Imax Corp (IMAX) 2010 Q4 法說會逐字稿

Good day, and welcome to the IMAX Corporation fourth quarterly earnings conference call. Today's call is being recorded.

At this time I would like to turn the conference over to Ms. Heather Anthony, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, and thanks for joining us on today's fourth quarter and fiscal 2010 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. We're conducting today's call from our LA office where Rich and Greg Foster have numerous meetings this week, and as such we're pleased to have Greg Foster, our Head of Sales Entertainment, with us, and he will join us for our question-and-answer session. We've also uploaded a PowerPoint presentation in PDF format onto the IR section of our website this morning to help illustrate some points included in today's discussion.

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 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. A discussion of Management's use of these measures and the definition of these measures, as well as reconciliations to adjusted EPS and adjusted EBITDA, are contained in this mornings press release. The full text of our fourth-quarter release along with supporting financial tables is available on the imax.com. Today's conference call is being webcast in it's entirety on our website. With that, let me turn it over to Rich Gelfond.

Thank you, Heather. The fourth quarter of 2010 marked a strong finish from what was a record year for IMAX in virtually all respects. The year's record revenues and earnings reflect the benefits of our new business model. We signed theater deals in record numbers . The public came to enjoyed the IMAX experience in record numbers, and we experienced significant growth in our theater network.

We also strengthened our relationships with our studio and exhibitor partners, and we began to think more expansively about our brand by forging strategic agreements and exploring new opportunities. We believe that IMAX today is the preeminent brand in entertainment technology. It is recognized as the premium way to experience blockbusters by studios, exhibitors, filmmakers, and most importantly, consumers around the globe. We believe we have a model that has proven it's durability hosting record profits in the midst of a global downturn and that we have built an incredibly strong foundation from which we can continue to grow our Company and our brand.

There is another important driver of our success, however, which is our culture of quality . Whereas that many innovations in technology are driven primarily by a desire to cut costs and move faster, we at IMAX are obsessed with one thing -- how can we make our premium experience even better. The steadfast commitment to quality is the backbone of our brand's reputation and why we have earned the trust of filmmakers, studios, exhibition partners, and moviegoers around the world.

Our commercial theater network has nearly doubled over the last two years. Our commercial theater network installed 100 plus systems in each of 2009 and 2010, and we are projecting that 2011 will be our third consecutive year of triple-digit installation. Our business is enjoying a period of significant momentum, and we remain focused on expanding our brand's global reach, both through our core business and in ways that transcend the traditional.

In 2010, our goal for the organization was growth -- growth of our financial results, growth of our theater network, and growth related to new business opportunities. We exceeded our growth goals in several key areas. Revenues increased 45% to a record $249 million. Earnings per share adjusted for stock appreciation rights and eliminating a one-time tax gain, which Joe will discuss in more detail later, increased by 168% to $1.02 making 2010 the most profitable year in our history.

Adjusted EBITDA increased by 73% to $101.4 million from $58 million last year. We grew our commercial network by 30%. We signed deals for over 200 IMAX systems. And gross box office from DMR titles doubled from $270 million in 2009 to $546 million in 2010, at a time when overall domestic box office for the full year was challenged.

As important as these accomplishments are -- and, in fact, there are many more that we'll touch on throughout our remarks -- the most important thing to take away from these statistics is that we believe they are the manifestation of an underlying business model that is both scalable and durable. What do we mean by durable? Our dual revenue streams which come from our studio and exhibition partners are recurring in nature and are growing in size as our theater network expands. 56% of revenues in 2010 were from our recurring revenue segments compared to 50% last year.

In addition, these revenue streams come with higher margins as illustrated in the slides that are attached to this presentation. When we consider our contracted and theater backlog, our strong film slate, and the pipeline of new theater and film deals we are working on, we believe our long-term growth outlook is very compelling over the next several years.

As we look at our business today, our strategic goals for 2011, which have been communicated internally to our organization, are to focus on expanding our strengths in branding, differentiation and to continue to grow our business through reinvestment. Let me now review each of these areas for you.

First, brands. Throughout the course of our 45-year history, our brand has been built upon our commitment to quality, our innovative implementation of leading technology solutions, and, most importantly, the strength of the IMAX experience. We believe it is clear from the market research we've conducted over the past year and for conversations with our partner that now is the time to expand and develop the IMAX brand in ways that reinforce our brand attributes but also transcend our traditional core business. We want to tap into the strong emotional connection consumers have with the IMAX, but we want to do so in a manner that is highly disciplined and strategic, given the near doubling of our commercial theater network over the last two years.

To that and to highlight the importance we are placing on brand management, we are currently in the process of hiring a Chief Marketing Officer. This person will spearhead the further development of our brand, our reputation, and determine new paths that could tap into the emotional connection consumers have with the IMAX experience.

Since our Company's founding, we have provided our audiences with a differentiated experience. We provide this differentiation through our technology , through our innovation, and through our creativity. As a result, we've been able to eventize the IMAX release of a film, and the proof is in the results. The next frontier, where we've already begun to see the benefits, is to increase our content differentiation. Disney's Tron is a great example of what I'm talking about.

For Tron, to we collaborated with director Joe Kosinski to specifically design 43 minutes of the IMAX version of the movie to take advantage of the premium IMAX experience. 7 sequences in the movie were expanded vertically to take advantage of the IMAX aspect ratio allowing audiences to become further immersed in the films massive scope and scale enabled by that unique ratio.

Additionally, we differentiated the Tron IMAX experience through an aggressive marketing effort which, in collaboration with our great partners at Disney, included Tron night back in October featuring a 23 minute sneak peak at the film exclusively at IMAX theaters. The success of those efforts was reflected in IMAX having generated almost a quarter of the domestic box office for the movie while accounting for just 2% of the total streams.

We also focused on differentiation through international distribution schedules with exclusive IMAX release windows, such as the four-day exclusive IMAX run of Tron in France before the film's wide release there. There is IMAX only early release strategy was also used for the release of Tron in Russia in December and with Warner Brothers' Harry Potter and the Deathly Hallows in France in November.

And just recently, I Am Number Four opened early in IMAX only in Mexico and the Netherlands. Orientals will also experience IMAX differentiation with Disney and Robert Zemeckis' Mars Needs Moms, which will take advantage of our unique theater design to bring the 3D action out farther into the audience, something Zemeckis has worked on with IMAX for years in such films as the Polar Express and A Christmas Carol.

We also announced in early January that Brad Bird is shooting several scenes of Mission Impossible 4 Ghost Protocol, which will be released this December, with IMAX cameras, which will make the IMAX version of the movie much more immersive. Brad Bird has shot approximately 30 minutes of IMAX footage right now and the dailies we have seen are extremely exciting. And, of course, Chris Nolan, the first commercial director to shoot with IMAX cameras and our long-time partner and friend, has announced he would like to shoot as much of the Dark Knight Rises as possible with IMAX cameras. That movie is primed for release in July 2012.

So whether it's through different technology, different filming methods, different content, different marketing events, or different release strategies, we believe differentiation can further help drive the excitement factor around certain titles and IMAX itself, and this is driving a lot of our conversation with our studio partners.

Which brings us to our third area of focus, reinvestment. Our strong financial and cash flow positions are allowing us to reinvest in our growing business as never before. In 2011, we will reinvest in order to further advance our revenue sharing business and other new business opportunities that we believe will deliver attractive return rates and that are consistent with our brand and vision. Each year we earmark a significant portion of our R&D budget to enhance as many aspects of the IMAX experience as we can, such as our interest in laser light technology or our new [Nexus] calibrator.

We are all very excited about our 3D net cable venture in partnership with Sony and Discovery which officially launched on February 13 on Direct TV. It's part of our strategy to bring the IMAX brand to consumers in ways that transcend the traditional. Our titles, such as the Magnificent Desolation and Under the Sea, have been featured prominently and the channel is an excellent way to showcase some of our library content, which is unquestionably the highest quality 3D content available today.

As we assess the growth we have experienced over the last two years, as well as the growth we envision in the years to come, one of our challenges now is planning and managing for the growth while maintaining the entrepreneurial culture that has driven our success. But we have determined not to let this success lead to complacency. As the network continues to grow, we will continue to systematize our business. We are intensely committed to ensuring that we have the right plans, infrastructure, people and process in place within the confines of our budget and targeted growth rate to effectively manage this time, while at the same time ensuring that we hold on to the passion and flexibility that got us where we are.

The next area I want to highlight is network growth. In 2010, our commercial theater network grew by 30%, our JV network grew by 46%, and our digital network grew by 83%. And in the midst of all this growth we managed to increase our uptime rate to 99.8% from 99.7%, and delivered gross box office per screen of $1.6 million, double of what was in our original model when we launched this business. We believe that momentum is on our side, and we want to use that momentum to fuel our future growth. So the question is, where do we see our network expansion headed as we move into 2011?

Let me first discuss international where we have substantial opportunities. We ended 2010 with 139 international commercial theaters and believe our international footprint can grow to approximately 800 sites over time. We are continuing to build out in Europe, the Middle East and Africa, or the EMEA, as well as Asia. Regarding the EMEA, we currently have 15 commercial theaters in operation in the region, and we signed contracts for 50 theaters in 2010. In other words, we already have the contracts in place to nearly double our presence in the EMEA.

In 2010, we signed 15 theater deals in Western Europe in important markets like France and Spain. We opened our first commercial theater in Germany in 10 years, and in 2011 we'll open our first commercial theater in Italy. In Russia and the CIS, we signed contracts for another 17 theaters positioning this region to become our third biggest territory behind the US and Greater China.

Our success there is a reflection of the outsized box office grosses we're generating to the tune of over $3 million per screen. For our theaters that were opened for the full 12 months of 2010, we're 10 to 11 times the average non-IMAX screen in Russia.

This year also marked the establishment of new markets for us like Croatia and Kazakhstan. We're not only signing new partners, we're expanding our agreements with existing partners, which is directly attributable to IMAX's increased profile, the various benefits of our transition to digital, our robust, and the establishment of reference theaters in key regions. And historically we have found that signing new theaters in any territory often leads to additional theater signing in that region, so we're optimistic about our network growth prospects.

As I mentioned on prior calls, Asia, and in particular Greater China, represents the biggest international market opportunity for us. We've been operating in Greater China for more than a decade, over which time we signed deals for 50 theaters. Fast forward to today, and we signed theaters for an additional -- contracts for an additional 50 theaters in Greater China in 2010 alone. We now have 40 IMAX locations open and 60 new systems in backlog which, when opened, will double the size of our network in the region.

Our current backlog total includes our four theaters with our new partner, Blue Ocean. Our box office performance in this region continues to over index the industry. Tron generated $2 million in China over the first two weeks on 24 IMAX screens, which represented 15% of the country-wide box office from 1% of the screens. Its per screen average was approximately 16 times that of other screens in China.

Keys to our growth in Greater China have been the establishment of the IMAX brand as a super premium venue, the success of Aftershock, our first Chinese DMR title, our strong film slate and a flurry of the new theaters. The exhibition market in China is poised to grow at a significant rate where government estimates are calling for 20,000 to 25,000 screens in China five years from now, up from approximately 6200 screens as of the end of 2010, and we obviously see great potential for us in that industry-wide growth.

We also continue to make progress in Japan, a market that we believe should be able to support at least 50 IMAX screens. We grew our commercial network to nine theaters as of December 31, up from four at the end of 2009, and we have another five in backlog. We believe we will soon be in a position to begin releasing IMAX films, Japanese films, being DMR through the IMAX process in the not-too-distant future as we did with Aftershock in China. This is particularly important as Japan has historically been the second or third largest moviegoing market in the world, and approximately 50% of its box office is generated from local titles.

In 2010, we signed deals for approximately 50% of its box office even-- we signed all these new theaters even though we didn't released local titles. We signed deals for up to 11 new sites, and we've grown from one JV partner to three in Japan. We launched the first three theaters of a deal for up to five with UC in Japan, all of which we're off to a great start since opening with Harry Potter in November. As a result, in December, UC opened its fourth site and we are currently in talks to open the fifth location.

However, our opportunities aren't limited to international. While we are more heavily penetrated here in the US, there remains ample demand for IMAX theaters, particularly in small to mid-sized markets. We've seen great success in places like Wichita, Kansas, where the Warren Theater complex since installing it's IMAX screen in December for Tron has generated gross IMAX box office of $785,000. Again, I'll repeat, since December, making it the highest grossing IMAX complex in all of North America over that time frame, again, in Wichita, Kansas. Or take our new Rave theaters. Our first five JV theaters with Rave opened in the fourth quarter in towns like Chattanooga, Tennessee, and Birmingham, Alabama. Since opening the IMAX theater, these five Rave complexes have moved up the national ranks by an average of 109 places.

Looking at our 2011 film slate, this will be our busiest year yet. We have are ready contracted for a record 21 titles and probably still have a few more to come. Through the first two months of this year, we have shown four films in the IMAX network. Just three years ago, that was half of our annual film slate. Overall, even accounting for the difficult Q1 comparison because of last years' juggernauts, Avatar and Alice, we are optimistic about the release slate in 2011 and believe it is going to be a good year at the movies in IMAX. Our slate is too extensive to mention all of the movies, but I'll touch on some of the highlights.

At the end of March we'll have Zack Snyder's action fantasy thriller, Sucker Punch, which we believe will play well to our fan boy audience; Disney's next installment of the Pirates of the Caribbean series starring Johnny Depp and Penelope Cruz opens on May 20; Paramount Pictures and J.J. Abrams sci-fi thriller, Super 8, which generated great buzz at a Paramount worldwide sales conference earlier this month; Disney Pixar Cars 2, directed by John Lasseter; DreamWorks Animations Kung Fu Panda 2 in select international markets including China, where Kung Fu Panda 1 performed very well when it was released; Michael Bay, Steven Spielberg, and Paramount's Transformers 3 on July 1; Warner Brothers' final Harry Potter installment on July 16; Puss N Boots, also from DreamWorks Animation; Mission Impossible 4, as I mentioned earlier filmed in part with IMAX cameras on December 16; and Steven Spielberg and Peter Jackson's Adventures of Tintin on December 28. As I think about this slate, it strikes me that we'll offer moviegoers some of the most popular franchises of the past decade from some of the most iconic and exciting filmmakers in Hollywood today.

Before turning it over to Joe, I want to mention that our growth over the past two years would not have been possible without the relationships we have developed with our exhibitor, studio, and filmmaker partners. Perhaps more importantly, IMAX's symbiotically contributing to and enjoying our partners' success. This is critically important as we look at the changing landscape of the film entertainment industry. We believe that we are uniquely suited to maximize grosses for studios and market share for exhibitors given where IMAX sits within the entertainment digital media and innovation landscape. In a time of new distribution platforms, shortening windows, falling DVD sales and piracy threats, we see IMAX as being part of the solution for the many challenges our partners face today.

We look forward to continuing to collaborate with them on the ongoing success of a blockbuster films and helping these franchises through one of the most mind-blowing, awe-inspiring film entertainment experiences available today.

With that, I'll turn it over to Joe who will

Thanks, Rich.I'm also very pleased with our financial results. As I look at this quarter and the year overall, what is becoming increasingly evident is the tremendous benefit our digital strategy is delivering across virtually all business segments, a strong indication of the durability of the model.

For the trailing 12 months ended December 31, adjusted EBITDA increased 73% to $101.4 million from $58.5 million as of the end of 2009. Adjusted EBITDA margins for the year increased by 660 basis point to 40.8% versus 34.2% last year. Adjusted EBITDA for the fourth quarter increased 23% to $25.8 million compared to $20.9 million last year.

Adjusted net income in the fourth quarter increased approximately 11% to $14.3 million, or $0.21 a share, compared to $12.9 million, or $0.20 a share last year. Reported net income for the fourth quarter increased to $54.2 million, or $0.80 per diluted share, compared to $4 million, or $0.06 per share last year.

The $40 million or $0.59 share difference between the reported and adjusted results for the fourth quarter of 2010 are attributable to two items. First, this quarter the Company released the vast majority of it's deferred tax valuation allowance, which resulted in a non-cash benefit positively impacting this year's reported net income by $54.8 million, or $0.81 per diluted share.

The reversal of the deferred tax asset valuation allowance was based on the determination that a significant portion of our valuation allowance will no longer be needed based on current and anticipated future earning levels. We expect this tax benefit to be drawn down against future earnings at the applicable effective tax rate, which should result in non-cash tax charges in those future periods. Subsequently, the Company expects to begin paying cash taxes at the full rate, which we do not believe will happen before late 2012 or early 2013.

Partially offsetting this positive non-cash tax benefit was the negative impact of a change in the value of the Company's variable stock awards, which resulted from an $11.21 increase in our stock price over the course of the fourth quarter. This created a charge of $14.9 million, or $0.22 per diluted share.

Gross box office in the fourth quarter was $102 million versus $101 million last year despite the very difficult Avatar comparison. Our global box office per screen in Q4 was a healthy $312,000 compared to $429,000 for the same period last year, a period in which more than half of our box office per screen came from Avatar. This year our fourth-quarter domestic box office per screen was a $300,000, and our international per screen average was a $339,000.

For the year our box office doubled to $546 million. Our full-year global box office per screen average was $1.8 million compared to $1.2 million last year. Our domestic per screen average was $1.6 million, and our international per screen average was $2.4 million. If you were to exclude Avatar from our box office total and put nothing in its place, our global box office per screen average were 2010 was $1.2 million, in line with 2009. Fourth quarter revenue increased 28% to $69.2 million compared to $54.2 million last year.

Looking at our key business segments, revenue from IMAX Systems increased 67% to $32.9 million in the fourth quarter of 2010, compared to $19.6 million in the fourth quarter of 2009. This increase primarily reflects the installation of 20 new systems during the quarter compared to 10 in the fourth quarter of 2009. It also reflects an approximate 62% increase in ongoing rent, fees and finance income, which is a recurring revenue stream generated through our sale and lease theaters. During the quarter, many of our sale theaters -- sale and lease theaters reached box office levels high enough to trigger box office overage fees for the Company.

Total IMAX Film revenue increased 19% to $18 million in the quarter compared to $15.1 million in the fourth quarter of 2009. DMR revenue increased 9% to $13.1 million compared to $12 million last year. Revenue from Joint Revenue Sharing arrangements in the fourth quarter decreased approximately 13% to $7.8 million, which includes the impact from the difficult year-over-year per screen comp due to Avatar. Gross margin dollars for the fourth quarter increased 30% to $36.4 million . As a percentage of revenue, gross margin increased 120 basis points to 52.6%. Gross margin rate significantly expanded across multiple business segments including Systems Sales and from segments that generate recurring revenue streams like ongoing rent fees and finance income and maintenance.

The System Sales margin increased primarily due to the increased number of full new revenue installs in this year's fourth quarter as compared to last year and the incremental revenue generated through ongoing rent fees and finance income this year which came at virtually 100% margin. Offsetting some of the margin expansion was a launch-- a cost of $2.1 million associated with the initial launch of the 27 JVs in the fourth quarter this year as compared to $1.1 million in launching costs associated with the 21 JV theaters opened last year. In addition to the higher number of JV installs, we made the strategic decision to spend some additional launch money in certain markets where we believe it made sense for the business.

The installation of 27 new JV systems in Q4 exceeded the install guidance given on our Q3 call. This aggressive installation schedule has resulted in our entering 2011 with 171 JV theaters in operation. Today, our JV theaters represent 45.8% of our total commercial multiplex base compared to 40.6% last year work.

For the year, our gross margin dollars increased by approximately 69% to $137.7 million from $81.6 million last year. As a percentage of revenue, full year gross margin increased approximately 780 basis points to 55.4% from 47.6% last year demonstrating the leverage inherent in our model and the positive impact of strong box office performance and network growth.

Fourth quarter selling, general and administrative expenses adjusted for the impact of variable stock awards was $16.8 million which was higher than the guidance given on our third quarter call. The delta between the actual and guidance primarily reflects an increase in staffing cost including higher travel-related expenses commensurate with an increase in business activities and higher than anticipated cost associated with the exploration of new business opportunities. Reported selling, general, and administrative expenses for the fourth quarter of 2010 was $31.7 million compared to $20.3 million on the same basis last year.

As I mentioned earlier, fourth quarter SG&A includes a $14.9 million charge from variable stock compensation. Currently, every dollar increase or decrease in our stock price results in an impact of approximately $1.1 million on our reported results based on a number of vested stock appreciation rights at year end. As of December 31, 2010, approximately $1.1 million vested stock appreciation rights were outstanding compared to $1.8 million as at December 31, 2009. It should be noted that in December, stock appreciation rights automatic exercise plan was adopted which should significantly reduce the number of variable stock awards outstanding to roughly 200,000 or lower by July 1 from the $1.1 million at year end.

Turning to signings in the fourth quarter, we signed deals for 23 theaters systems compared to having signed 12 theater deals in the fourth quarter of 2009. For the year, we signed a record 220 theater deals versus 35 in 2009. Our backlog at quarter end consisted of 224 systems, 165 were sales and sales type lease systems, and 59 were systems under joint revenue sharing arrangements. Please note that our policy when we signed a theater deal with a minimum and a maximum number of units is to take the minimum number into backlog.

So, for example, our most recent 15 to 25 JV deal with AMC, only 15 of those theaters are reflected in backlog. In all there's up to an additional 25 JV theaters that could make their way into backlog as we continue to work with our partners to identify sites. Additional details related to backlog, including upgrades and dollar value, are included in today's press release.

Looking ahead to the first quarter of 2011, we believe box office comparisons will remain difficult until at least mid-March which would bring us through the period of both Avatar and Alice in Wonderland, two films that significantly over indexed in IMAX. Through our year over year-- though our year-over-year comparisons are difficult in the first quarter, we currently expect to grow full-year adjusted earnings in EBITDA over 2010.

This morning we increased our outlook for 2011 installs for sales type lease theaters to 40 to 45. As a result, we now expect to install at least 80 to 90 new theaters in 2011, excluding upgrades. This means that our commercial multiplex network should grow by at least 20% in 2011 as install guidance is based only on what is in our backlog as of December 31, 2010. It does not factor in any systems that may get signed and installed within the same calendar year. By way of example, in 2010 we signed and installed 35 new theaters which were not part of the original install guidance that we gave back in March of the same year. For the first quarter of 2011, we expect to install between 7 to 10 sales, sales type lease systems and approximately 10 JVs. As a reminder, we are not including digital system upgrades in any install guidance.

In support of our 2011 corporate objectives, we estimate increasing our R&D investment to approximately $8 million to $9 million for the year. And we expect SG&A expenses, exclusive of any stock-based comps, to increase to approximately $56.5 million from $52.4 million on the same basis in 2010. Going forward, we will separate all stock-based compensation expense from SG&A guidance and adjusted results, not just the impacts associated with variable stock compensation such as stock appreciation rights.

Turning to the balance sheet, our cast position increased by 51% to $30.4 million this year from $20.1 million last year. Our net cash position of $13 million represents a $43 million turnaround from our 2009 net debt position of $30 million. In addition, in 2010 the Company generated $58.5 million in cash flow from operations compared to $13.8 million in 2009. And free cash flow turned positive to approximately $35 million in 2010 from negative $14 million in 2009. And with that, I'll turn it back to Rich for closing

Thanks, Joe. I want to reiterate how pleased we are with our performance for 2010. Our revamped business model has helped lift us to the strongest year ever which we believe firmly sets the stage for significant future growth. We view our 168% increase in adjusted earnings per share, despite a still soft economic environment, as a testament to the durability of our model , the worldwide popularity of the IMAX experience and the power of our brand.

We believe the fundamentals of our business model, network expansion and higher revenue contribution coming from our higher margin businesses should position us to deliver significant growth over the long term. We have worked tirelessly to eventize moviegoing partnering with the most innovative filmmakers today to provide audiences with awe inspiring experiences and we'll continue to work to make the IMAX experience better and better, creating and seizing so many opportunities that are before us means that our work is never done. I want to particularly thank our employees for their tireless efforts and commitment to IMAX. With that we'd like to open it up for

(Operator Instructions)

Your first question comes from Richard Ingrassia of ROTH Capital.

First of all, thank you, Rich and Heather for finally sharing the pain of your 5.30 AM conference call with your West Coast analysts. Quite a few more sales type leases installed then I had estimated in the quarter, did you benefit from a pull up of installs that were originally scheduled for early 2011?

No, as a matter of fact, Rich, several slipped into the first quarter this year. That was the result of good sign and install quarter last year and Tron coming and people wanting to open up for Tron. But there were, I don't know, Joe, one or two other ones that actually slipped into this year.

Okay. And then maybe this is a Greg question, but as I look at the 21 films this year, including the 4 new ones in the PR today, it looks like you have room for at least 1 more full release but my question is not so much how many more full releases can you do now in 2011, but how should we be defining and thinking about a full releases these days? I mean is two weeks now the standard IMAX run? Is it possible we start to see even one week releases or maybe even more creative ways to offer more bookings in IMAX like an exclusive IMAX window that actually precedes a wide domestic release?

Since Greg woke up at 4 o'clock in the morning to be with us, I think we should let Greg answer that.

Excuse me, the reality is that it really is opportunistic. I think that there's definitely another movie or two in there, some of which we have intended to be able to talk about in the coming weeks. But what we don't have is an opportunity and don't want to sort of flog the market with movies just for movies. So if there's a movie that meets that fairly disciplined criteria that we've created and we have a window whether it's a week or three weeks, we'll find a way to slide it in. But at 21 films at this point we're feeling pretty good about where we are, and if we can provide another movie or two that works within the confines of our existing commitments I think we'll do that.

That's amazing compared to where you were in 2003, 2004. Joe I know you said no cash taxes until 2012, do you expect to start recording any non-- I mean a more statutory non-cash provision in 2011, just to get us used to looking at it?

Yes, that's kind of how we'll unwind, Rich. You'll have-- right now if you looked at our rate, Rick, we are at roughly 30%. So if that continues to hold true, you would begin to unwind the tax asset which will become a charge at that effective tax rate. So you'll begin to see that in 2011 until we've burned through the tax asset.

So Q1 2011 30% on a non-cash? I mean that's the tax provision we should be thinking?

Yes, roughly that.

Okay, all right, good. And then last question--

I will point out, Rich one other thing though, that we do have cash taxes in the form of withholdings et cetera. So, those could run $1 million to $2 million in any given year, so just don't lose sight of that.

Right, without a full 30% cash tax out until next year.

What's that, Rich?

Not a full cash, 30% cash tax--

We're thinking a cash taxes $1 million to $2 million and then you'll have on top of that this unwinding of the tax asset.

Okay. And then finally, just can you put a number maybe on the expected investment in the branding strategy that Rich described at the top?

Investing in which part of it, Rich?

In any of the strategy the you discussed in the branding and reinvestment.

Probably $1million, $1.5 million, Rich.

Okay, for the year?

Yes.

Okay, thanks.

Thank you. Your next question comes from James Marsh of Piper Jaffray.

Good morning. A couple of quick questions here. The first, it seems like there's a couple of interesting things emerging overseas over the past few months. The first is this IMAX only release that you guys mentioned in your prepared remarks, in France and Russia. And then the second is dropping in, if internationally only, runs for films that didn't release in IMAX in the domestic market like Tangled. Could you just give us a little bit more color like how these I guess situations emerged, I mean how the discussions got going and do you expect this trend to continue? And then just related to that, do you envision you could see some early IMAX only domestic releases overtime, and what kind of characteristics would you have for that to happen? And then I've got just a quick follow up.

So this is Greg. First of all, addressing Tangled in the international process. It really comes from the benefit of establishing the partnerships with the studios and the film makers. But we obviously have a very good thing going with our friends at Disney and this was a very natural occurrence because of that relationship. There are some very important, particularly Asian, markets that hadn't opened Tangled because the release windows are staggered, or release schedules are staggered. Not all movies obviously open up internationally the same day they open up domestically. It made perfect sense to go in especially to a market like Japan, which will be opening Tangled in the middle of March.

So it happens through dialogue and I do see this happening more frequently going forward, but again in an opportunistic way. What we're not going to do, is take a movie out that's already released or already about to be released with another title and we're just not going to do that to our partners. But if there is a hole, we'll fill the hole.

In terms of the exclusive releases prior to going into regular theaters, that is something that definitely is on our mind and it's also on other peoples minds. If IMAX, which we've proven, is all about eventizing the release of a film, studios are recognizing that from a marketing point of view, they can put their best foot forward by releasing a movie early in IMAX . It's something that we certainly encourage and hope at the right time-- but it has to be in the right time, with the right movie, and the right filmmaker-- happens domestically. But we're exploring it and having very positive results internationally and hopefully that will spur more exploration and experiences in the US

And, James, on a call like this, there's obviously not a lot of time to get into a lot of detail, but it's not a static world. You have new technologies like premium video-on-demand. You're likely to have shortened windows, and I think everybody's trying to think how the overall landscape is going to change. What's pricing going to be, how long are the windows going to be, what is the pricing going to be on the alternative distribution? And I think that one reason I am here is Greg and I have a meeting with a lot of the constituencies and kind to getting better informed about that. I think eventually the possibility of an IMAX early release may fit into that changing pattern. And so we're trying to convince people why that makes sense. I would say, we've only been here a day so far, but people seem very open as we rethink release patterns of us playing maybe a more prominent role in that .

I agree with you completely. And then on the overages that were mentioned, obviously those are very high margin, I'm just trying to get a sense, is this something that we should be modeling for going forward or was this really just a byproduct from that spectacular out performance by Tron in the fourth quarter?

It really wasn't Tron because these things are usually on an LTM basis so Tron may or may not get captured by some of them. I think what you're seeing is the strong performance through the fourth quarter of 2009 through most of 2010. I wouldn't really attribute it to the fourth quarter of 2010, we'll get that next year.

Okay. That's all. Thank you, Joe.

Your next question comes from Marla Backer of Hudson Square.

Thank you. I wanted to talk a little bit about the slate for 2011. So I think this is the first time that you are going to be experimenting with actually sharing in the network or splitting the network. You have a couple of titles on the slate that are very close together in terms of their release date; Cars 2 and Transformers. Can you give us a little bit more color on how you see that playing out? Will they be sharing some of those screens or will they be sharing different screens within a large market? And do you think we can see more of that if this is successful?

The answer to that, Marla, it really depends on that titles and the partnerships that we have in existence. So it's not a coincidence that this is happening with Cars and Transformers. We've worked with obviously Disney and Pixar before and have a great relationship with me, and the same holds true for Michael Bay and Steven Spielberg and Paramount. So, it's only because of that unique situation that this can occur. With that said, you can look at January, it wasn't necessarily publicized as being a quote - - dual track - - but we had our film based theaters playing Tron all through January and we had our digital theaters playing Green Hornet all through January. So one could say that was very much of a dual track too.

People are focused on Transformers and Cars because it's in the future, but if you look back in the past, we have worked our way and eased our way into recognizing how this best works. There's not a hard and fast rule that it has to be the same way every time and that's partially because it depends if the movies are similar demographics, if they're different demographics, if one's a 2D and one's a 3D, et cetera. Again, I go back to what I said earlier, we're very opportunistic and if it works for our exhibitor partners on a consumer base, we think that it makes sense to try and fit everything in. They have to fit organically.

That makes sense. Switching to the 3D TV initiative, it's obviously early days, but in terms of one of your goals to reinforce brand awareness, will there be an opportunity to leverage the channel in order to do that?

I think it's going to depend, Marla, on where it really goes, obviously a lot of the channel's success is dependant on the rollout of 3D TVs themselves. And it's a little bit of a cycle that's based on the availability of content, cost. Personally, I don't think that in the very short run it's going to have a strong impact on brand, but I do think over time, particularly the fact our brand is associated with Sony and Discovery which have many similar attributes, that we will get awareness from there. Actually that's one way we looked at the investment where there was a fair amount of significant soft benefits in addition to entering the space. So, the answer is longer term, yes, shorter term, I'm not so sure.

Okay. And then my last question is those were some amazing statistics that you cited on the Warren Theater and the Rave theaters as well, in the smaller markets. Do you have any sense for why the performance seems to be so much stronger in those markets or in those particular theaters? And also, do you have a sense for how their performance and their delta compares to some of the non-branded large screen 3D enabled theaters?

Yes, the answer is, Marla, is that it's show business, not just business, and that Warren Theaters gets that. I mean the way the theaters are designed, the way they market it, it's just they do it right, and I think a lot of our theaters could do even better. There's a very strong correlation between how the theaters are marketed and how the IMAX is presented, and Warren is one of the best. The one's we won't publicize on a call like this, there's no sign up after 6 months. So, it comes down to the operator, really, how they do it. I think we're quite encouraged about a lot of the smaller operators and a lot of the smaller markets. So, we have a lot of discussions going on there, because I think it tends to be-- each theater is much more important in those markets and they tend to market them and present them properly. So I think they're going to be good for the brand.

And the latter part of the question, do you have a sense of how the delta there compares to a market that has a new non-branded large screen 3D-enabled theater?

Marla, I don't want to overstate the point but we've stopped even paying very much attention to that. As you know, the chains that are in the X business have stopped talking about it. We've yet to see any statistic broken out on financial results from them. I can tell you, the studio people that I've met with out here don't really think they bring in any material incremental business into the market. I mean a lot of the chatter went away. I think that was largely a Wall Street play where people could say, we could just get the same as IMAX without the cost. But if you noticed that chatter has really died down, because frankly we don't believe, and I don't think the studio believes, that it really adds some significant incremental value.

Thank you.

Your next question comes from Martin Pyykkonen of Wedge Partners.

Yes, thank you, good morning. Couple things, as you look at the backlog going through the year, the numbers you put for Q1 and the full year. I know that things can move around by the exhibitors and you to an extent, but do you feel that the backlog is fairly linear? Your Q1 is just barely under a quarter of the year, I'm curious how you view that. And then, Rich, you mentioned the 20% at least screen growth for 2011 on backlog, I guess we can all back into numbers somewhat, but are you still in that sort of a comparable range for 2012 full year, based again only on the backlog that you have right now?

In terms of the quarter, as your first point, it's definitely not linear. I think it's the movie business, and you look at the second quarter where you have Transformers and you have Pirates and you have Cars and those are obviously different properties than Sanctum and I Am Number Four and some of the other movies. That's just way the way the movie industry programs itself. It tends to be the big block buster titles come out around major holidays and the summer vacations and Christmas vacations. So, clearly not linear either for results or the install pattern, because you'll find people want to install before a big crop of big movies is coming out.

In terms of the 20% network growth coming out of backlog, which we mentioned for 2011. It's too early to say for sure and there's a lot of variables, but I think looking at the backlog and that looking at the level of activity, if I were going to make a model, that's certainly a place I'd start.

Okay and then just to clarify, would you be kind of suggesting then that April and May would be big install months just to be ahead of Pirates and what comes after that?

I think April certainly would have more than what's going on now, yes.

Okay. And then for Greg, I guess on the film slate you maybe were kind of saying this, but when you have Potter on July 15 and then MT to the Real Steal October 7, would you be inclined to say you'd put something in there based on what you've seen now? Or would Potter potentially run, that would be a long run, but it is the finale, just curious what your thoughts are there?

Well it's obviously the finale of the series and then fan base is incredibly rabid and I would expect that will have a very long play. With that said, I also would expect a title to come in September.

Okay. And then last thing, more strategy. I know you've talked about the consumer market 3D, your meeting with the studios it sounds like on the premium VOD. With a lot of the studio emphasis on 3D films going forward, I'm just curious do you feel a need to or intend to play a role in really trying to drive the acceleration of 3D adoption in the home? Because it sounds like the premium VOD window may look a lot different than we think right now, is going to have some dependence on that, just curious?

Well first of all, Martin, we certainly don't have the market leverage in the home to drive anything. Maybe out of home we could have an impact but I'd just-- having not been in the home until about two weeks ago I don't think we have the leverage to do that. With that said, I actually have a very different takes on in the home and outside the home. I think in the home, one of the key drivers to 3D adoption is going to be sports and 3D live sports, which is an area we're not in right now as you know. Out of the home, I think we've been very careful to keep a balanced perspective on 2D and 3D. Our film slate really looks for block buster films whether they're 2D or 3D because we think the film and the story is much more important than the particular dimension that it's in. If you look at some of our most successful films for the last year they included Harry Potter and they included Inception, which were 2D films. So outside the home we're a little bit agnostic and inside the home I'd like it to happen sure, but I don't think we're going to have the ability to influence the pace of that.

Okay, thanks.

Our next question comes from Aravinda of Canaccord.

Thank you very much. A couple of quick questions. First of all for Rich, I was wondering if you can elaborate a little bit more on the China strategy, particularly with respect to the models that we can see going forward? Now, historically you've done a lot of sale type leases, but more recently we saw some hybrid models. I was wondering if that's something that we can expect to see going forward as you really penetrate the growing Chinese market? And also, relating to China, I was wondering if you can sort of clarify some comments that were in the press about lower IMAX ticket prices to increase the rate of that penetration?

On the second point, I don't know where that came from, but it was certainly out of context and we haven't seen that denigration in IMAX ticket prices. In fact if you believe kind of the macro analyst that the Renminbi is likely to appreciate against the dollar than I would expect if anything in dollar terms that over time we would get higher ticket prices not lower ticket prices. If the Renminbi traded at a higher range, which I think for a lot of reasons-- not a macro economic thinker, but I think that's likely to happen.

In terms of our strategy in China we are trying to create more of a recurring revenue stream than we had previously, and we're doing it in two ways. One of the ways we're doing it is by doing Chinese indigenous films. So like look at Aftershock and the films we're doing this year, we get a higher DMR rental on that then we get on the imported films. So, that would be one thing. And the second thing is I do expect you to see a little bit more of revenue share focus than a sale focus going forward at least on it directionally, I don't know about number. But I think particularly as of the reporting gets transparent, we have longer relationships with partners there, we continue to get more and more comfortable, collectability issues there. I think you will see us do more hybrids and even in certain cases may be JVs.

Okay, thanks. And just one more question on one of the new initiatives that you have, the portable IMAX. I was wondering are you still looking at a Q1 launch for that product and what kind of take up in terms of demand are you seeing for that?

We're seeing a tremendous amount of interest from customers in it and from studios in using it. In order for the model to work you need sponsorship dollars because of the cost of transporting it and setting it up to offset those costs. And we've seen some interest there but we don't really have anything concrete signed yet. So I'm remaining sort of cautious on that meaning that I think the amount of interest shows a lot of potential, but until something is signed it's still in the experimental phase.

Okay, and just very quickly and the end-- at the box office quarter to date, I don't know if you're disclosing that at this point, is that something you're giving out now or is it not the case?

We weren't planning on disclosing it.

Okay, that's fine. Thanks a lot. That's all I have.

Thank you.

Your next question comes from Steven Frankel of Dougherty.

Good morning. Does the concept of splitting the network open up discussions with your key JV partners to loosen the zones a little bit and build out more screen if they're going to be splitting their own networks?

The answer is that could in time, certainly, because it could incent them to put a second IMAX in an existing theater or in an existing zone. And we're talking to them about it. You didn't ask that, but along those lines also I think the possibility of an earlier release window in IMAX also may potentially expand the number of zones. Because obviously if you have a theater in a zone and you're showing something in IMAX sooner, they may be open to more capacity because they can't fill the demand in that period of time. So both things have led to early discussions about that.

And what kind of visibility do you have on these discussions of a splitting the network? Is that something that happens fairly close into releases or early enough in the year that they could alter their install plans to respond to changes?

It depends. It just depends on the movie and going forward. I think it's very difficult to change their install plan on a dime like that, because they budgeted the stuff out in advance. But it depends, you can't generalize.

Okay, thank you.

Your next question comes from Mike Hickey of a Janco Partners.

Great job on the quarter and thank you for taking my questions. Obviously, you're very confident and the cinema industry has proved to be defensive, but with oil around $100 a barrel and kind of the fear of maybe a double-dip. Do you-- I'm just curious how you are kind of thinking about that moving forward and how it-- maybe the impact on the consumer willing to pay the super premium price for entertainment and maybe on your signings as well?

I think we showed over the last couple of years that not only cinema, but much more so than cinema, IMAX itself, was able to do very well in a slower growth period of time. And I think the reason is because it's an affordable luxury. Meaning, and I use this example in China a lot, you have this rising income level and you can't afford to go out and buy a really expensive thing but for water cooler talk and your kids, for a little bit of extra money you get this premium experience. And you couple it with escapism, which is also kind of valued in the down economic time, it leads to pretty decent results. So, on that one I really don't see the economy as playing a huge role.

In terms of installs and signings, I think if it's a JV, it really shouldn't have any impact or maybe even a more positive one. Because if you're an exhibitor and you see what your results are and you put up very little or no capital, that's something you would want to do I would think. In terms of outside of the JVs, I think it's possible that in kind of international markets that are experiencing some turmoil, some willingness of banks to lend or put up the CapEx could be impacted. Like for example, I think probably this week would not be a good time to go into Libya or Bahrain and try to expand our network on a broad basis. But if you look at that turmoil and the aftereffects of it, I don't really see it spilling into other countries financial markets in a material way where it would affect our signings or our installs.

Okay, thank you. And then you went over your film slate but I was just curious if you give a little bit more color on top international films potentially driving your performance 2011 and maybe key regions, China and Japan, and if you're doing anything organically there that we should pay attention to?

We'll definitely be picking up titles in China. We've already announced one, the Founding of the Party and Flying Tigers, which is a John Woo movie, which is something that we'll do in China. It likely is not going to be ready for a 2011 release, but the expectation is that it's the first half of 2012. There are a handful of other Chinese-specific and Japanese-specific titles that we're looking at. No commitment at this point, but we've hired someone named Anthony Vogel and that's his responsibility, he's in international film development. So, the international marketplace is incredibly important for us. When we look at how some of our business has performed in international markets, it's obviously helped the bottom line and it's also helped spread the brand and expand our audience outside of the US, which I think has been a big part of our growing network success there.

Okay. And then the last question, 21 films this year. I think domestically there's a 35 3D films coming out and you used the word opportunistic, so I'm just curious if you have a sense of kind of where the sweet spot is in terms of total films? And then, I'm also curious looking at your film slate, the rating profile, if there's anything that we should pay attention to there?

I was just going to say, the answer is I think we're mostly filled up for the year as Greg said. The second part of your question was?

Your film slate rating profile, if there's anything we should pay attention to there?

The ratings, like, (inaudible) ratings?

I think most of them are going to be not R, although there might be some, but they tend to be fan boy movies or family movies.

I'm just going to ask because we've run so late, we'll take 3 more questions, but if you could just ask a single question and Heather would be happy to follow back if we don't get to you after that.

Okay.

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

Just a quick question on kind of the profile of your new international theaters that you guys have signed, are those theaters that are existing, meaning those cineplexes that have already been built or do they need to be built in the future? And then, are these typically these theaters are they-- have more seats than say the average theater domestically?

Mark, it turns out that it depends very much on the territory. So a place like China, it's almost all new builds, because it's a greenfield sort of opportunity. They've never had cinema and they're building it out. Whereas in places like Europe, it tends to be more conversion of existing screens, so it's difficult to generalize. I think that the boxes themselves are all over the place. Some of the new builds are bigger. Many of the ones, particularly in Europe, because of space limitations and zoning issues, tend not to be bigger. If you look at it on a worldwide basis, it probably averages very similar to what it does in North America, I don't think there's a material difference.

Thank you.

The next question comes from David McFadgen of Cormark Securities.

Yes, I was just wondering if you could provide some detail on why the ongoing rent finance income spiked up in the quarter? I just see that it jumped up quite a bit.

Yes, I mean the way that that's recorded is as it is recorded and confirmed by the exhibitor. And many of these deals it's an annual calculation. So a lot of the reporting-- because the box office has been so strong over the last 18 months, we tripped into the overage, or if you to think of it almost like a percentage rent type calculation, we tripped the benchmark. And a lot of that reporting came in the fourth quarter.

So was there a bit of a spike there and then it would kind of go back down a bit to a more normalized state?

It'll settle down, yes. Many of the theaters have fiscal periods that and in the fourth quarter.

Okay. All right, thank you.

The last question comes from Matt Coppola of Williams Capital.

Yes, hello, thanks for taking my call. You already touched on my questions about the film slate, but I was just wondering, sorry if I missed it, but could you provide your international screen count at year end?

Joe, international screen count at year end.

Commercial units was, I believe, 139 theaters.

And what was that compared to 2009?

We have to pull it out. That something we can get to you.

Was is it ?

120.

That sounds low.

We'll follow up.

Okay, great. Thanks a lot.

All right, well again, thank you. This call-- we look at ourselves saying it went a little bit longer than we like, but I think it's a function of wanting to be as transparent as possible and answer all of the questions we can. Obviously we're very excited about the way 2010 went. I don't know if we said it during, but it certainly exceeded our budgetary expectations significantly. And looking into 2011, we have a lot of momentum. In LA, when Greg and I go to our meetings, it's just interesting to see how it used to be several years ago versus now. We sometimes joke that they made us sit at the kids table, but now we get to the adults table. So it's just a good kind of feeling around our business, and barring a lot of unforeseen developments, which we hope there aren't, we feel very good about 2010 and going into 2011. And thank you again.

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