Imax Corp (IMAX) 2013 Q4 法說會逐字稿

Welcome to the IMAX Corporation fourth-quarter 2013 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded.

At this time, I would like to turn the conference over to Miss Teri Loxam, Vice President of Investor Relations. Please go ahead, Miss Loxam.

Thanks, Valarie. Good morning. Thanks for joining us on today's fourth quarter 2013 conference call.

Joining me today is our CEO, Rich Gelfond, and our CFO, Joe Sparacio, who will have prepared remarks. Also here today to join us for Q&A portion of the call is Greg Foster, CEO of Entertainment and Rob Lister, our Chief Legal Officer and Head of Business Development.

I would like to remind you 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. Discussion of Management's views of these measures and the definition these measures as well as reconciliation to adjusted EPS and adjusted EBITDA, as defined by our credit facility are contained in this morning's press release.

The full text of our fourth-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 over to our CEO, Rich Gelfond.

Thanks, Teri.

We delivered really strong results in the fourth quarter with record-breaking box office of $244 million, the installation of 58 theaters, and 119 new signings, which resulted in Q4 EBITDA growth of over 90% compared to Q4 of last year. The IMAX business model is all about growing the network, maintaining our per screen averages, and controlling costs, which over time will result in continued bottom line growth.

In 2013, we executed on all key aspects of our business, resulting in margin expansion, operating leverage and cash flow for the year. At the beginning of last year, we laid out three key priorities to better position us for the future. They were scalability, differentiation and penetration.

Scalability was aimed at controlling our SG&A costs and becoming increasingly more efficient. In the past several years, our primary focus was on growing our business in a rapidly growing environment.

In 2013, however, we implemented several changes to ensure increased efficiency as well as growth. We adopted new travel policies, put together a hiring committee and more effective management controls, and began restructuring certain internal groups, all of which contributed to a more disciplined approach to running our global business.

Importantly, these efforts were reflected in our SG&A for the year, which grew only 3% over 2012, not including stock-based compensation, despite a significant increase in business activity in 2013, particularly theater signings and new business initiatives. We're committed to continuing our cost disciplined approach moving forward, including through further implementation of SAP, which we began building out last year.

In terms of differentiation, our technology, our brands and our film presentations were all areas where we saw improvement in 2013. We continued making progress on our laser projection initiative which I'll talk more about in a minute. We also further built our brand and provided differentiated viewing experiences to our audiences.

Two of our movies last year, Star Trek and Hunger Games, Catching Fire, had portions filmed with IMAX cameras. We continue to see strong demand from filmmakers eager to use both our film as well as our digital cameras. In fact, Michael Bay used our new 3-D digital camera to film a significant portion of the upcoming Transformers 4 movie, which will be released in June of this year. Chris Nolan is using our film cameras for his new movie, Interstellar, which will be released this November.

During 2013, we signed or opened IMAX theaters in several iconic locations including the TCL Chinese Theater in Hollywood, formerly the Grauman's Chinese Theater, as well as a new theater in Potsdamer Plaz in Berlin. An IMAX theater will open at Leicester Square in London in the coming months. We have our eye on several other prominent locations around the world.

The central location size and historic nature of many of these theaters means they are often the sites of countrywide or even worldwide film premieres with significant media coverage. This exposure insurers IMAX will remain front and center in consumer's minds in key markets around the world.

Last week, we hosted the US premiere of Robocop at the TCL IMAX theater in Hollywood, and the international debut at the BFI IMAX theater in London. In addition to these notable theaters, we penetrated many new markets in 2013 and broadened our reach globally. We achieved a tremendous 277 signings during the year, our best signings year ever, almost doubling 2012. Those signings span 31 different countries. This has resulted in our largest backlog in history of 407 theaters, providing us with a solid pipeline for future network growth.

In addition, we installed 112 new theater systems in 2013, 110 of which were for new commercial theaters across 23 countries. With the continued build-out of the international theatre network and an increased number of local language film releases in 2013, we are now more globally diversified than ever before. We have IMAX theaters operating in 57 countries. In fact, there is now an IMAX theater system operating somewhere in the world 24 hours a day with many different films playing across our network at any given time.

Our global portfolio of films generated $727 million in box office in 2013 and delivered a global per screen average of approximately $1.2 million. In fact, with the exception of 2010, when we had a higher per screen average driven by Avatar, our per screen averages over the past five years have been in a tight range of approximately $1.1 million to $1.2 million, further evidence of the success of our annual portfolio approach to our film slate.

For the first time, more than 50% of revenues in box office in 2013 were generated from international markets, a trend we expect to continue as we further expand our international theatre network. To ensure we are fully capitalizing on global trends and opportunities abroad, our top priority for us this year is to think, act and operate more globally.

This doesn't just mean opening more theaters internationally. This means deeply understanding the countries and regions in which we operate and adopting our business approach accordingly.

We've already started to manage our film portfolio on a more global level by tailoring it to local preferences and strategically planning our film slates in each country to reduce gaps as Hollywood titles are often not released on the same day throughout the world. I think as you've seen, our results over the past several years, you've seen the benefits of that programming philosophy. To this end, we have continued to build relationships with local filmmakers. In 2013, we played nine local language films including five in China, one in France as well as our first in each of Russia, India and Japan.

Our focus on globalization will involve looking at all aspects of our organization to make sure we are operating in an effective and efficient manner in every country. As part of this work, we will have an increased focus on our brand. In the past, we had three separate marketing groups: one for film, one for theaters and one for our brand. Each had its own independent plans and strategies that were largely focused on domestic marketing.

Given how big an asset our brand is, last year, we hired a new Chief Marketing Officer, Eileen Campbell, who has significant global experience marketing large brands and also a passion for data analysis and return on investment. Her first step was to reorganize the marketing group to build a unified efficient marketing structure to better support our films, theaters and brands around the globe.

The second step was to identify and supplement the team with additional talent, which has largely been completed. The third step, which is currently underway, is the implementation phase, executing our strategy.

Our goal for this year is to test new marketing initiatives in select markets around the world to determine their effectiveness and what the return on investment is. It will be a year of learning, determining which levers best drive market share and revenue so we can optimize the allocation of our resources in the years ahead.

Another key priority this year is to launch our laser product, which is aimed at converting our largest film based theaters, those with screens above 80 feet to digital. We've signed 22 digital laser deals so far, plus up to 40 additional laser deals as part of the most recent Wanda announcement.

Inherent in any R&D project is risk. But we continue to work closely with our partners to ensure components meet our specifications and are delivered on time. The next step is to put all the pieces together for the first alpha prototype. Based on the progress we've made so far, we remain on track to begin our laser roll-out at the end of this year.

On the film side, our portfolio of titles for 2014 is firming up. We have officially announced 14 films for this year, but we expect to have a similar number of titles in 2014 to the 38 films we had released in 2013. There are many great movies in our slate this year, with franchise titles like Spiderman, Transformers and the Hobbit; movies we know our fans are really looking forward to seeing in IMAX. Given our track record with Chris Nolan, his significant use of our cameras and his passion for the IMAX brand and most importantly the IMAX experience, we're also really excited about Interstellar.

Looking further out to 2015 and 2016, film slates are shaping up to include more anticipated blockbusters then in most years. Films such as Star Wars, Avengers 2, Jurassic World and the next James Bond are all currently scheduled for 2015. Batman versus Superman and Avatar 2 are among the many films already starting to be lined up for 2016. We believe that the progress we've made over the past couple years will continue in 2014 and will position us well for 2015.

With a vast global network of theaters and a very strong global brand, we expect to continue to deliver greater value, not only for IMAX, but also to our studio and exhibitor partners and most importantly to IMAX consumers around the world.

We're not stopping there. We have our sights set on growth far beyond 2015 and 2016. While we continue our focus on building our network to maximize our core strategy of out of home theatrical entertainment, we are also pursuing new business initiatives.

As we've previously announced, we began dipping our toes into the in home entertainment market with the launch of our ultra high-end private theater early last year. We expanded our efforts later in the year with the goal of creating the next level of premium in home entertainment with a lower price home theater through a joint venture with TCL and a strategic partnership with Prima.

Our joint venture is beginning to form. We expect R&D and product design initiatives to kick off in the near future with product roll-out targeted for 2015. We're also keeping our eye out for other business opportunities where we could leverage our brand, technology and capabilities to provide additional growth for the future.

With that, I'll turn it over to Joe to go through some of the financial details.

Thanks, Rich.

As Rich mentioned, we finished off 2013 with a very strong quarter across our top and bottom lines, which translated to expanding margins and free cash flow generation. Total revenues of $105.1 million in the fourth quarter increased by 36%, compared to Q4 of last year, and helped to drive a 91% increase in adjusted EBITDA to $52.2 million and adjusted EPS to $0.44 in the quarter. Our strong topline results in the fourth quarter were driven by higher sales-type, theater installations, as well as strong growth in our joint revenue sharing and DMR line items.

Revenue from sales-type installations was $32.6 million in the quarter, compared to $20.2 million in Q4 of 2012, reflecting the installation of 23 full new theater systems and one private home theater under a sale and sales-type lease arrangement in the most recently completed fourth quarter, compared to 14 in the fourth quarter of 2012. The Company also installed four digital system upgrades under sales and sales-type lease arrangements in the fourth quarter of 2013, compared to three upgrades in the period last year.

Looking at our recurring revenue lines, the JV and DMR segments combined and grew 46%, compared to Q4 of last year. These two segments made up half of our total revenues for the quarter. This revenue growth translated to significant margin expansion, with our total gross margin percentage in the quarter increasing to 64.1%, up over 900 basis points, compared to 54.8% in Q4 last year.

DMR margin was almost 82% this quarter driven by strong box office performance and lower DMR costs, resulting from the scale of our DMR portfolio and the digital nature of the majority of the films in the quarter. The Q4 JV gross margin of 72.7% was significantly higher than the 52.6% margin in the fourth quarter last year, driven by strong box office, as well as fewer JV hybrid installations. There were 6 JV hybrid installations in Q4 this year, compared to 10 in the same quarter last year.

Moving on to our operating expenses, SG&A, excluding stock-based comp, came in at $20.1 million in the fourth quarter, bringing our full-year SG&A total to $70.7 million, a 3.4% increase over last year. We made great progress in 2013 towards improved cost controls. We expect to continue these efforts into 2014. We are issuing full-year 2014 guidance that we expect SG&A, excluding stock-based comp, to increase approximately 5% to 8% compared to the full year 2013.

In terms of SG&A phasing, we anticipate a similar cadence to 2013 with SG&A expected to be higher in Q2 and Q4 and a bit lower in Q1 and Q3. Remember, as you compare back to 2013, that last year's first quarter included a $2.2 million one-time pension benefit, which we don't expect to reoccur this year. We incurred a loss of $700,000 in the fourth quarter due to foreign exchange translation.

Stock-based compensation for Q4 was $3.2 million, with the full year coming in at $11.9 million. We expect stock-based compensation for the full year 2014 to be approximately $16 million.

Q4 R&D was $3.5 million, bringing the full-year R&D expense to $14.8 million. We expect our full-year R&D expense in 2014 to be around $15 million, primarily driven by the continued development of our laser technology, as well as other initiatives. We currently anticipate the phasing of R&D spending in 2014 to be weighted a little more heavily to the front end of the year with about 60% of our R&D spend expected in the first two quarters.

In terms of taxes, we finished the fourth quarter with a tax rate of 26.3%, translating to a full-year tax rate of 27.2%. We expect our full-year 2014 tax rate to be around 27%, including an estimated $10 million to $12 million of cash taxes. At the end of 2013, we had $24 million of remaining tax assets resulting from NOLs. Our strong financials translated to another quarter of free cash flow generation as defined by operating cash flow minus investing activities, which includes our investment in our JV network expansion.

In the fourth quarter, we generated about $6.6 million in free cash flow, bringing our full-year 2013 free cash flow generation to $12.8 million, after a $22.8 million investment in JVs or $35.6 million before our investment in JVs. During the fourth quarter, we also paid down our bank debt by $5 million resulting in no remaining bank debt at year end. The Company finished the year with cash and cash equivalents of $29.5 million.

In terms of our network, we installed 112 new theaters in 2013, 110 of which were for new commercial sites. We installed almost 50% of these in the fourth quarter with 54 new theater systems in Q4, including 30 JVs and 24 sales-type installations, of which 22 were for new commercial theaters, one was for a new institution and one for new private home theater. Our total commercial network is now 701 theaters, of which 382 are JVs.

In addition in the fourth quarter, we signed deals for 119 theaters, bringing our full-year 2013 signings to 277 theaters, of which 246 were for new systems. As a result our backlog at the end of 2013 was at an all-time high of 407 theaters, 384 of which are for new theater systems. Almost 90% of these theaters in backlogs are new builds and 90% are scheduled for installation in international markets. For 2014, we expect to install a similar number of theaters as we installed in 2013.

As we talked about on our Q3 earnings call in October, we expect the pace of our 2014 installations to mirror that of 2013, with about 50% scheduled for the fourth quarter. Based on our current backlog, we expect about two-thirds of our installations in 2014 will be JVs and one-third sales-type arrangements.

As part of our JV installs for 2014, we currently have about 20 hybrid JVs in our backlog scheduled for 2014 installation, with about 15 of them scheduled for the third and fourth quarters. We currently expect to install about eight new theaters in the first quarter, two of which have already been installed. We currently anticipate three sales-type installations in the first quarter and about five JVs, one of which is currently expected to be a hybrid JV.

To give you some color on our box office, we generated $244 million in global box office in the fourth quarter, a 61% increase over the same period last year. Our box office in Q4 was pretty evenly split between domestic and international markets; however, for the full year, 54% of our total box office of $727 million was generated from international markets, which represents the first time in IMAX history where our annual international box office exceeded our domestic box office.

Our fourth-quarter per screen average was $366,000, bringing our full-year 2013 PSA to $1.15 million, with the domestic PSA of about $1 million and international at about $1.4 million. All consistent with last year.

Also consistent with last year was our per screen average in China, which was $1.2 million for 2013. A few other countries worth highlighting included: the Netherlands with a PSA of $2.5 million; South Korea, $2 million; United Kingdom, $1.8 million; and Russia at $1.6 million.

DMR costs for the year were $27.4 million, resulting from the release of 38 films. We expect a similar level of DMR spend in 2014 as we had in 2013, assuming a similar number of films in our portfolio this year, which is currently our expectation. A couple of other items you should be aware of this year, first, as Rich mentioned, we announced a joint venture with TCL Multimedia to expand our in-home initiative and develop a broader, premium home theater offering.

We are in the early stages of forming the joint venture. We expect that, once the team is in place, R&D and other activities will begin. We anticipate using equity accounting for the JV. So our 50% of the initiative will be booked on the equity line of our P&L.

Based on our current assumptions for the year, we estimate that the JV will be dilutive by about $0.05 in adjusted EPS in 2014, primarily driven by R&D costs and SG&A associated with staffing up the joint venture. We currently expect these costs to begin in late Q1 and to ramp up throughout the year.

In addition, our lease in Santa Monica office expires early next year. After careful consideration and analysis, we have decided to build a new facility in the Los Angeles area instead of leasing in a new location. Renewing our lease in the existing facility was not a viable option as our space needs have changed with the evolving business. The new LA train line is being built within a few feet of the existing office, which we believe will interfere with our post-production work.

We expect to begin building this year with the new facility expected to open in 2015. We expect to finance a large portion of this project with a low interest rate construction loan. We believe the P&L impact will be neutral in the first few years and then positive thereafter.

To recap, 2013 was a successful year for the Company on a number of fronts. Our commercial network grew 17% to 701 theaters globally. This, along with consistent per screen averages, drove growth in our recurring business lines resulting in expanding margins and increased cash flow.

With that, I will turn it over to Q&A.

(Operator Instructions)

Townsend Buckles, JPMorgan.

Rich, you clearly had a great year of new screen signings especially in China of course. As you look at your pipeline ahead, is there still much activity in China and Asia? Do you see the region continuing to lead your signings ahead?

The answer is yes, Townsend. There is a significant amount of activity in the area still going on. I think one country that we lost momentum in over the last couple years was Japan, because obviously when the tsunami happened and Fukushima happened, a lot of the positive momentum was going on -- which was going on there came to a halt. So I think that's a market that we'll see some progress in. Some of the developing countries like Vietnam. As you know, Indonesia and Malaysia have been pretty good for us. In China, itself, there's a reasonable amount of activity.

I don't think you're going to see another 120 theater deal like we had this year with Wanda come out of there. There's just no way that could happen, but I see that region has continuing to be pretty good. I see also Russia as being a good year for us again. Joe just talked about the PSAs there. I think that's going to drive growth.

I think Europe is a place where we're underpenetrated. I think we'll -- especially with Leicester Square and some other things, you'll see some positive momentum coming out of there. LatAm, I think we just have to see what happens to the currency and the economic environment as well as India. But the ones I mentioned first, I feel pretty good about. Then those other markets I think are probably more susceptible to worldwide trends.

In some of the other emerging markets like LatAm, I think in the past it's been a bit of a challenge to get mall developers to allocate enough space to allow for an IMAX screen. But we've heard some are now giving some preference to an exhibitor bringing in an IMAX. So if you could talk about how you're seeing that dynamic and if you've got more developers now on board, are you seeing these markets opening up more now?

We are. Townsend, very much so. In fact, we signed a deal for one of the best locations in all of Brazil recently over the last couple of weeks. I'm not sure whether we announced it or not. We may not have because it was a one theater deal. But again, it was one of the best locations in all of Brazil. There is demand coming from there.

But I'll give you sort of a parallel example of why on Brazil and India I'm a little bit cautious is, in India we kind of executed everything we could according to our plan. We opened with competitive exhibitors. The PSAs in India were really good. They were around $1.5 million, but think about ticket prices there, kind of incredible results.

We opened Doom 3 which just really knocked the cover off the ball in India. There were hard to find seats for it, but yet in India last year, we didn't have a lot of signings. That was just because of the devaluation of the rupee as well as the economic environment. So, I think we're well-positioned in LatAm. It's just a question of what the macro economy looks like.

Thanks, Rich.

James Marsh, Piper Jaffray.

Just two questions. The first for Joe, as you look at fourth quarter JV revenues or the percentage of total IMAX box revenues, it looks like those have been moderating a bit and I guess -- not just in the fourth quarter but for the full year. It looks like for the fourth quarter, they were about 10% down from 11.2%. I'm just trying to understand what's driving that. I would have thought that with two-thirds of the installs last year being JV that would naturally creep higher.

Well, I think one of the impacts could be, James, that -- don't forget a lot of the installs that we had this year that in theory would have lifted it a bit happened later in the fourth quarter. So that may -- that's going to tweak that percentage as well in terms of what you may have expected coming through. So depending on when the those units came online, that will impact that percentage as well.

Actually, when you look at it, overall, that percentage was actually up a bit from where we were last year. A lot of that was because the volumes were so great. Then many of the deals we exceeded our fixed cost [line].

Okay. All right. Thanks. My follow-up relates to your relationships with film directors. Obviously, you guys realize that a lot of the power in Hollywood reside there. I guess what caught my eye recently was a Trade Press article highlighting how JJ Abrams wasn't going to be shooting Star Wars with IMAX cameras. Obviously you are going to DMR it, but I thought the comments were a little bit negative there.

I just wondered if you guys have any color on that? In the past, you talked about growing your fold of directors that like to use IMAX. Guys like David Fincher that hadn't used in the past. I wondered if there were any new developments on up and coming or important directors that are starting to use IMAX?

So James, a couple things. First of all regarding JJ. JJ and his company Bad Robot are really close friends of ours, partners of ours and have been long-term partners of ours. IMAX, we're committed to their films, you feel free to ask, they're very committed to IMAX as well. I think you'll see over the coming years, lots of JJ's films including those that he produces for Bad Robot in IMAX theaters. Some, in fact, that will be using IMAX cameras.

Our relationships with filmmakers, I don't think has ever been better. Whether it's Zack Snyder, who we now do a lot of movies with, including the Batman versus Superman movie; the Marvel filmmakers, who we're working quite extensively with; we continue to have our complement of filmmakers like the Chris Nolans and Michael Bays and our great relationship with Jim Cameron. But as we continue to expand our business, we've been having lots of interaction with new filmmakers, who have perhaps done IMAX films but haven't used our cameras who would like to.

The big issue that have with our cameras is there's way more demand than supply. We're very careful to not overdo it. We don't want everyone shooting with an IMAX camera.

It's something that we have an exclusivity on, that we want to make sure that the people that use it are the people that really understand our technology and really understand how to create a differentiated experience. So the summary is, there's more conversations with filmmakers than we've ever had and in fact the supply of cameras is the biggest issue addressing the demand which it currently exceeds the supply.

Okay. Thanks a lot, Greg.

Eric Handler, MKM Partners.

I wondered if you could talk a little bit about the regulatory climate in China? A week ago there was an article in the Hollywood Reporter talking about the government actually increasing the number of films that they were going to import in the year, but then there was -- that was refuted. But I just wonder, do you see any changes going on in China that you expect over the next 12 to 24 months?

I think the answer is yes, we do see changes coming. I think they will be mostly positive. Many of you have heard my overall take on China, which I'll repeat again. Which is that I think it's kind of like almost like a stock chart where it goes down and it goes up. But it trends over a period of time to be upward. I think that's definitely been the case. So something like the last 10 IMAX films that we've tried to get into China have all gotten in. We've never been in a period of time where that's happened before.

On the other hand, I'm sure there will be a period of time where that won't be the case. I think -- I don't want to overstate this, but I think the number one thing everybody needs to do is be a little calm and look at it on a long-term perspective. Again, we didn't put out a press release saying 10 in a row have gotten in, but should one not get in, that tends to be a lot of noise in the background. So first, that's the overall perspective. Things have definitely been getting better.

At a second level, I think you see the focus in China at a high level on consumerism and the shift of the economy from exporting to a consumer economy. Certainly moviegoing, which has grown about 30% a year at the box office and IMAX itself is part of that consumer movement. So I think you're going to see the macro politics there favor consumer issues such as IMAX so that's another reason.

Then on a more micro reason, there have recently been some changes in the makeup of China Film Group. Again, China Film Group is the state-owned enterprise that controls the importation of films. China Film Bureau regulates China Film Group. But recently a number of the people because of age have retired in China Film Group. They are replaced by a new generation. I think that new generation has experience with IMAX, gets IMAX. I think over time that will continue the positive momentum that we've been seeing.

Great. Just one quick follow-up in China. I'm just curious what type of -- with your increase in number of theaters that are operating there now, what in general has been the market share range that you're getting for Hollywood film versus a China local language film?

Yes. I'd say it's been somewhere in the like 7% to 12% range. The best ones are 12%. The lower ones are around 7%. I think it's been fairly similar for the Hollywood films as well as Chinese films.

Great. Thank you.

Ben Mogil, Stifel.

So on the 38 films that you plan to release in this year, how many do you think will be local language? Maybe give us a sense of how many by country? If you want to be even a range, I understand that as well.

They will be in the 8 to 10 range. This year, for instance, if you look and you see in the beginning of the year, where we've already had a movie, The Monkey King in China. Then we'll have probably four to five from China alone. We'll continue to supplement with additional markets. It's an important gap filling strategy, but it's also a very important strategy in terms of nurturing relationships with filmmakers. One of the question that was asked earlier by James, we talked a lot about the Hollywood filmmakers, there's also tremendous interest for our cameras from non-Hollywood filmmakers as well -- the big filmmakers in markets in Europe, in China, Asia-Pacific, et cetera.

Okay. Thanks. Then one for Rich, as you guys grow more abroad -- in this year's signings, I mean, you look at 31 countries in the signing pool. Are there some countries that used to be straight sales that are now -- you're now feeling comfortable enough to do JVs with?

China is really the only one that I could think about. Otherwise, no, we're pretty much following the policy we did.

Okay. That's great. Thank you, guys.

Aravinda Galappatthige.

Great quarter. Just a couple from me. First of all on the system sales very sharp upswing in Q4, ahead of last year's Q4 and probably ahead of everyone's expectations. Was just wondering what drove that?

Was it just simply the timing of the installations, the way it was originally scheduled? Or was it come from a particular region or a particular area? Where there perhaps some spilling over earlier from 2014 into 2013?

My second question was on the China film slate. I was just wondering, maybe Greg can give us an update on what the blackout periods are? What the timing is of the key releases of 2014, the big Hollywood titles?

Aravinda, I'll take the first question on the installations. If you recall, we've been saying all along that our installations will be back end loaded. Part of that was the anticipation that a number of these sales-type leases would come in the fourth quarter.

There was a little bit of movement as you would have in any year between periods but nothing very dramatic. We didn't really shift our guidance that much.

So we're pretty much in the mode of one-third to two-thirds in terms of our sales to JV mix. I think that's pretty much where we've been. So there was nothing really unusual.

I think in terms of where we've installed -- we've installed in a bunch of different markets but one of the real positives was we had a number of sites in Latin America this year which was great.

On the China side, Aravinda, what's been -- what always happens in China is that you really never know until a month to six weeks prior to a film coming out whether it's going to get in there or not. There's censorship issues. There's timing issues. They obviously have a quota. But what we've done with our foreign language development program is we've been very careful about making sure that at any given time we always have a local film ready to slot in if one of the quote, blackout periods shows up.

To give you an example of the pacing of our Chinese releases, not just of the Mandarin titles but of the US titles, by the end of the month of February, so for the first two months of the year, IMAX will have released nine titles in China, some of which are Hollywood titles, some of which are local language titles.

So we feel we have a really nice sequencing going on there. There's no reason to suggest that won't happen. I can't tell you when Transformers 4 is opening up or when Spiderman is opening up. But we certainly anticipate those movies being a part of the release slate in China just like they've been in the past. They're important franchises. China Film Group is interested in maximizing the revenue of all of the theaters there.

Great. Thanks a lot. I'll leave it there.

Colin Moore, Credit Suisse.

Just a follow-up on Ben's question with regards to your record backlog including a lot of international. It may be early, but do you have any sense as you look at that backlog on what the potential PSAs might be for that backlog? Whether they could be equivalent to your existing network? Or is there a chance that even though they're great returns the increased penetration may just cause a weighted-average decline in your international PSA?

Now, that's a really interesting question, Colin. I think the answer is, we'll all learn that together. But I think what we try and do is look at our PSAs on a global basis. 80% of the backlog is international. As you know, our international PSAs are higher than our domestic PSAs. So I think where our range has been approximately between $1.1 million and $1.2 million for four out of the last five years are better than that. ¶ In the last -- in the 50 are I think we're comfortable saying that the opening of the backlog will keep us in that range over the next couple of years most likely despite whatever the ups and downs are. I'll talk about that in a second.

But I think given that they are so focused internationally, I don't think that they're going to be low enough that it's going to bring down our overall worldwide average. That's certainly the way we model it internally.

There are also other moving pieces going on. You've got to remember that same time. One is we're reinvesting a lot in our brand which we hadn't done as much before. I don't know what the return is, but I would expect there would be some uptick in terms of brand investment in terms of bringing people through the turnstiles.

It's low but over time obviously there will be some price appreciation, whether it's because developing markets do better or whether it's because some kind of inflation comes in but that will be a factor. So I think the really cross-currents and the safest bet is to model it where it's historically fell within the last five years.

Thank you. That's helpful. Maybe just a quick question for Joe, in addition to some of the dilution from the JV ventures on the P&L, should we also consider that there may be some additional investments within the cash flow statement in 2014?

They will be -- from the TCL joint venture? The way that the investments will appear is to the extent of our equity contributions into the joint venture. So you'll see that appearing as an investment. Our investment in that joint venture is fairly limited on a cash basis. In terms of the P&L, our share of -- 50% of the P&L will flow through our equity earnings line.

Great. Thank you.

Colin, I think I want to add one thing, which is I don't think you can necessarily equate the size of the market to what the PSA is. There's so many other variables that go in it including marketing and positioning and so. Greg should tell you the story about this weekend in Nevada.

So one of the things that we spent a lot of time focusing on are, let's call them, smaller markets -- C markets you've heard us talk about the Warren and Moore, Oklahoma and Wichita, Kansas.

So there's a regional exhibitor in Southern California called Galaxy. They opened a theater in Sparks, Nevada. Marketed it beautifully. Really spent a lot of time and effort with our team and their own team making sure that it was front and center and it was the highest grossing engagement for Robocop this last weekend.

Now, it's the opening weekend, I realize but with all due respect it's also Sparks, Nevada, not that it's a multi-million population zone. So the point is that if someone uses regional moviegoing as a hub and anchors it with IMAX, like Bill Warren has done, like the guys at galaxy are doing and like several others are, we think we can play a significant role in those territories. We think that can have a very positive impact on our overall PSA and expansion.

Great. Thanks for that color.

(Operator Instructions)

Steve Frankel, Dougherty & Company.

Greg, I wonder if you might give us some comments on the China Film giant screen Robocop situation?

I think I'm going to answer that, Steve, which is that China Film, as you know, has a quota where in addition to the normal number of films let in, additional films are let in under the 3-D bucket. So China Film has encouraged some of the studios to convert their films to 3-D in order to get into China. In fact, this is not the last one that you'll see. There are others that you're going to see are going to get in also by being converted into 3-D.

In this case, the conversion was done by a company that we're in litigation with involving a former employee of IMAX that we believe stole some of our intellectual property related to the conversion. We've elected to play it in 2-D in China, not in 3-D because obviously we're not going to play something which we believe was converted using technology that was taken illegally from us. Our market intelligence is that in some of these other movies, this technology and this company is not involved.

So I think if China Film decides that films need to be converted from 2-D to 3-D and it's converted by a company that has the technology lawfully, we'll be happy to play it in 3-D provided the quality is pretty good. So we view this as what happened with Robocop, in some sense it's at somewhat of a one-off, but I think you'll see a pattern of 3-D but probably done by different companies. For example, Hobbit 3-D is opening in China shortly in the next couple weeks. We're playing it in 3-D.

Great. Joe, a couple questions for you. What was the PSA domestically and internationally in the quarter?

For the quarter? The overall PSA was $366,000. Domestic was $343,000. International was $392,000.

Could you clarify for me, whether or not the optional A/D Wanda screens are in the backlog or not at this point?

They are in the backlog.

They are not optional. In the fourth quarter, we put out a press release where they went firm. So let's be clear, we only put firm deals in the backlog. They are firm deals. They are in our backlog.

All right. Thank you for clarifying that for me. Then one last question on China. As you look at your package today of installs and existing backlog, roughly what percentage of that is in tier one and tier two cities versus the next level of targets?

I don't know the answer offhand. You certainly can follow-up with Teri. We'll try and get you the answer to that.

Okay. Great. Thank you.

Vasily Karasyov, Sterne Agee.

Joe, I have a big picture financial question for you. So your adjusted EBITDA grew in the mid single-digits this year. But the conversion -- free cash flow conversion dropped -- conversion rate dropped. So given that the trends you guys are talking about -- longer-term trends in terms of the network growth and the PSA, can you tell us about puts and takes that could result in a higher conversion -- free cash flow conversion rate?

Yes. I think, Vasily, one of the big impacts that we had this year is that if you look year-over-year, we had a 36% increase in top line growth, year-over-year in the fourth quarter. Much of that is going to liquidate in the first quarter of 2014. So you'll see in our financials on our balance sheet a fairly high receivable balance at the end of the year.

A big reason for that is the timing of when we receive payments from the film studios. An example of that would be, the Hobbit, where we released the film in mid-December. We're not going to see that cash until January, February. Same thing with Catching Fire. So you have a timing difference there.

Then on a number of our JV arrangements, it's also on a one quarter lag. So we're actually liquidating those receivables in this first quarter.

So would you be able -- would you be willing to tell us what you think the potential is, let's say, on a long-term basis when you keep growing according to the plan, how much of the EBITDA can be converted into free cash flow?

In an ideal world, year-on-year, you wouldn't have a working capital difference like this. But it's hard to predict, Vasily. I would hope that over time it just balances from year-to-year. The important thing is that we continue to grow our topline and continue to expand our margins. The conversion of that to cash is just a matter of timing.

All right. Fair enough. Thank you very much, all.

Jim Goss, Barrington Research.

This is probably a Rich or Greg question. A couple of them together, one, I was wondering if you're making any headway in the screen sharing notion during blockbuster season.

On a related basis, then you move into a late August/September period where there typically can be holes in the schedule. Last year, it didn't work out so well. I was wondering if there were any lessons taken that have resulted in some new strategies when holes might develop, alternatives like classics remastering or some other brainchild you guys might have in that regard?

Jim, so on the first part of the question, screen sharing, as you probably know, internationally, screen sharing is a lot more prevalent than it is domestically. There's certainly more of that going on. So even this weekend in the UK, we're playing in some cases on the same screens: Stalingrad, Robocop and Gravity. So you have three films sharing.

In the US, it's really not part of the fabric of the way the exhibition community or the studio community work here. So I think it might be good for the business in certain respects, but you really have to honor your partner's wishes and honor precedent. I don't think we're about to break that apart right now. So I think you need to think about it in a two pieces separately, internationally and domestically.

On the quote, seasonality issue, which you were talking about late August and September. A couple things to note, first of all, the summer which in my opinion really starts on the 7th of March, which is sort of ironic with 300. Then you've got basically a movie every two to three weeks that looks like it could be a pretty big movie, continues all the way through into August. In fact there's a big movie coming out which they recently announced the trailer of -- shown the trailer of. It's gotten huge social media reaction which is the Marvel title, Guardians of the Galaxy.

When you get into September, we are paying close attention to the release of some classic films that we think have DNA that can translate into IMAX. So more to follow on that.

It has not been lost on us that September and the end of January and February are often tricky months. We're in the blockbuster business. That's not usually when blockbusters are released. So we are coming up with alternative content to be able to address those months.

The other thing, however, that's nice is that because of Gravity, October has now become fodder for big releases. It was -- that used to be a month that was considered great for a Halloween movie. Now that Gravity has done almost $300 million, I think you're going to find that there's going to be some blockbuster titles coming out on an annual basis now in that month. That's obviously great for us.

Okay. Just one follow-up on Rich's response to the first question though. One thing I've noticed is that as time has gone on and you've created more clout and more of an ability to maybe interact more evenly with the studios, I wondered if that might open the door to some changes in the nature that Hollywood has typically had in terms of the screen sharing idea.

Along the lines of your ability to maybe take off the movie sometime, if it's not working out, and maybe giving it back to that studio at a later point and having them all understand you're working in the best interest of all?

Yes. I think the second point you made, Jim, is more likely. Meaning that if a film isn't working, I think studios have become a little bit more flexible in saying it's not in our interest and not in your interest. I think you've seen that happen going back in time. You'll continue to see that happened going forward in time because they're partners. They want what's best for our network. We want what's best for them.

In terms of formal sharing of shows, I think if you have a long-term perspective, that's something you might see 5 to 10 years from now. But I really don't think in the short run that's likely to change overnight.

Eric Wold, B Riley.

Just under the wire. Two questions. I guess a follow-up for Greg on the film slate. You talked about the same number of titles this year versus last year. First of all, I'm assuming that's on a global basis. If so, should we assume a greater number of local titles this year than last year?

Then just a follow-up on that. As you get into negotiations with studios on the release of a Hollywood title, globally and go market by market, how much flexibility do you tend to have in terms of individual markets where you may think a local title at the same time being released may do better than that Hollywood title? To take out certain markets to play something other than the Hollywood title you're currently negotiating with?

First of all, Eric, on the number of films, we're literally looking at a complete mirror of what we did in 2013. We're expecting in the 25 range of global Hollywood titles. We're expecting 7 to 10 local language titles, which Anthony Vogels is working very hard on as we speak. In fact, has some already nailed down. We're also working on five to seven Hollywood titles that we can't play domestically because of an additional commitment.

But as a result of the staggered schedule especially this year with the World Cup, have an opportunity to play internationally in 2014. So it will be very, very similar around the 40 range. In fact, while we've announced a bunch of titles so far this year, we already know the majority of them, that you'll be hearing about in the coming weeks and months.

As it relates to the second question which is a really interesting question. There are some markets that already happens. For instance, The Monkey King in China came out at a time that there was some other movies that we chose not to put ourselves on the paperwork for, because we preferred to play The Monkey King, which has shown to be the right decision. We would continue to do that as long as it doesn't conflict with a big title of ours with a Hollywood partner.

That's not something that we would necessarily do, however, in a market where there's one or two or three IMAX theaters. The only way that we would ever do that would be if it's a market with an international filmmaker whose impactful and someone that we want to be in business with and which isn't going to burn a Hollywood title that we've already made a commitment to. There are several of those that we can do that with, but we have to be very careful to find that right balance. So I hope that answers your question.

No, that's perfect. Just one quick follow-up if I may, on the laser system, assuming you get a few installed before the end of the year, do the testing on a couple of movies, what should we think about in terms of the cadence for how the remainder of the installations of laser systems should happen in 2015, avoiding the core summer holiday seasons?

I think, Eric, that it's still TBD. As I said during the introductory remarks, these are really alpha units, the first ones that we're putting in. But I would hope and again, I'm underlining that word, it's not a prediction. That somewhere around 10 would go in next year in 2015. Then 2016, they would really ramp up more. But I'll have to get back to you later in the year when we see how the development goes farther along.

Perfect. Thank you, guys.

All right. Thank you all for joining us on the call. A couple takes just on the quarter. One is, one of our Directors at our Board meetings uses the term that I really like. He says, IMAX is not a quarter horse, it's in the race for the long-term.

I think if anything was proven out of this year, it was that the portfolio theory really worked. When we talk about the range of $1.1 million to $1.2 million, obviously, nothing is guaranteed and nothing is in the bank. But the fact we've done it four out of five years and the 5th year we beat it, gives me significant confidence that when you model out IMAX into the future, that's a pretty good starting point.

I think all of us, the Company included, when we have a film that doesn't work, the team will tell you this, I don't get panicked. When we have a film that does work, I don't run around singing songs. I just think the portfolio theory works. It's hard to think that way when you're on one end of the spectrum or the other. But I think after five years, that's pretty good empirical evidence. I don't know too many other businesses that are that consistent over that period of time.

I think if you take that PSA, you look at the number of signings we had during the year, you look at the network growth we had and the perspective network growth, you look at our ability to control costs through slow growth in SG&A which we demonstrated this year, we would hope that we could continue to deliver very solid margins and expanding EPS. The business model is really that simple. I think the fourth quarter proved that out. So with that, thank you to all our investors and particularly our partners and the studios and the exhibitors for helping make this such a successful year. Thanks.

Thank you. Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation. You may now disconnect your lines. Have a great day.