still a lot of healthy room for growth and delivering returns to the exhibitor that are more than their target levels quite acceptable. So, we're monitoring it, but we haven't yet seen really material adverse effects.

Okay, thanks. Quick question for Joe, and then I'll get back in the queue if I have something else. Joe, you have an estimated diluted share count for Q4?

Rich, as of the end of October, we were at 62.3 in terms of shares outstanding. Now, that number could increase in the next couple of months if some stock options were exercised and stuff like that. So, I think you're going to be in the realm of 62.3 to 62.7 maybe.

Okay.

So, it's really going to be dependent upon what options get exercised.

And capital spending expectation for Q4 apart from anything related to JV systems, non--?

--Fairly minimal except for our DMR spending.

Got it. Thanks.

Thank you. Your next question comes from James Marsh, Piper Jaffray. Please go ahead.

Hi, gentlemen. Two quick questions - first, Rich, you talked about the delay of the release of Potter as being unfortunate, and just wanted to know, as the slate starts to build in 2010, how do you avoid these kind of issues going forward? And obviously, it's a high class problem, but maybe you can take us through how you kind of prioritize the releases and who moves to the front of the queue. And then, I have a follow up.

Yes. I mean, I would be really surprised, James, to see at least what we've committed to in 2010 move in any way because our organization has already seen footage from How To Train Your Dragon, Shrek IV, Alice in Wonderland. I know the Warner people have screened some of the Chris Nolan footage. So, I don't see that. I wouldn't quite call it a black swan event, but I don't really see it as an annual event.

But, I will tell you that we can move so rapidly now in terms of taking advantage of an opportunity. So, the Michael Jackson This is It I think came up three weeks before we did -- we actually released the movie. We can act extremely quickly.

And I think Harry Potter was unique at the time because it was such a franchise and we had such a relationship with them that we just weren't going to trade it out. Both the relationship and the success of the films outweighed all of that. So, I mean, you could have a film like that again. But, I think given how much interest there is in having slots with IMAX, I just don't characterize that as a material risk.

One anecdote - Greg Foster, who you know, our head of film, is in Japan. And he called me last night about an issue in 2011, and that was the same slot, three different studios wanted to put a film in. And any of these films if we announced you would say, wow, that's a really good choice. And in fact, one of the studios said we'll even consider moving the date to get the slot. And Greg said, Rich, I know it's a high class problem, but how are we going to deal with this.

So, my answer is I think if something like this happens again, given the size of the network and the success of the network, we'll be able to slot in something very good very quickly, particularly if it's a non-shoulder period.

Okay, understood. That's helpful. And then, just if you could just talk a little bit about your experience so far with competing against the XD screens. Maybe you could just talk a little bit about your experience in Dallas and Salt Lake where an XD screen has been in that market for a reasonable period of time and just if you're seeing any impact at all or just how the market dynamics have changed, if at all.

Well, I'll answer it in two sorts of ways. We did two kinds of analysis. First of all, we've looked at its impact on IMAX, and then we tried to look at its impact on its own multiplex and how it's performed. And in terms of its impact on IMAX, in short, we have not seen really any. IMAX is still doing very well in those markets. When you look at films that we both played at the same time, the IMAX theater's still doing what we would expect the IMAX theater to do. And I think people get the IMAX experience and they know what it is.

By the way, I don't think it's called XD3 any more. I think they changed the name to XD, but I'm not sure about that.

Anyway, in their boxes, the XD boxes, we've looked at the results in those multiplexes, and the results have been somewhat mixed. We haven't done it recently, but we looked at the XD in El Paso, and there seemed to be a lift in that particular multiplex. But, it seemed to come at the expense of one of their other multiplexes, which isn't too far away geographically.

In Salt Lake City, it seemed to not only have not lifted their multiplex, but the multiplex actually seems to be doing worse with the XD3 in it than it did before. So, obviously, it's something we're monitoring. When anybody introduces something, you don't want to be cocky. You want to pay careful attention to it. But, right now, it doesn't seem to be making a material difference to us.

That's very helpful. Thanks, Rich.

Thank you. Your next question comes from Mark Argento of Craig-Hallum Capital. Please go ahead.

Yes. Good morning, guys. Could you give us a little color on the 13 sale lease systems? Where are these systems going? Are they mostly international, and can you create any leverage off of the sale lease and potentially going -- kind of incubating some JV opportunities from that?

It really was a mixed bag for the quarter. Installations were both domestically and internationally. So, it really was -- there wasn't a concentration in one area or the other. I believe, if I'm not mistaken, that four of the five upgrades I believe were in the domestic marketplace if I recall.

Then, in talking to that 120 JV number for the full year, you did mention that, of course, some could slip out. Are you hinting that you feel less comfortable at the 120 number, or you just are getting your standard hedge clause on that?

No, we're not hinting at anything. I think we're saying that's what we think it's going to be, and it's possible things are slipping out. But, to be clear, we expect to come in close to that number.

Okay. And then, if you look at -- I know you've only announced a handful of five or six movies for next year in terms of the 2010 slate. If you were to think about your kind of same theater gross box office opportunity for next year, do you think that that is kind of going to be in line with what you saw in this year or incrementally better given that you're going to have Avatar in the front half of the year? How do you feel about the way things are shaping up in terms of your slate for next year?

First of all, I don't want to be defensive about it, but I think we've announced around seven of next year, if you include Harry Potter, which isn't finalized yet. So, we're kind of over halfway there. And in our own minds, we pretty much know what the slate is, and in some cases have handshakes. They're just not -- the documentation hasn't been finished, so we haven't announced them yet.

And that's a very good question. We've given that a lot of thought. And I think when you look back on 2009, up until this point, what's interesting about it is there's only been really one breakout hit, which was Transformers, which did about $45 million in IMAX box office. Other than that, it's a lot of what I'd call singles and doubles along the way.

Obviously, Harry Potter, because it was delayed, lost on box office. But, I think it did around $28 million. Monsters versus Aliens was in the same ballpark. Night at the Museum II was a little less than that. As I said, the three films grouping around this shoulder period did about $20 million.

So, up until now, this year, it wasn't really homeruns involved. It was a lot of singles and doubles. And as you look at the slate next year -- let's start with the first quarter where this year, all we had was the rerelease of The Dark Knight, and next year, you're going to have Avatar only the third week in its run teeing up January. So, you've got to feel good about kind of your first part of the year comparison. And then, after that, you go in Watchman, which did fine. Again, it was a single or a double. And then, you compare it to Alice in Wonderland with Johnny Depp directed by Tim Burton. You've got to feel okay about that.

And then, as you go forward into the next quarter, when you have Chris Nolan's Inception and you have Shrek, the fourth one, which has extremely good buzz around it -- so, if you go year-to-date through now, you've got to say that you've got to feel at least as good as you do about this year just because of, as I said, where the results came from.

We still have another quarter to go, so we'll see. I don't want to get ahead of myself. It is the movie business. You don't choose movies unless you think they work. But obviously, they don't all work all the time. But, I feel pretty good about next year.

Great. And then, one final question - in terms of the -- it's more of a one off question here. In terms of the aspect ratio on the Avatar, what was the -- what ultimately was driving the decision to change the aspect ratio? Is that just a film maker decision or a little color on that?

It was completely Jim Cameron's decision. He likes the IMAX 1.8 aspect ratio, and it opens up the film more in a square format and pretty much fills the full screen. So, that was his decision, although as I said during the prepared remarks, strategically, we like IMAX being both a software and a hardware differentiator. So, we're very pleased he decided to do that. And as we look at projects, that's one of the things we look for is will the film maker create a differentiated IMAX version.

Great. Thank you very much.

Operator?

Thank you. Your next question comes from Aravinda Galappatthige of Cormack Securities. Please go ahead.

Morning. Thanks very much. Just a couple of quick questions - first of all, on the JVs, just looking for a data point. I was wondering if you have handy the average box office in Q3 just for the JVs.

The average for the total network was -- I think we'd mentioned it was, what Heather, 2 and change, 229, something like that. Let me get that number here.

272.

272. And Aravinda, we've mentioned in the past, JV performance will -- right now is somewhat discounted from that. And generally, it's in the range of 10 to 15%, depending on the film.

Partly because it has smaller boxes than the traditional network.

So, that'll -- you could use that as a benchmark.

Okay. And also on the film slate, when you look at the, I guess the crucial March through July timeframe in 2010, you have some really good titles coming out. One might look at the slate and say there's still some slots available within that timeframe and some great titles that are available that you may not have signed up already. What are your thoughts on how you want that to pan out? Do you prefer to have longer runs for those titles or would you like -- would you sort of tend towards infilling that period with additional movies that might perform strongly that you might fill?

Aravinda, this is a very clever way of asking the Iron Man question.

Not just Iron Man, but--.

--The answer is we're exploring filling in some of the holes if we can. And when we're able or ready to announce something, we will.

Okay. And one last question - I think I didn't catch a comment that you made earlier about the backlog for sale type leases with respect to 2010. I think, Rich, you mentioned 15 that are scheduled for 2010. Did I hear you correctly?

That's correct.

Okay.

But, that's obviously just from backlog.

Okay. Got it. That's all I had. Thank you very much.

Thanks, Aravinda.

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

Thank you. Good morning. A couple of follow up questions on some of the ones that have been asked earlier - on -- with AMC and Regal with their JVs, as they kind of look at their theaters and see some performance that may be better than what they originally expected when they kind of first chose those territories, that obviously may open up additional territories that they're in that they previously thought may not have worked for IMAX, now they think they may work. On that note, do either one of them hold certain kind of first rights of refusals for any territories? Is it basically just kind of first come first serve who wants to grab them?

There aren't technically rights of first refusals, but there are certain rights to discuss with them and negotiate with them certain things.

Okay. Do you know kind of how many territories or how many screens may be kind of held by first right of refusal?

What I'm saying is they don't own -- there aren't rights of first refusal beyond that first group. But, even forget the legal stuff, Eric. I would say that if we were going to go with someone in a territory where they had a really good box, we would consider giving them a call depending on who dominated that market, whatever the contract says just because of relationship reasons.

Okay. And then, on 2010, you're looking at the film slate you have announced and maybe kind of what you may be kind of working on and haven't announced. Any thoughts in kind of linearity of how insulation should flow next year any different than this year? What I'm getting at is kind of, obviously, certain (inaudible) movies theaters may want to install ahead of that versus--.

--Yes, I think what you're going to find is it'll probably be concentrated in the first half of the year as it relates to the JVs for sure. There could be some slippage into the third quarter. But, if we can avoid that, I think everybody would like to avoid that.

Yes, and already, Eric, just making your point that you're making back to you, some of the theaters are saying, gee, we want to be -- they couldn't get open for Avatar and they're saying we want to be open for Alice in Wonderland. So, I think that's why Joe is saying that on the JV side, we think many of them will be open in the first half of the year.

On the sale and sales type lease front, that's kind of a mixed bag. I mean, they'll kind of come in ratably over time.

Okay. And then, last question - what should we think about in terms of tax rate going forward? I know it kind of peaked up a little bit. Was there anything unusual in there, or is it -- what should we think about going forward in 2010?

Nothing right now. I mean, I hope we have a high class problem moving forward where we start burning through some of our tax assets. So, in the near future, our tax expense should be limited to minimum levels of withholding tax accruals and stuff like that, which it has been in the past. And hopefully, we've got the high class problem of starting to burn through our significant tax assets.

So, without going through -- without trying to get guidance or next year in terms of what you expect pretax to be, is this level kind of in the 3, $400,000 range in terms of taxes reasonable for these next few quarters?

Yes, I mean, that's pretty -- yes, I would be surprised if that -- if we would vary from that. But again, it all depends upon the business activity within a particular quarter.

And again, I don't want to venture in an area that I don't know that much about, but Eric, there's also significant off balance sheet tax assets that we wrote off years ago that if we had levels of earnings that exceeded that, that we could write back.

Since the Q's not out, last question - can you give kind of a range of what those total kind of tax assets look like right now at the end of Q3?

Yes, I mean, it hasn't really changed from the end of Q2. It's around $80 million, which has a full valuation reserve at the end of the quarter. So, as the Company generates earnings, those tax assets become -- we're able to utilize those to offset any income tax expense moving forward.

And as Rich mentioned, at any point, if the Company shows a history of earnings, then we've got the -- we need to make a consideration in terms of whether we release the valuation reserve.

Perfect. Thank you.

Thank you. Your next question comes from Jake Hindelong of Monness, Crespi and Hardt. Please go ahead.

Good morning. First question, just on the sales type leases in the quarter, how many of those were sign and install?

I want to say, Jake, probably -- I'm going to guess here -- probably about three to four.

Great. Okay. Thanks, Joe. And then, a bigger picture question, and this was somewhat alluded to when talking about 2010, but more so, when you're looking at 2011 and the demand for the films, what's the optimal run for a film during the peak months? Is it two to three weeks or will you still focus on closer to four weeks for those premium films?

I hate to duck it, Jake, but it completely depends on the kind of film and the genre. So, family films tend to hold up better over longer periods of time. So, if you said something like Shrek, it's probably going to be four or five weeks because it tends to play better that way. If it's something like an action adventure fanboy kind of film, it may be three weeks. But, I'd say that's sort of the range, three weeks to four weeks would be optimal.

Great. Thanks, Rich. And then, just as far as the measured R&D increase for next year, what market would you be targeting with the R&D? Is it just further expansion in theatrical, or are you thinking more the home market?

I think that R&D next year will still be mostly focused on our core business in theatrical. And as you know, we still need a solution for our larger screens in terms of how to provide an IMAX quality image on those screens consistent with our brand. So, that'll be the bulk of it.

But, I also think you'll start to see us spending some money on product extensions. We had a board meeting yesterday and one of the subjects was that if you look at brand recognition per dollar, which no one's ever calculated, I think we have very small revenues compared to how well known our brand is. And we are definitely committed to finding ways to exploit that brand value. And I think you'll start to see us invest a little bit of money doing that. But, most of it will still be based on the core network.

Okay, great. And then, just as far as thinking about how large the increase is, would it be fair to look back at 2007 as a baseline for the R&D spend level?

Go ahead, Joe.

Yes, I would -- Jake, as opposed to going back, I think we'll be a little bit lower than that. I would anticipate perhaps being in the 5 to $6 million level. I mean, we're currently going through all the projects now. But, that's kind of the ballpark of where we might land.

Great. Thanks.

Thank you. That is all the time that we have for questions. I will turn the call back over to Mr. Gelfond.

Okay. Thank you very much, operator, and thank you, everybody.

One thing that I really want to emphasize is if you step back from this year and you look at where we've come from and where we've been, it's really been a remarkable year on many fronts, whether it's refinancing our capital structure, whether it's demonstrating profitability, whether it's -- we take this all a little bit for granted, but opening these JV theaters on time and on budget, whether it's the film slate that we've had. So, it's kind of very easy to kind of sit back and say it's on auto pilot.

But, I just want to assure all of you, we had a board meeting yesterday, and what I was really focused on is what could go wrong, where we go next, how we make our growth faster. So, I don't want anybody to think we're sort of sitting back here and resting on our laurels and saying, gee, we've done such a good job, congratulations, aren't we wonderful. That's not really the way we think about it at all.

We think we've built a nice base and we think that from that base, we think we have a great brand and there are good demographic trends behind us. And we're charged with figuring out how to grow that base and deliver more value for shareholders. And thank you all very much.

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