Imax Corp (IMAX) 2013 Q3 法說會逐字稿

Good day and welcome to the IMAX Corporation third quarter 2013 conference call. (Operator Instructions). At this time I would like to turn the conference over to Ms. Teri Loxam. Please go ahead, Ms. Loxam.

Thanks, Michelle. Good morning and thank for joining us on our third quarter 2013 conference call. Joining me today is CEO, Richard Gelfond and our CFO, Joe Sparacio who will have prepared remarks. Also here today to join us for the Q&A portion of the call Greg Foster, CEO of Entertainment, and Rob Lister our Chief Legal Officer.

I would like to 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 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 of managements use of these measures and a definition of these measures, as well as reconciliations to adjusted EPS and adjusted EBITDA, as defined by our credit facility, are contained in this mornings press release. The full text on our third quarter earnings release, along with supporting financial tables, is available on our website, IMAX.com. Today's conference call is being webcast in its entirety on our website. With that, let me turn it to our CEO, Richard Gelfond.

Thanks, Teri We had several important accomplishments in the third quarter that helped advance our three key strategic initiatives; penetration, differentiation and scalability including strong signings, a record high backlog, strong film index and continued SG&A cost control. Since installations and film releases are not always evenly spaced throughout the year, quarterly comparisons are difficult. For instances in the third quarter we have fewer sales type installations compared to those in the prior year period and we are up against the tough comp of Dark Knight Rises. In contrast the fourth quarter box office is off to a great start with Gravity and we are scheduled for a large number of installations this quarter. So we continue to manage our film slate as an annual global portfolio and focus on building out our network through the year to further bolster long-term growth and operating leverage.

Theater signings have been very robust this year. In the third quarter We signed agreement for 99 new theaters bringing out total signings so far this year to 158 already above the 142 signings for all of last year. As a result our backlog is at a record high with 356 theaters under contract at the end of the quarter, which gives us great visibility in to our pipe line for future growth, and these numbers do not include the option that Wanda has for an additional 80 theaters in China. Importantly a number of our signings and installations this year have been for new reference theaters and iconic locations. We have recently entered markets including Germany, Turkey, Portchugal and South Africa and have also signed deals for several new reference theater which will open in the near future including Switzerland, Chile, Bahamas, Jordan and Baran. Opening a reference theater in a new region often acts as a catalyst for future growth in that area. Once an exhibitor realizes the incremental effects of our business model and the box office potential for our theaters we typically see additional signing activity from that exhibitor and often times their competitors as well.

Markets do not explode overnight, but laying the ground work, establishing a brand preference and improving our format have historically been quite successful for us. We have also added IMAX theaters in several iconic locations this year. Including the TCL Chinese Theater in Hollywood, which used to be known as the Graumans Chinese Theater, Potsdamer Platz in Berlin and most recently Leicester Square in London. Having these landmark venues as part of the IMAX network provides us with locations that are big enough to host premiers, which we think is very beneficial to our business and our brand. For example in September we premiered the exclusive re-release of The Wizard of Oz at the TCL Chinese Theater the same location the original Wizard of Oz debut 75 years ago. Over the course of one week the film generated over $5 million at box office for IMAX in a shoulder period when there are often fewer movies to chose from. More importantly, it generated a great deal of publicity and allowed our brand and that theater to reach a broader demographic.

Looking at box office we believe that the market share or indexing that IMAX has been generating indicates high consumer demand for the premium IMAX experience. For instance IMAX did over 20% of the domestic box office for Pacific Rim in the third quarter on less than 4% of total screens and generated $55 million on this film globally. Likewise Elysium indexed 15% domestically and generated almost $23 million worldwide. In addition in contrast to last year China accounted for a significant portion of our third quarter box office since there was no July black out period this year. Meaning a lot more Hollywood titles were released into the country in Q3. We played six Hollywood titles in the quarter in China, where we average 9% of the box office across all those films including 14% of market share on Pacific Rim on just 1% of the screens. This is further evidence of the power of the IMAX brand and experience and the world wide and Chinese market.

In addition to the Hollywood titles, we released to local language films in China in the third quarter. As we have discussed before an important part of our portfolio approach to our film slates is tailoring our slate for each individual market. Release calendars often vary by country, so we plug gaps with so we plug International only releases of Hollywood films as well as local language movies. For instance in the third quarter we played several titles internationally that were not released domestically, including White House Down, Despicable Me 2 and The Lone Ranger. We also just released Stalingrad our first Russian language film , which was the highest grossing Russian film ever made on its opening weekend, generating an IMAX per screen average of over $60,000 which is a record for us in Russia.

Moving on to expenses. Controlling costs and maximizing the leverage inherent in the business model has been a top priority for the Company this year. We have been making changes internally to create a culture that is mindful, deliberate and efficient in our spending. And while this is evolving the effort is starting to pay off especially in SG&A. In fact we have been able to curtail spending more than originally planned and as a result we will be lowering our SG&A guidance for the year. Joe will go through the details with you in just a moment.

On the R&D front we continue to make progress with our laser projection system and these costs are reflected in our R&D cost guidance for the year. We remain on tract to begin our laser roll out by the end of 2014. As most of you know our laser initiative is geared toward the largest screens in our network, those that are greater than 80 feet in width and currently film based. As we have discussed before film prints are expense. It costs about $30,000 to $50,000 per movie per theaters. As a result we have chosen not to produce film prints for every title. Consequently these theaters have missed out on playing a portion of our film slate each year. As an interim solution until laser is rolled out, we have been able to convert a number of these filmed based theaters in our network over to digital, digital using our xenon digital projection system. Most recently we installed our interim digital solution into several AMC theaters, including Lincoln Square in New York and the Metreon in San Francisco. As a result these theaters were able to play Gravity over the past few weeks, which they would not have been able to do had they remained film base. In addition to the boost we should get in box office from these theaters being digital, another benefit is on the cost side. In the past we had to subsidize film prints for titles that were not necessarily expected to be big blockbusters in order to have product for these large film based theaters. Now we can be more selective as to when we finance prints, which should result in lower DMR costs.

Our goal is not just to cut costs, but spend efficiently and spend in areas that can create long term growth and cash flow for the Company. We believe in our business model and expect expanding margins and cash flow over the long-term. As we have said before our top priority for cash right now is reinvesting in our growing JV network which has higher returns. In addition, we are spending small amounts of cash to explore potential new business ideas that can supplement the growth in our core business over time. As you know over the past couple of years we have been doing due diligence on some in-home options. We have sold a few ultra high end home theaters systems, which has provided an entry point into the home theater market and is allowing us to gain a better understanding of the potential in this business area. In parallel we have been putting together the pieces to create an integrated end-to-end home theater solution at a lower price point market that would include hardware, software and content. To this end we are in the midst of identifying the right partners for such an endeavor. Rest assure however that cash flow growth is our priority. So if we do anything, it will be done in a measured way that doesn't risk significant capital.

Looking ahead we started the fourth quarter off strong on all fronts. Obviously the breakout hit Gravity was a tremendous way for IMAX to kick off October which historically has been a slower months for movies. We have indexed so far over 22% of the films domestic box office on less than 4% of the screens, which is particularly noteworthy especially since this not our typically fan boy focused film. To date we have grossed over $50 million globally and have seen great results from many of our theaters world wide. A particular note is that the U.K., Japan and China are still opening the movie.

In the U.S. Gravity has generated almost $1 million at Lincoln Square and another $1 million between the TCL Chinese and the Metreon. Internationally we have seen strong results from a number of territories including places like Korea, which set a new opening record and generate PCAs $100,000 on opening weekend, and there is still some important markets yet to open including the U.K. and China.

The success of Gravity also shows that there is a place for 3D with the right movie. IMAX plays both 2D and 3D title choice titles and we do not chose film titles based on this criteria. Instead we concentrate on whether the content can benefit from IMAX enhanced visual and sound presentation, and Gravity is definitely one of those movies that takes full advantage of the immersiveness and vastness of the IMAX experience. The success of this break out hit in IMAX also benefits our studio and exhibitor partners as we drive incremental box office and theaters attendance. We are looking forward to the rest of the fourth quarter, which includes the release of Hunger Games Catching Fire which was filmed with IMAX cameras and The Hobbit, which will feature our expanded aspect ratio.

In addition we continue to see strong signing activity in the fourth quarter lead by our announcement this week for an eight theater deal with Cinepolis in Latin America, which will add theaters in Columbia, Brazil, Guatemala, Panama and Peru as well as a ten theaters deal in the U.S. with Carmike the fourth largest exhibitor in the United States. Carmike had previously inherited some IMAX theaters as part of the acquisition of Rave and is now significantly increasing its commitment with us. This signing activity continues to demonstrate strong demand for IMAX theaters around the world. With that, I will turn it over to Joe to go through some financial details for the quarter.

Thanks, Rich. Total revenue of $51.7 million in the third quarter decrease 36% from the prior year period. Primarily driven by lower sales type installation and the tough box office comparison to last year's The Dark Knight Rises our second highest grossing film of all time, which generated over $100 million in IMAX box office in Q3 2012. Global box office of $132.5 million in Q3 was down 23% compared to the same period last year. The box office this quarter was skewed International with 62% or $81.6 million from International markets and 38% or $51 million generated domestically. Mainland China accounted for a much larger portion 28% of the box office this quarter compared to 6% in the same quarter last year.

This over performance from China was a result of more had Hollywood films being allowed into the country this quarter as compared to the third quarter last year and the strong performance of Pacific Rim in China. The domestic PSA was 150,000 for the quarter and international came in at 273,000 resulting in a global PSA of 208,000. DMR costs were $6 million in Q3 primarily generated from 11 new titles which played during the quarter. DMR costs were lower than average this quarter as we only released two new titles to our film based network. We have announced 37 titles for the year and continue to expect that our average per title cost to be about $800,000 for the year.

Looking at specific line items our JV revenue was $12 million compared to $13.2 million last year, and DMR revenue for the quarter came in at $14.5 million compared to $25.2 million in Q3 last year. In addition to a lighter box office JV and DMR margins were also impacted by the geographically mix of box office this quarter. The JV margin was impacted by lighter domestic box office. As we have discussed before, a number our older JV arrangements are based on a more complicated net profit formula which includes a fixed cost component that puts pressure on margins in quarters with lighter domestic box office.

DMR margins were impacted by the higher mix of China box office where we typically get 9.5% of box office from the Hollywood studios as compared to 12.5% we get in the rest of the world. In terms of network growth we installed 19 new theaters in the third quarter with 5 sales type installation, 1 short-term lease that will later transition to laser and 13 JVs 2 of which were hybrids. This brings total commercial network to 653 theaters of which 351 are JVs.

Revenue from sales type installation was $6.4 million in the quarter compared to $21.9 million in the third quarter 2012. The reduction was largely due to a lower number of sales type of installations from 14 last year to 5 this year. The gross margin from full new sales type systems was 63.8% up from 62.4% in Q3 of last year. The Company also installed 9 digital upgrades this quarter, one of which was converted from a sales type to a hybrid compared to 5 in the same quarter last year. As Rick mentioned a number of the upgrades this quarter were in our large film based theaters where we have installed an interim digital solution until laser roles out.

We also signed deals for an outstanding 99 theaters this quarter of which 88 were for new systems and 11 were for upgrades. Our signing activity and pipeline continues to be robust as our backlog has grown to a record 356 theaters, of which 333 are for new theaters and 23 are for upgrades including 18 laser systems. It is important to note the 333 new theaters in backlog are contracted to be rolled out over the next several years, as 84% are contracted for installation within new builds.

Although IMAX has the capacity to install many more theaters in a given year and we would love to accelerate the rollout of our backlog our pace of installs is often dictated by the timing of new construction projects that we are in, in various parts of the world many of which are in emerging markets. From a geographical perspective 83% of the backlog is slated for International markets. We continue to expect to be within our previous 2013 guidance range of 110 to 125 theaters this year.

However, due to a number of the remaining installs being new builds in International markets and schedule for December we anticipate that we will likely end up in the lower end of that range. We continue to expect that two-thirds of the installations for the year will be JVs and one-third sales type leases. As we look at our installations for 2014 we are currently estimating a similar number of installations compared to 2013. For modeling purposes the mix looks similar to this year with about two-thirds of our installations being JVs and one-third sales type next year. In addition, it looks like 2014 installs will have a similar roll out cadence to what we have seen in 2013 with a significant number of installations likely in the fourth quarter next year.

Moving on to operating expenses. SG&A excluding stock based comp came in at $16.9 million for the quarter roughly comparable to Q3 last year. As Rich mentioned, we have been working diligently throughout the Company to control cost, and we are on track to beat our original full year SG&A estimate. As a result we are lower our SG&A guidance for the year. We now expect our SG&A excluding stock based comp to be up about 1% to 2% compared to the full year of 2012. This estimate includes the one time SG&A $2.2 million that occurred in the first quarter which implies full year SG&A excluding stock based comp to be about $69 million to $70 million.

Excluding the one time $2.2 million benefit which was not part of our original guidance our new SG&A guidance implies an increase of 4% to 5% over the full year which is below our original guidance range of 5% to 8% growth. Stock based compensation for the quarter was $2.8 million and we expect about $13 million in total stock-based compensation for the year.

R&D expenses for the quarter came in at $4 million compared to $2.5 million in Q3 last year. We are still on track to meet our guidance of $13 million to $15 million for the year but believe we will be on the higher side of that range closer to $15 million as we continue the development of our laser projection system. We finished the third quarter with a tax rate of 28%, and continue to expect our full year 2013 tax rate to be in the range of 28% to 30%, including an estimated $3 million to $4 million of cash taxes. At the end of the third quarter we had $31.1 million of tax NOL assets remaining. With that, I will turn it over to the operator for Q&A.

Thank you. (Operator Instructions). The first question comes from Townsend Buckles of JPMorgan. Please go ahead.

Thanks. Rich, you mentioned in the release having a lot of screen deals this quarter either signed or in discussions and we of course have already seen a fair amount of activity between Cineoplis and Carmike. So can you give a sense of how much that comment applies to those deals you have announced versus what might still be to come?

Obviously, Townsend, things are not signed until they are really signed, so we announce them when they happen. But certainly there is a lot more in discussion right now. I can't really quantify it because that would be unfair, but there is certainly a lot more potential ahead of us than has happened behind us.

Got it. On the Carmike deal I think you have historically shy away from going into a lot of those smaller markets with JV, so any demand characteristics you are seeing differently that have given you the confidence to do these deals now, and do you see potential for that relationship to expand further or maybe the 18 screens you have with them now covers the addressable market?

I think yes we see the potential to expand with them farther. I think they have done a tremendous team, the management team, with that company. And I think what we look at is the volume of the box in terms of what the box office is for any particular multiplex. We analyze all these JVs on a case by case basis, and we look at our potential expected return. If you go back five years, obviously we were less penetrated in the world so you could afford to be picky and go into these very high grossing boxes. As those boxes have been penetrated as long as you get an adequate IRR that means your threshold, you are more flexible in terms of the boxes you go into. We would not do a deal if we didn't think we could make an attractive return on it, but obviously as your markets get more penetrated you need to be more open minded. We think the Carmike boxes have a chance for very good returns for us.

Thanks. And lastly your film shares looked to have really pick up lately aside from the great Gravity performance. Is there anything being done differently in terms of marketing that is helping these result or would you just say the brand is continuing to gain traction?

That is good question, Townsend. As a matter of fact as you know because we have talked about it for a long time, we revamped our marketing efforts over the last several months. So we brought in a new CMO. We had three marketing groups, we consolidated them into one, and we brought in new personnel and reassigned some people in that area. I like to think some of it is having an impact and in fact we have something called Behind the Frames in IMAX where they interviewed Alfonso Cuaron in Gravity and said that IMAX is the way you have to see the film.

And typically we will get about 10,000 hits on those kind of things, this time we got close to 1 million hits on it, so that is some concrete evidence the marketing is starting to take hold. Going forward obviously we have invested a lot in that effort, and I think it will make a concrete difference. And we have significantly more detailed plans going forward. As for Gravity I think that was one of many factors and maybe Greg wants to add to that.

I think there is a space connection we have had. I think there is a quality connection that we have with a film like Gravity. We have been involved with the film makers for many other movies. In fact David Heyman who is the producer of Gravity is the most prolific producer at IMAX between all the Harry Potter movies, I am Legend and now Gravity he has done nine films. Warner's has obviously supported it. And I can only tell you anecdotally when I look at the advertising not only for Gravity but for a lot of movies that have come out in the last several months and are coming out the IMAX presence in the advertising seems to be even more present than it has been in the past. It is a cleaner message.

I have had many people come up to me and say I see IMAX every time I turn on the television or every time I go online and I think that is helping reinforce it. We are also part of the trailers earlier on these days, and I think that the habit of going to the movies and having a good experience creates more interest in continuing to come back. I think it is a cumulative process, Townsend, and I think that is why our indexing as Rich noted in the call, has continued to rise to a pretty significant level better than we have ever had before.

Sounds good. Thanks.

Thank you. The next question comes from Eric Handler of MKM Partners. Please go ahead.

Yes, a couple of questions for you. First when you look at 2014 you gave some color on installs. How should we think about SG&A growth as well as R&D growth for the year? And then I will have a follow up.

I think we are going to outline that in the year end call probably in February. I think in general you can look at trends over this year and say certainly we are going to try to manage the same general area but we haven't completed our budget yet so is premature.

Okay. Secondly, wonder if you could give a little bit of a recap with the impact of the laser systems? How many film based theaters do you have now, how many of those theaters are working on an interim solution? And then in your backlog with the laser what do you think the opportunity is for new build screens for systems that just want to have larger than 80-foot screens?

In the commercial market there is about 20 film based theaters left, in the institutional market it is larger it's about 150 theaters and that is part of the opportunity around laser. But must amplifying the remarks I made earlier, a lot of the really big theaters including Universal Citywalk, Lincoln Square, Metreon they needed to have film prints otherwise they couldn't play movies.

But using the interim solution we are able to get digital prints in, and Gravity is a perfect example we wouldn't have played our biggest theaters had we not been able to put digital in there. The point I was getting at during the prepared remarks is we used to have to pay for prints for a lot of titles we did not think would do that well just because they needed to keep something on the screen.

So this interim solution before we get all of them done covers most of the really big theaters, so we are going to be able to do DMR if we elect to do it on films like The Hobbit. In most of those instances we are not going to pay for film prints because the studio will but in some of them we may chose to. So during the quarter we have really accomplished a lot in terms of minimizing our need to pay for film prints.

Got it, that is helpful. Do you think there is a descent size market for commercial operators who would actually want a large than 80-foot screen?

That is what we are working on as you know which is that the digital screen when converted over to laser will be able to throw a larger image probably around 90 feet in the first generation. And that is what we are hoping to introduce at the end of 2014 and that is why although some of these signings we characterize as quote on quote upgrades they really transitions to laser which are going to enable them to play more movies and enable us to get lower box office and enable the commercial to get a better experience.

Great. Thank as lot.

Thank you. The next question comes from Eric Wold of B. Riley. Please go ahead.

Thanks and good morning. Couple of follow up question one on the Carmike deal. I know you have had some great success moving into smaller markets and expand footprints in to areas previous thought may not be successful for IMAX. With the Carmike deal maybe give a sense of what you see with performance of some of your theaters in markets that you don't have a lot of competition in the area, somewhere the Carmike model where they may be the only theater in town for quite a while does that make a difference either way in terms of the IMAX screen performance?

I would say that make as difference. And also what makes a difference is the quality of marketing by the IMAX theater operator. We have a partner in Wichita, Kansas and Oklahoma City named Warren Theaters that has done a phenomenal job of marketing in those smaller markets, and there are not a lot of entertainment options other than basketball obviously in Oklahoma. The brand recognition, the marketing and lack of option those theaters have done very, very well. I don't know enough right now about the specific Carmike markets but I do know that as you say they have a history of having a strong market position there and good marketing, so they have the potential to do very well certainly.

Okay. And then question on backlog, I'm not sure you gave us number before but can you remind us if you have, how much of the 2013 installed plan was from backlog at the end of 2012 and how much of the initial 2014 look is currently in backlog at this point?

Okay. Last year, at this time, we had roughly a similar number in backlog as we have this year, it was around 95 something like that, which is why we kind of made the statements we did.

Okay. Perfect. Thank you guys.

Thank you. The next question comes from James Marsh of Piper Jaffray. Please go ahead.

Just a couple of quick ones here. Just a follow-up on Carmike, are those (Inaudible) going to be retrofits of their Big D large format generic screens or are they just new builds? And then I just want to also just touch base on the China market. Do you expect a December blackout this year that would limit Gravity and Hunger Games 2 from plan? And then I have one final follow-up.

On the first question, James, I don't remember the exact answer. Although, I know some of them are certainly retrofits and a couple of them are going to get installed this year even. But I don't know if any of them are new builds but a lot of them are retrofits. In terms of the blackout period, in China, again in July there was going to be a blackout period and there wasn't a blackout period. We are planning, as if there is going to be a blackout period and we are working on looking at local Chinese titles for that period of time. But we will see as you know and I've repeatedly said things change relatively quickly in China but we won't get caught flat footed without movies if that doesn't happen.

An example of that, James, if you look for instance at the top five movies this year in China so far, we have always said that we will cover ourselves whether it's a Hollywood movie or a local language film and of the top 5 movies, IMAX has been a part of four of them. The top one is Journey to the West which we were a part of, the second is Iron Man 3 which we were part of, the third one is So Young which we weren't, but we were part of the fourth which is Pacific Rim and the part of the fifth which is Young Detective Dee. So we have covered ourselves with local product as well as Hollywood product, having four of the top five films of the year in that market.

That Is very helpful. And then just quickly, Rich, a follow-up I thought I heard you say on Lincoln Square was that Gravity did $1 million of IMAX Box in that theatre alone?

Almost James, but at the end of its run, it will get to just about a $1 million.

Okay. Thanks very much.

Thank you. The next question comes from Ben Mogil of Stifel. Please go ahead.

Hi, good morning, and thanks for taking my question. Moving over to Europe. So Europe seems to be getting somewhat better on the macro front. You have obviously announced a couple of signings in Germany and a couple of other places in Switzerland as well. Can you talk about where you are for next year, when you look at your installations or the guidance? Are you seeing better traction in Europe? Can you talk about where you are in Europe signings? Are you seeing in Europe theatres being f once again being developed and are you part of those conversations so to speak?

I wouldn't necessarily tie it to the turnaround as much as I would tie it to changes in our strategy. So, as you know a couple of years ago, we would release films worldwide based on the Hollywood strategy. And then about a little over a year ago, we brought in Andrew Cripps from Paramount to run that international effort for us and we did a few things. One thing we did was starting to program different countries differently based on the release schedule and I said that during my prepared remarks that there are films that are playing international only to fill those gaps. So, I think that was a very significant thing, breakthrough for us because the theaters were dark at times and were playing films for a long period of time when there wasn't a U.S. release time, day and date with the European. So that was one thing.

Two, we began to think much more globally, so we have our marketing staff in Europe based out of London. We have distribution gear to there. We have hired a sales team over there and we've made significant inroads. An example I would use is actually the U.K. where several years ago, we had only one exhibitor partner really there which was ODEON and we had around eight theatres. I don't remember the exact numbers but two or three years later, we are now up to about 30 theatres including our backlog and we have Empire which is Leicester Square. We have Cineworld and we have ODEON.

And as a matter of fact it's not material. So, I will say that we have another operator. We have announced the deal in U.K. that's also in the IMAX business. So we now have four operators in there and the market has grown very rapidly. And I think what we are trying to do is similar things in other countries and that's why the camel under the tent is probably a better analogy than that in places like Germany and these other markets is a good thing, because we get a reference theatre you bring in competition and it will tend to grow the market fairly quickly.

So there is a lot of activity, for example we have no theatres in Scandinavia and there is a lot of activity going on in Scandinavia. It is probably not the best economic example, but we are opening our first theatre in Greece and Portugal. We opened a theatre with Lusomundo and it's very successful, extremely strong numbers. Russia has obviously been a place that's been very strong for us all along but the Stalingrad movie with, as I mentioned in the call per screen per week an averaging over $60,000 a screen. I mean those are really strong numbers. So, I think it's a combination of the tactics that we have used, the personnel we have recruited and certainly the economic recovery won't slow things down.

Are you seeing U.K. as a good example, are you seeing in the UK what we call B&C markets, really aggressively look to add the format, the way we have seen in the states. We think that the U.K. being your kind of high most developed European market.

I think in Russia, we have more theaters than we do in the U.K., but I think in terms of growth in a short period of time, the U.K. is on a very good trajectory. And also during the comments I talked about the iconic theater effect and I know it sounds like words, but I think it's hard to overestimate what that means. I think the TCL in the LA community is a very big deal and you are going to start to see premiers happening there and big deal premiers. And you are going to start to see the media outlet showing people coming out of the IMAX Theater, and I think similarly I think Leicester Square is, is a really big deal for the U.K. I think the BFI is obviously been iconic and tremendous from a box office point of view, but almost every year European and certainly many worldwide premiers are held in Leicester Square. And I think you know that's going to boost not only our presence in the UK but also throughout Europe.

That is great. Thanks, Rich, appreciate the color.

Thank you. The next question comes from Steven Frankel of Dougherty & Company. Please go ahead.

Good morning. I want to go back to China for a minute. There has been some reports in the trade that Gravity and Hunger Games are going to be released basically on top of each other. You have been through that situation before. If this happens again, is there anything that you might do differently to help optimize the box-office?

A couple of things, first of all, I think, we'll have to make a decision with our exhibition partners on which film is likely to play stronger. And I think they want adjust the schedule, so one really good think in China is the screen sharing which there isn't in the U.S. So in the U.S. if you have two movies opening at the same time, you could only play one of them. In China you could actually play both of them. And Gravity in particular, it's a short film also. It's only around 90 minutes.

So when you look at it, you probably can get an extra show in there. Obviously you would rather they not open on top of each other, but I think there are ways to minimize the fall out from that. I also think you have to look at pun intended the bigger picture which is the fact that Gravity came out of nowhere and performed so well and it got into China and Hunger Games got into China, and I think there are other films that I can't comment on yet, but I think there going to get into China that we hadn't counted on. So, on this one, I look that the glass is way more half full than what it could have been in an ideal world. Let's remember neither of them could have gotten in also.

Okay. And then on the domestic market share gains. Do you think some of this incremental share gain is coming from the generic PLS or do you think it more likely is just coming from customers moving from the regular ticket to the premium experience?

First of all, I wouldn't use the word premium experience. I think it's a number of factors. I think its people wanting to go to the IMAX experience. And I think you are bringing some people off the couch who wouldn't go to the movies. You are bringing people who would otherwise watch it similar to what I just said on there mobile device or in their home TV set. I think you are bringing particularly in the film like Gravity because of the 3D element and IMAX's role in the visual experience. You are bringing people who otherwise wouldn't go to the movie. I don't know if you are aware but versus the PLS IMAX is doing just way, way better per screen on it, somewhere between around three times what the PLS are doing. So Given how well Gravity has done, I wouldn't want to knock the PLS and say, they are not doing badly for it, but people are seeking out the IMAX experience because it just the best way to see the movie.

And they are seeking it out everywhere, Rich, was talking about how well we are doing in places like Lincoln Square. Earlier in the call when someone was talking about, I think it was Eric, who was talking about Carmike and asking about smaller markets and Warren Theater was mentioned, and I went and looked at my computer. This is October. The Warren Theater is in one in Oklahoma and one in Wichita have both done approximately a quarter of a million dollars on Gravity in October. So something is going on, right? That's a fifth of our per screen average that we have talked about in a $1.2 million or so on an average that they are getting in October. So there is definitely something going on in the connection that's happening between that movie and the overall experience and IMAX is penetrating the marketplace.

Great. Thank you very much.

Thank you. The next question comes from Aravinda Galappatthige from Canaccord Genuity. Please go ahead.

Good morning. Thanks a lot. Just a couple from me, just to go back to the laser projector for a second. When you think of where you are in terms of the development, is it safe to say that we are at the later stages, instead of focusing merely on the tweaks instead of the testing phase? Can we assume that much of the technology risk is now behind us or are we still in the middle there?

No. I would say we are still in the middle, Arvavinda. Obviously, in terms of time, we are in the later stages. But this is technology development and you have pieces, custom-made and you have approaches that are theoretical that you put into the real world and until you put them into the real world, things can go wrong. We are doing our best and keeping everybody appraised as to what we think but it is not without risk.

Okay, great. And just a quick one for Joe, the JV number that we saw this quarter, are there any hybrids in there, and could you just remind us how much of the backlog is hybrids?

In the numbers for the quarter, there is two new hybrids plus one additional hybrid which was actually previously a sales system. Last year we had two such installs. In terms of the backlog, I don't have the exact number, but I would have to say it's probably in the 70 range number with (Inaudible).

Okay, great. I will leave it there.

Thank you. The next question comes from Vasily Karasyov of Sterne Agee. Go ahead.

Thank you. Good morning. I apologize if I missed it, but did you guys given update on the PSA for the year? What you expected versus last year's 1.2 roughly? And then if you could, Rich, reflect on what this year is telling us about the slate strategy which work so well in 2012 and had a couple of surprises this year with the Despicable Me taking the outside share of the box-office and now Gravity being a positive surprise? Are you expecting to make any changes or tweaks domestic or internationally and anything on that would be helpful? Thank you.

On the PSA, we don't give guidance on a quarterly basis on PSA and I guess there are good reasons for that because who expected Gravity to do the numbers it's doing now or there are some films that obviously didn't work on the other side. So no we don't do that for the current year. I think we'll think about it when we get into next year and we'll certainly give you our thoughts in general at the end of the year conference call. In terms of the slate strategy, Greg, can add to this, but I think that we haven't really changed our view overall with the couple of caveats. One, as you know, we don't think animation particularly works well for the IMAX audience and we still believe that and I don't think you will see us change to do that despite the success of Despicable Me, which we did playing some international markets.

A second thing I would say is, again more our strategy international-only releases we'll still do that. And then, the third thing I would say is this concept of having backups if a film doesn't work in a particular way. It's something that we have been kind of successful at and I think we will do more of that, which means, also film we expect to play for a long period of time, turns out after a week or two just not an audience for it, but we have an international-only release in that time period, that gives us the flexibility to back fill and I think that something that we will do more of. Of course, we wouldn't agree to do movies for two or three weeks or whatever the period of times as if we didn't expect them to do well, but we want to be nimble in case we don't.

I think the other part to add is that the portfolio effect is definitely what drives our business. It's the movie business. There is going to be some movies that work and there is going to be some movies that you think are going to work and that they don't. And so by having a wide portfolio with films, it gives us an opportunity to smooth things out. The other thing that's important for 2013 and I have said it before but I think, it's worth repeating is that 2013 was the first year in many, many, many years, where there wasn't for any point of the year a Batman, a Spiderman, a Bond, a Harry Potter or a Transformers.

It was a very unusual year which is, what makes a film like Gravity that much more exciting. I think you will find in 2014 that there will be a few more sure thing blockbusters that we are all expecting, whether that's the Transformers of the world or the Spidermans of the world, the other Hobbit, they are just, Interstellar Chris Nolan's movie. There is just some incredible films in 2014. In terms of the programming, the other thing that I want to add, lastly, is that we have enjoyed the shoulder period exclusive windows of the movie like Wizard of Oz.

Did it ultimately have a massive impact on our bottom line, of course not, we did $5 plus million with the film. But to release a movie exclusively in IMAX for a week that people really loved and then had an opportunity to do so in September I think was really good for the brand. I know that Eileen Campbell, our Chief Marketing Officer commented frequently about how many positive things were being said about that film. Again, it's a 75-year-old movie, so it's now like it's going to materially impact our P&L, but it was a good thing to do for a lot of other reasons.

Thank you very much.

Thank you. The next question comes from Jim Goss of Barrington Research. Please go ahead.

Hi. I was s interested in something you started to get into about the backfilling notion. We've talked over time about the changing relationship dynamics between IMAX and the studios as you've demonstrated your value. And are you getting to a point where the studios are more agreeable to allowing for some contingency plans if expected hits fail to pan out? For example, in the fourth quarter, you basically have I think five films for the period, all of which seem to be potentially big films but you never know. And if so, are you creating such backup contingency plans in association with the studios?

I wouldn't put it that way, Jim and I'm glad you gave me another chance to get out because I was afraid I may have overstated. As I said, we don't do movies unless we think they're going to work and we expect everything to work. With that said, as Greg just said, not everything works and if you have the possibility of putting something in when it's not working, you do that in consultation and with the approval of the initial studios film.

So, I think it would be more kind of a relationship thing. Since we are in business with virtually all of the studios and they are going to be on the winning side or a film under performing at another point I think it's more from a relationship point of view, their understanding. So at some point, one of their films is going to be doing really well and they are going to want some more play time. So, I think when their film isn't doing so well, they understand and they consent to it. But that's not part of any agreement. It's not part of anything formal. It's just I think a round world and the whole industry in a way works that way, as I'm sure you know in non-IMAX business and I think it's just become part of the fabric of the IMAX business.

Okay. So the dynamics are getting a little better along those lines, so it's little more of an equal partnership. And for example, you have Thor in international only in the fourth quarter. If you have something like that and potentially in your back pocket because you didn't have a spot during the domestic slate that you had lined up. That's an option that you may deal with the studio to come in if something, if you need another slot?

Jim, we have faith in the slate we have and will see how it goes going forward. But we have a lot of faith in what we've chosen.

And last thing, the Dhoom 3 expectations and breaking into a new market if I'm not mistaken, pretty high hopes on this one?

Dhoom 3 is a huge title in India and a lot of countries that support Bollywood films. It's not a movie that we are only going to playing in India. In fact, we have developed a tremendous relationship with Yash Raj Films in India and our intention is to play that film in markets outside of India as well, which would include Indonesia and parts of the Middle East, even in parts of Canada, United States and U.K. So as we see the movie and as it gets closer to that window, we will make that decision.

Bollywood is definitely something that is having a big impact in lots of locations, not just IMAX locations and we look forward to seeing how this first one does. It also great to note that in India, since you are talking about a Bollywood film, we've recently opened a couple of new locations with PVR and those locations including Gravity have done remarkably well in the last couple weeks. And so what great is that we now like China are able to cover ourselves in India and countries that play the Indian films with both Hollywood films and Bollywood films and all you want are the options. If you're able to have both options, I think you're in a good position.

And to the extent that there is a significant population that is Indian or almost any other nationality in the melting pot that is the United States, you have opportunities to possibly take these films here and give them one of the screens in an area and perhaps draw from a wider base?

That is correct.

All right. Thanks much.

Operator, I think we will only take two more questions to keep it on schedule.

Thank you. The next question comes from Daniel Ernst of Hudson Square Research. Please go ahead.

Good morning. Thanks for taking my call. Rich, this quarter a year ago you made some comments that I thought were very interesting about the size of the network reaching an inflection point, which helps you eliminate a lot of the variability in earnings in your model. But this quarter despite almost doublings since 2009, I don't think you've had an absolute earnings numbers this low since then. So can you speak to where you think you are in that inflection point, maybe you need to be at thousand screens, what is the number where we see less variability in the model? And then related to that with next year expecting another year of how we backend weighted installs. Is there anyway you can work with the theaters maybe there is a discount you can provide the theaters who can install when you have your over capacity periods for your install guys? Thanks.

Well, I will answer your second question first. We don't manage the business for quarters that's your guys' job. We managed the business over the long term and we're not going to take a hit on margins. So we can have more installs in the second quarter than the third quarter that's just not the way we run our business or going to run our business. We're not going to destroy our pricing to kind of smooth out earnings. I wish they were smoother but they are subject to variability like in many businesses and that's just out philosophy in running it.

In terms of variability, I think it's the movie business, and September and October although this year is different but in late August just aren't at the same months that the summer is or Christmas is. And it's been that way for 100 years and its going to be that way going forward. Now, we're trying to smooth it out through things like Greg was talking about special releases, The Wizard of Oz, The Metallica film doing things like that. But the fact is in July, the kids are off from school and they can go to the movies all day long. In September, they're in school. We really can't change that result. In terms of the inflection point, I think we've passed the inflection point and stay tuned, I think when we have a good film slate that will reflect itself.

Great color. Thank you.

Operator?

Thank you. The last question comes from Martin Pyykkonen of Wedge Partners. Please go ahead.

Yes. Thanks. Couple questions, I know this probably difficult to get precise on, but the comment about 28% versus 6% China in the quarter and some of that was lack of the blackout but obviously you have more screens operating. Is there anyway to sort of separate the two how much of it was just being able to have more film output in screening versus the number of screens in terms of that jump year-over-year first thing. And then secondly, much longer term picture as some of these JVs eventually start to come up for renewal, should we be thinking of your digital laser strategy kind of tying into that? In other words, from exhibitor standpoint, is that going to be part of the incentive to get them to renew.

I know none of these are coming up very soon but if you just sign back to Avatar days in the few years may come up, others over the next five to seven years but just wondering if that's part of the tying because I think obviously clearly stated this is more for the very large film screen locations today but is there a deeper down penetration of that too incentive the exhibitor to renew a JV several years out/

So as to your first question Martin, I don't have that data off hand but certainly offline we'll be happy to give you what our releases were, how many films and things like that in the quarter. And if you can discern it, we'll give you the raw data to figure it out but I just don't know if off hand. And it's not intuitive. You need to sit there with a calculator and try and figure it out. As to your second question, as you know we recently extended the AMC leases and they don't even start to expire until 2021.

So and that's a large part of our network and then in terms of other ones, I mean in bulk you really talk it about probably, I don't know 2019, 2020, some in 2018. So we really haven't formulated a strong strategy around that right now. We think it's a good business proposition for the exhibitors and us and just like AMC extended its leases. We think people will want to extend their leases. But certainly laser can be a component of what goes into the negotiation about at least renewal but since laser is not even developed for the big screens yet the biggest, let alone the JV screens that are out there and given that the renewals are at least five years away, it's not something we've really focused on.

Okay. And if I can slip in one other maybe more for Greg you mentioned with the brand in the IMAX trailers and obviously just more presence so forth. With Hunger Games coming up if I remember right Lionsgate for the first one did a lot of social media marketing kind of had a task force, if you will. So I guess question to you guys could you even personally accelerate more with social media marketing which is relatively expensive to even further build the brand for movie like that that's coming up as well as other films and other studios as you go forward?

Well, again with Eileen Campbell joining IMAX, social media is the huge part of her initiative in campaign and it something that we're going to be doing from going from traditional media into what we'll call untraditional or new media. So I think you can continue to see that. And I think what Rich said about the Behind the Frames piece on Gravity is a great example. But at the end of the day, what also really helps is just good all fashion PR. And Lionsgate has been a huge supporter of our release of Hunger Games that includes the Behind the Frames piece by the way as well as all of the advertising which has IMAX in it and of course, the most important in my opinion which is differentiation. Part of this film was shot with IMAX cameras. Any time Katniss goes into the arena particularly at the end of the movie, it will be featuring the IMAX camera.

And I think that's also a critical part. So we have a layered campaign with that film and based on initial instincts, I think just like the last film, it's going to do remarkably well. And I think will be a nice big piece of it. And we also have a very nice runway for it as I think you know it's over Thanksgiving.

Okay. Thanks.

Thanks everybody for listening in on our call. I am taking a step back. We continue to see strong signings. The fourth quarter box office is off to a great start, and we continue to streamline our costs. Taken together, we think this lines us up to finish off the year strong and most importantly positions us well for the long term growth. And again, thank you all for believing in IMAX, and we hope to return that belief with strong results.

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