Imax Corp (IMAX) 2014 Q3 法說會逐字稿

Good day, and welcome to the IMAX Corp third-quarter 2014 earning conference call.

(Operator Instructions)

Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Teri Loxam, Vice President of Investor Relations. Please go ahead.

Thanks, Michelle. Good morning, and thanks for joining us on today's third-quarter 2014 earning conference call. Joining me today is our CEO, Rich Gelfond; and our CFO, Joe Sparacio, who will have prepared remarks. Also with us today is Greg Foster, our Head of Entertainment; and Rob Lister, 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 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 use of these measures and a definition of 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 third-quarter earnings release, along with supporting financial tables, is available on our website, imax.com. Today's conference call is being webcast in it's entirety on our website. With that, let me turn it over to Richard Gelfond.

Thanks, Teri. The third quarter further demonstrated our commitment to delivering bottom-line results and advancing our corporate goals.

During the quarter, we achieved strong operating margins and a record $37 million of operating quarterly cash flow. These results are driven by our expanded network, margin expansion, and strong global performance on hit movies such as Guardians of the Galaxy and Transformers 4. We generated $169 million in global box office in Q3, a 28% increase over the same period last year, with 64% generated from international markets. Our solid box office performance was partly a result of stronger indexing across several titles in the United States and international markets, and especially in China.

We were particularly encouraged by the domestic performance of Guardians of the Galaxy. The film has generated just over $60 million in global IMAX box office to date, with over half generated from the domestic market. This strong domestic performance helped drive the 12% year-over-year increase in our domestic per-screen average for the third quarter. This demonstrates that the domestic market continues to present robust opportunities for IMAX, especially when provided with content that successfully balances quality and playability, which is what our partners at Marvel and Disney did with Guardians. Of additional note, for the first time in the third quarter we released at least one film from every major Hollywood studio.

China also continued to shine this quarter. Transformers 4 alone generated a per-screen average of almost $160,000 in the third quarter in China. We also had a strong successful several of our local language title's in China as well as with Hollywood-produced internationally-only films, such as Expendables 3.

We installed 13 new theater systems in China this quarter, bringing our China network to 165 theaters spanning 78 cities. The Chinese backlog currently stands at about 240 theaters with over 30 new systems expected to be installed in the fourth quarter. This would bring the total number of China installs for the year to over 55 theaters, an increase from the 45 China installs that we have averaged over the past three years. The opportunity for us to excel in the Chinese market is very significant, and I continue to believe we are very well positioned as we take advantage of this fast growing media market.

Looking at the broader film slate ahead, we are excited for Chris Nolan's upcoming film, Interstellar, which opens on November 7. The film will open two days early in North America film-based theaters, which will include roughly 40 IMAX locations. Chris Nolan used IMAX cameras to film over an hour of the movie, and the film's world premiere will be hosted at the TCL Chinese Theater, and iconic IMAX location in Hollywood.

In December we look forward to the final installment of The Hobbit, as well as the much anticipated Chinese local language title, the Jiang Wen directed Gone With Bullets, which will be the first local language film ever filmed with IMAX cameras. Gone With Bullets is a sequel to Let The Bullets Fly, which was released in 2010, and at the time was highest grossing Chinese film ever released.

Speaking of our IMAX cameras, as many of you are already a well aware, J.J. Abrams is using our cameras to film certain sequences of the upcoming Star Wars VII. In addition, The Crew, a Russian local language film which is scheduled to be released next fall, has already successfully completed use of the IMAX cameras for this action-based remake, making it the first Russian film to have portions captioned with the world-class IMAX cameras. The demand for the cameras over the past several years has been robust, and there are directors for several additional big blockbuster films that are either currently filming with our cameras or have agreed to do so in future films.

Q3 also represented a strong signings quarter for us with 42 new theater installs -- 42 new theater deals signed, bringing our year-to-date signings to 102. Notably signings this year span 22 countries, evidence of the continuing global nature of our brand and experience. We installed 20 new systems in the quarter, bringing our commercial network to just over 750 theaters across 60 countries. Our backlog now sits at historical high of 439 theaters, which provides us with a clear runway for network growth over the next few years.

We continue to see demand for additional theaters for new and existing exhibitors from all over the world. While we often speak about our rapid growth in China, it is important to note our footprint in many other parts of the world has continued to grow as well. Our commercial network in Latin America has grown 45% year over year, with almost 30 theaters installed in that region. Our Western Europe commercial network should reach approximately 55 theaters by year end, up 12% compared to last year. We continue to see good momentum domestically. In the third quarter we signed an additional 11 theaters with AMC, and we are seeing many other North American deals in the pipeline, especially in smaller markets where we have seen quite a bit of success.

In terms of our laser projection initiative, we are in the final stages of development, and we plan to install our first system in December. I personally saw a demonstration of the laser system last month, where we saw some footage of Interstellar. Not only were the technical aspects of color, contrast and brightness all amazing, it was a visceral reaction that really blew me away. Off script a little bit just to give you a little color, when we went to see the laser demo someone wearing a white jacket with a laser pointer in his pocket was going to show us the differences in the IMAX laser versus the other digital formats, including the IMAX format. To be clear, you didn't need the laser focused on a piece of hair to see the difference.

When that image was on screen, it was literally one of the best IMAX images I have ever seen, and certainly one of the best images I'd ever seen. From a technical point of view, I can tell you that we beat the technical specs, but it is really how they are all brought together and how they are shown. It was really a fantastic experience. And those of you who want to travel to Toronto is December can see it for yourselves. I'm truly excited to launch this new, groundbreaking technology to the largest theaters in our network.

With regard to marketing, as we have mentioned before, we recently made the strategic decision to kick off new brand marketing initiatives. Given our increased global presence and size, we believe it is important that we dedicate some effort to educate consumers about the differentiated experience IMAX delivers, and to standardize our brand and messages globally. There is some low-hanging fruit that we are targeting, especially in the domestic market, where many people still only associate IMAX with documentary titles and are surprised to find out we play some of the biggest Hollywood films. To this end, we began the early stages of rolling out a brand campaign with the release of our first print ad in The New York Times and The LA Times, which was aimed at demonstrating the never compromised mindset of IMAX.

We also started working in conjunction with our exhibitor partners to launch a new cross-plug trailer whereby consumers in conventional theaters will be shown IMAX-specific trailers in an attempt to cross-sell them to go to IMAX screens. We believe initiatives such as these and others that we plan going forward will go a long way to further strengthen the brand's presence globally.

In addition, we began exercising our share repurchase program in the third quarter, buying back a little over 85,000 shares. We would have liked to have repurchased more shares; however, blackout periods prohibited us from being in the market on several occasions. With that being said, I can tell you that we were able to buy back a small amount of additional shares since the end of the last quarter, and we intend to continue buying under our $150 million program over the next three years.

Taking a step back, 2014 has already proven to be a productive year for the Company. A year that I believe will reap benefits for many more to come. Many important accomplishments have taken place over the past nine months, including the 20% sale of our IMAX China business to two highly prominent investors in China. The establishment of what we believe to be the largest documenting film fund in history. The signing of multi-picture deals with Disney and Universal Legendary. The release of Maze Runner and the Bollywood title, Bang Bang, our first Fox films in some time. The launch of our new brand marketing campaign, and the progress made on our laser projections system.

When you consider these achievements, coupled with robust signing activity, ongoing cost control, and increased cash flow generation, we believe IMAX is well positioned to benefit from what are shaping up to be great film years ahead. With that, I will turn it over to Joe.

As Rich mentioned, in the third quarter we were able to expand margins and delivered strong operating cash flow. On a year-over-year basis, adjusted net income grew 79%, contributing $36.6 million in operating cash flow, the highest cash flow quarter in the Company's history. Looking at box office figures, IMAX generated $169 million in global box office, up approximately 28% over Q3 last year. In terms of geographic mix, $108.4 million, or 64% came from international markets, while $60.6 million came from the domestic marketplace.

Our global PSA for the quarter came in at $228,000, which is up 10% from Q3 last year. Our international PSA for the quarter was $287,000, up 4% versus last year, and our domestic PSA of $167,000 was up 12%. Total revenues for the quarter was $60.7 million, up almost 18% compared to Q3 last year, generating total gross margins of 58.4%, a 500 basis point increase over the third quarter last year. Sales-type system revenue was $6.6 billion compared to $6.4 million last year, reflecting the installation of six new sales-type systems this year as compared to five in Q3 last year. The Company had no upgrade installations this year, while we had nine in the same period last year.

Looking at our joint revenue sharing segment, we generated $15.2 million in revenue, resulting in a gross margin of $9.4 million, a 31% increase over the same period last year. DMR revenue for the quarter came in at $18.4 million, resulting in total DMR margins of 73.4%, a significant increase over last year's 59.1%, which was driven by continued network growth, stronger box office, and lower DMR costs associated with digital-only releases in the quarter. With that being said, we expect our DMR costs in the fourth quarter of this year to be heightened as a result of film print cost and additional marketing and production associated with Interstellar.

Moving to operating expenses, SG&A, excluding stock-based comp, was $19.9 million in the third quarter. This includes a $1.1 million FX charge in the quarter, largely as a result of the declining Canadian dollar. Despite this, we continue to expect our year-over-year growth in SG&A, exclusive of stock-based comp, to be in the 5% to 8% range. Stock-based compensation for Q3 was $3.4 million, and our full-year expectation for stock-based compensation is approximately $15 million. R&D expenses in the quarter totaled $4.6 million, and we continue to expect our full-year 2014 R&D expense to be roughly $15 million.

With regard to taxes, our lower than usual tax rate this quarter was primarily due to the reversal of approximately $560,000 of valuation allowances on certain state NOLs which we now believe will be utilized. We currently expect our current -- our full-year 2014 tax rate to be around 27%, with an estimated $12 million to $15 million of cash taxes. At the end of the third quarter we had $20.9 million of deferred tax assets remaining.

In the third quarter we also booked non-controlling interest of $439,000, primarily reflecting the 10% interest from the China investors' minority stake in the IMAX China business. We expect the investors' minority interest to be P&L dilutive by about $0.02 for Q4. I would also like to remind you that the second tranche of cash from the deal will close in February 2015, at which point the non-controlling interest line will reflect the full 20% ownership. Our adjusted EBITDA for the third quarter came in at $17.6 million, a 19% increase over last year. Included in adjusted EBITDA is a reduction for the EBITDA attributable to non-controlling interest of approximately $900,000 for the quarter.

Looking at cash flow in more detail, operating cash flow of $36.6 million this quarter was 47% greater than the $25 million generated in Q3 last year. On a free cash flow basis after CapEx and investment in joint-venture theaters and our new facility in Playa Vista, the Company produced $19.9 million in free cash flow, resulting in a cash position of almost $94 million at the end of September. As an additional note, we closed on a construction loan a couple of weeks ago, so going forward a large portion of the cost for the Playa Vista facility will be financed.

In terms of our network, we installed 20 new theaters systems in the third quarter with 6 new sales-type systems and 14 joint venture systems, of which 5 were hybrids. This brings our total commercial network to 751 theater systems, of which 422, or 56%, are JVs. In the third quarter we also signed deals for 42 systems, of which 36 were new systems and 6 were upgrades. At the end of September our backlog was at a record 439 systems, of which 413 were new systems. About 90% of our backlog is slated to be installed in international markets, and approximately 90% of the backlog are new build. Given the majority of the backlogs are for new construction, these theaters are generally in backlog for a couple of years, which gives us good visibility into our installs for the near future.

Consistent with the install guidance that we have previously provided for the full year 2014, we continue to expect to install a similar number of new theaters in 2014 as we did in 2013. More specifically, Q4 -- in Q4 we currently expect to install approximately 19 to 20 sales-type lease theater systems and about 33 joint venture systems, of which about 10 are expected to be hybrids.

As we look at our installations for 2015, we currently anticipate installing a similar number of new theaters in 2015 compared with 2014. For modeling purposes, the mix in 2015 looks similar to this year, with about one-third sales-type and two-thirds expected to be JVs, with about 20 of the JVs expected to be hybrids. In addition, it looks likely that 2015 installs will have a comparable roll-out cadence to what we have seen in 2014, with about 50% of the installations expected to take place in the fourth quarter next year.

In addition, as Rich mentioned, we have almost completed development of our laser projection system, and we expect to begin the roll-out at the end of this year. Laser projection is an exciting advancement for the Company. Over time we anticipate it will have an positive impact on theater performance for those theaters getting upgraded. It will also give us the opportunity to sell new theaters to customers who want to have larger screens and higher seat counts than our current digital theaters do today.

In terms of the laser upgrade scheduled for next year, we expect to install 10 to 15 laser upgrades in 2015, which will be incremental to the install guidance I just provided. Several of these upgrades are expected to be JVs, so no margins are associated with those in the year. For the sales-type upgrades, the revenue and cost of goods are quite variable based on screen size, with more lasers required as the screen sizes increase. Thus, it is difficult to give an average margin per theater.

However, for the full year 2015, we expect these upgrades to deliver total incremental gross margin in the neighborhood of $1 million. We are still nailing down the exact laser installation schedule for 2015, but factoring in laser supply and delivery and the film slate schedule, we anticipate a few theaters to be upgraded in the first half of the year, most likely on the institutional side, with the remaining upgrades to occur in the August/November timeframe. Given the variability in schedule and margins, I would advise you to exclude lasers from your models and consider it an upside for next year. With that, I will turn it over to Q&A.

Thank you.

(Operator Instructions)

Our first question comes from Ben Mogil of Stifel.

Quick question on the China (technical difficulties) schedule. A couple of days ago they came out with the dates for Interstellar and Penguins of Madagascar and some other films. They look to be much closer to day and date than we have seen for a while. Are you seeing as part of their overall liberalization of that market that there is more of a push to do same day and date?

I'm going to let Greg comment specifically on that issue. In general, I think as we have talked about over the years, I think China is a place where there are up periods and there are down periods. If you will chart it out over time, there has been liberalization, and it has gotten easier to do business. Greg will fall off and tell you the last how many movies we have applied for have gotten in. But we have noticed a shift over this period of time where they have gone out of the way to be helpful in the way things are scheduled.

I do warn you, though, Ben, that just as an up period does not mean there is never going to be a problem again and a down period doesn't mean that there's going to be problems forever. China is a place where things change. In general the answer is yes, I agree with you. Things are certainly looking better.

The one thing, Ben, that I can say is that IMAX has the option of releasing virtually every movie that gets into the country via quota. Because we're now working with all of the studios, we're on the paperwork for virtually every movie. We can't play all of the movies, but in China there is substantial screen sharing. For instance, over the last several days there have been Guardians of the Galaxy, Hercules, and starting in the next day or two is Lucy. Those are all movies that will be playing at IMAX.

As it relates to the DreamWorks Animation title, we did really, really well with How To Train Your Dragon Part Two, and that's a terrific relationship. We have a long-term commitment to Interstellar, and we will be playing Interstellar. Intersteller represents everything that IMAX is about, and that 's the title that we will be playing in China when it opens.

That's great. Thanks, Greg. Maybe Rich, one for you or for someone else on the team, as well, about North America. You've talked for a while now, and clearly you're getting that more, what I call B and C and D markets now looking to add IMAX. When you go and you look at the zones that some of the existing operators have, is there any discussion about shrinking some of the zone size and on a net basis, all the existing operators lose a bit of a zone here, gain a bit of a zone there? Any kind of movement towards adding more screens in some of the major markets where the zones are physically quite large?

It is really focused where that happens, Ben, on dealing with the exhibitor that has the zone. For example, AMC has a lot of Manhattan because they have built it out to a large extent. We have been discussing with AMC for a while putting one or two more theaters in Manhattan. That would be the example. Contractually, they own the right to the territory. So we would have to buy it back from them. That doesn't really happen.

The other thing that happens is between competing exhibitors, so sometimes there are two exhibitors in a certain place. And we will sort of be an intermediary and we'll say, we will give you, exhibitor one, this zone and we'll give you, exhibitor, this other zone. We act as almost a facilitator to trading locations and trading zones. But no, we have no right to shrink the zones.

Do you thank you at the level in some of the major US cities where you can put in a second screen in some locations?

We have been asked that a lot. I think at certain times of the year a second screen would definitely work during summer blockbuster system season. But during those slower times of year, like February or September, it would really wouldn't work. It's a complicated a question. And I really don't expect to happen soon. We have second screens in Quebec, where one is French language and one is English language. They are succeeding. But I think it is more difficult because of the seasonality of the slate to think about two screens in the same complex.

Fair enough. Thank you very much.

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

Thanks a lot. Two questions for you. First, with your SG&A, I think that was higher than a lot of people we're looking for. I know you said $1.1 million was -- there was an FX charge due to the declining Canadian dollar. Was there anything else in there that maybe you pushed forward into 3Q that people might not have been thinking about? Secondly, when you think about SG&A in the fourth quarter, maybe you can help us think about how much incremental spending there should be for Interstellar above and beyond the normal SG&A expenses?

The first part of your question, Eric, the higher SG&A in the third quarter. As you said, a lot of it was attributable to the weakness in the Canadian dollar, and that was a $1.1 million charge. The other thing is that associated with Guardians, we believe we had a real winner with Guardians, and we decided to spend incremental marketing dollars to do that. And that translated into the worldwide box office around $63 million right now. That was a good investment for us.

As I've discussed before, strategically when we see good investments, we're going to do them. In terms of the fourth quarter, our guidance of SG&A holds up, what we have guided too previously, the 5% to 8% range for the year. We expect fourth quarter G&A to be lower than the third quarter SG&A. I think Joe would like to add something.

Yes. Eric, where you're going to see the incremental cost for Interstellar will be in the DMR production line and not necessarily G&A. That's why I indicated in the script that we expect a heightened level of cost in the fourth quarter.

Right, but can you give a sense, I mean, is it still, should we assume $25,000 or $35,000 of film print times how many film prints you're going to do?

We're not paying for any of the film prints. The studios are.

Okay. Thank you.

Thank you. Our next question comes from Townsend Buckles of JPMorgan.

Thanks. With Interstellar, can you talk more about what you're doing above and beyond for that? I know you have the film systems going, but if you could talk about your marketing efforts. And are you releasing the movie in your institutional theaters like you did for Dark Knight to try to really maximize this one?

Townsend, this is Greg. I will take that one. We are doing everything that we possibly can. Again, the movie represents most everything that IMAX tries to uphold in terms of our brand and the responsibility of the filmmaker and the quality of the film itself. I'm sure many of you have seen the incredible reaction in social media to the film itself. Some of the things that we have done include there have been these taste-maker screenings that have been held over the course of last week, all at IMAX locations, one in New York, one in San Francisco, one last night in Los Angeles at the California Science Center, by the way an institutional theater, and there'll more of them upcoming.

It's the largest released in the history of our Company: 770 engagements of Interstellar, some of which are, obviously, most of which are in the commercial side. We also have more than typical on the institutional side. We know that it is also getting into China relatively day and date. I think it's about one week after the US release, which is, for all intents and purposes, day and date in China.

The effort, the global premier is in IMAX. The Premier in New York is in IMAX. There is a huge event at the BFI in London in IMAX. We're putting -- Chris Nolan is our guy and has been the most incredible partner, and has filmed north of an hour of this film with our cameras. Again, we are rallying around this movie, like we do every two or three years when Chris has a movie. And we will support it, and we're obviously extremely excited by the fact that the reaction in the marketplace seems to be very strong so far.

Good to hear. On your Fox relationship, also good to see you doing business with them again. Do you feel like you have turned the corner on that relationship? Are they happy about how Maze Runner went? Any films you have planned on the horizon, aside from Avatar?

The answer is, yes. We think the relationship is much improved. Fox was certainly all-in in Maze Runner. To the extent we had prior issues, things that didn't go perfectly, we put them aside and Fox put them aside. I think we both think it went very well. We were both very pleased with the relationship.

There are a number of titles we're discussing with Fox, both internationally and domestically. As I mentioned in my remarks, we just released an Indian film with them. I think you could expect to see us do way more with Fox than in the past couple of years.

Great. Thank you.

Thank you. Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

Good morning. Thanks for taking my questions.

Rich, listening to some of the comments around the guidance that you gave for the laser projector numbers, is it fair to characterize that you're focusing mainly on penetration rather than trying to make margins on the system sales? Trying to get the penetration across, and then obviously make money on the royalty side of things, or the rev share side of things? Is that a fair characterization going by some of the economic guidance that you have given on that? Slightly, but not really, Aravinda. What we -- the reason there is not much margin next year when we introduced it is really twofold. One, it is upgrades. It is not new sales. If you remember, when we upgraded people to digital originally, you didn't want to take an existing client where you made a money off of them, or whatever your margin was, and then you were upgrading them to a new cycle and charge it again. You're going to charge a lower fee to upgrade somebody then you are to someone who's not in the market.

The second thing is, we have done a number of the these upgrades on a JV bass, which Joe mentioned. We will be updating, for example Lincoln Square in New York and Universal City Walk and the [Metchion], which is some of our highest grossing boxes in the United States right now.

The kind of deal we did with AMC on those is one where they paid a little bit upfront, but it is more a higher royalty for us. Those theaters do big numbers. So I think they will be profitable for us. Joe was just talking about guaranteed profitability.

And certainly we can't count a higher royalty rate until we know what the attendance is at those theaters. No, we did it to help them have an experience and also to make money. When you see us roll out more of the new ones, you will see higher margins and us make more money, but next year is just a transition year. Great. Thanks, Rich. One more, if I may squeeze in. With respect to SG&A longer term, is it fair to assume that you would be stepping up sort of your brand marketing spend as we go into 2015 as well, given the film slate and given the potential of IMAX? You want to remove some of those legacy perceptions. As we kind of think about the trajectory for SG&A longer term, should we expect a little bit more inflation as we look through to 2015, 2016, et cetera?

I think what you have to look at for 2015 and 2016 is operating expenses, the combination of R&D and SG&A. I think our R&D will step back as our laser product gets out there. We are going to use some of the savings from our R&D and put them into SG&A.

If you looked at SG&A as a standalone, it might be a little more growth than you have seen in the last two years. But when you look at operating expenses combined R&D and SG&A, although we will give more formal guidance in our next call, and we are still in the budgeting process, you are likely to see it in the range you have seen in the last few years.

We're extremely focused on cost control. We get it. You look at the results over the last couple of years about SG &A growth, we gave a range. We pretty much come in towards the bottom end of that range. As Joe said, we have every intention of coming in within that range again this year.

Great. Thanks a lot, Rich. I will pass the line.

Thank you. The next question comes from Eric Wold of B. Reilly.

Thanks. Good morning. Couple of questions.

Obviously, with a big number of installs schedule for China in the fourth quarter, I think you said 30. Maybe give a sense of what you have seen recently in terms of the new installs that you have been doing in China in terms of how they have both been performing, both opening-wise and maybe a couple of months, couple of quarters after the open compared to what you saw in the past if there's been any kind of change in demand trends there, positive or negative.

Eric, it's sort of this year in China has been a surprise to me because our network as grown tremendously, it's between 50% and 100% year over year in terms of the network, and our PSAs are up in China. I know that was one of the investor concerns was, gee, in the first batch did you cherry pick all the best locations in Shanghai and in Beijing, and it's going to be more difficult after that.

In fact, as I said, the PSAs are up about 13% year over year while we have more or less doubled in network. I think the new openings have been quite good. As I mentioned in my remarks, I think we are in 78 cities in China. Someone, one of our investors, actually did a commissioned a study, and asked us not to share who it was who did it. They asked, if you could see a blockbuster film either in 35-millimeter, IMAX, television, or on your computer stream, how would you want to see it? Over 90% of the people said they wanted to see it in IMAX. This was country-wide.

That's what you have to integrate, really, into your question, that there is a tremendous untapped demand and our brand is incredibly meaningful there. Not only for the Hollywood films, but also for the local language titles. During my remarks, I was talking about Gone With Bullets. It is hard for you in America to really picture it, but in China that film has the kind of buzz that a Hobbit has, or more. That is also a big reason why we are doing so well in China.

Thank you. Then the second question, last question, you mentioned the higher indexing you saw domestically and abroad in China in the quarter. Anything on your part that drove that? Anything that you were working with the studios or exhibitors back then in terms of marketing or efforts around that, or is that really just demand based, and yours are going to be incremental to that?

We're not completely sure, Eric. Again, it's just a quarter. You've know us for a while. I try not to say a quarter is a trend. Certainly, we work very well with Disney on Guardians. We cooperated and we exchanged things. We did a lot of things together.

For example before the movie was launched, 17 minutes was shown in -- exclusively in IMAX around the world. When you look at the tracking, it took off after that. I think because we've got this long-term agreement and we are integrated in the marketing efforts with Disney, they are better than they have been previously. That would be one reason.

The second thing I would like to think, as you know, that we stepped up our brand marketing. Don't just think of marketing as advertising, but things in theaters, displays all around the world, and I would like to think we're getting some return on that.

Perfect. Thank you.

Thank you. The next question comes from James Marsh, Piper Jaffray.

Great, thanks very much.

Just two quick questions here. First, on the system sales side, looking at that trend over the last few quarters. Seems like the pricing has been down per screen install from maybe I think 1.3 or so in the first quarter to 1.2 to 1.1 in the third order. I was just trying to get a sense, is this some mix issue? Is it a trend? Or do you think it's just noise? Then I have a follow-up.

It's just noise, and then over a period of time you are going to average in the 1.2 range. If you look at the backlog, you can do the math off the backlog.

Yes, off the backlog it is consistent with what's it's been. It just depends on what's being installed for the quarter.

Okay, understood. Then the second question just relates to system closures. It looked liked your PSAs were up pretty nicely in the quarter. I just wondered how that was impacted by some of the IMAX auditorium closures. Looks like you four commercial IMAX closed in the quarter. Are these underperforming locations? What regions are they in? Could you just help us understand the back story on those closures?

James, I don't know offhand. For example, I know one of the closures was in Los Angeles by Cinemark where they decided to put in their XD theater. I know their PSAs now are about half what they were when they had the IMAX because they decided to go own brand direction, and the multiplex is way down. I don't remember what the other ones were, whether they were -- I think they were more institutional.

I think they were institutions where the 10-year lease ran out, and they decided for whatever their fundraising reason -- some of them just took out the theater and put more exhibit space in. Some put less emphasis on the projection area, but I think most of them were institutional. Similarly, we will check offline and see if we can give you any more color on that.

Okay. That's helpful. Thanks very much.

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

Good morning.

My question is on PSAs. I wonder if you would be willing to talk about puts and takes that drove PSAs so far in the first nine months of this year? If I'm doing the math right, global is down 6% for the first nine months, and then I think domestic is down 11%, and international down 5%. Maybe what drove them so far, and what we can look forward for the rest of the year and for the full year, and going forward? Thank you very much.

What drives the PSAs is the film drives the PSAs, is the film slate. As you probably know, the 2014 film slate underperformed 2013 on a global basis. The domestic PSA is down 11% in non- IMAX, just regular box office basis. That's mitigated by us to some extent, because we do local language films in other market, and the mix is different and they perform differently.

That's, on a worldwide basis that's really what's going on, is how your films are performing. We didn't talk about it on this call. We probably should have, but 2015 is -- shapes up to be a very special year in terms of film releases. I know somebody yesterday said to me, at Hollywood next year is always better than the current year until the movies play because it's the movie business. That's a very fair caveat. You don't know until the movie plays what it is going to do.

As you look into 2015, and I'm just going to single out a couple but as you know, you have Star Wars, you have The Hobbit playing over in January, you have a new Bond film, you have Avengers, you have Jurassic World, and Fast and Furious 7, and then a number of other films: tomorrowland, which is a Brad Bird movie from Disney that we're extremely excited about.

Never going into a year have we had this many blockbusters. Again, we will see when they come out, but we would certainly expect the PSAs to be better in 2015. I would say also 2016, given how that year is shaping out than 2014.

The only thing I would add is over the last five years the PSAs every year have been between 1.1 and 1.2, except for the year Avatar came out when they were about 1.5 or 1.6. If you average that in and you include this year, where I don't know where it's going to come out, you would say every year, including the Avatar year, if you average it out has been 1.1, 1.2. The film slate will determine where in that range you end up.

Thank you, Rich.

I wonder if I could ask a follow-up question. If you remember, at this point last year we were talking about how Gravity is helping the year, but excluding Gravity, we were also talking about film slate been pretty soft because of Despicable Me took up such a big share of at least domestic market. What were the soft spots this year, if you could help us understand?

When you saying soft spot, so one of the -- there are a couple of issues. One is if you look at spacing this year, it wasn't ideal. You had Godzilla and then the next week was X-Men. We couldn't go from one movie to the other within a week. Next year if you look at the slate, a lot of these blockbusters are three weeks apart. That's really going to help us and our ability to play all of them.

This year also, if you look at one of the biggest things that happened was the pushing of Fast and Furious into next year because of the tragic accident. If you put that movie into this year with what you would expect it would do, 2014 actually wouldn't be so off of 2013. That would be my primary explanation for this year.

Greg, do you want to add anything?

The only other thing that I would add is the World Cup always does a little bit of a number on everyone. You have usually from June into early July with grosses that are different than the next three years. You take that and combine that with some of the things that Rich has already said, and it wasn't a spectacular year so far. With that said, it was hardly a train wreck.

When you have 2015 and 2016 and even 2017 looking out in front of us, you see over the course of the last several weeks some of the of the big announcements that have been made, including the Time Warner Analyst Day, which I'm sure many of you were at and heard, probably, about their incredible slate, including some of the films that are very ripe for IMAX connections. And then you combine that with the Disney titles and the Marvel titles, obviously the Lucas Film titles, and then go to all the other studios since we're now working with all the studios. It looks like the long term on paper, because it is the movie business, but that the long term opportunities are all there.

Thank you, very helpful.

Thank you. The next question comes from Daniel Ernst of Hudson Square.

Yes, good morning. Thanks for taking my call. Two questions, if I might. First, what was China revenues in the quarter? What was the PSA growth in China?

And then second question is a little more long-winded on the issue with IMAX in Crouching Tiger. Broadly speaking, if I look at the type of people that typically pay extra to see a film in IMAX, if I look at the type of people that bother to see a foreign language film at theaters as opposed to at home, I would say that both those two groups of people are film buffs, and probably are some of the box office's best and most reliable repeatable customers. With that in mind, isn't the so far decision by the exhibitors to not want to show that film, essentially cutting off their best customers?

As we go out a number of years, I would assume that we see more deals like this as Netflix and in Amazon, I don't think, are giving up on Hollywood. So I think we will probably see more windows narrowing. Don't the exhibitors need to be servicing these best customers that still, no matter what's going on, prefer to go to the box office rather than staying at home? Thanks.

I will answer that question first, and then Joe will answer your China question. Our logic was, as I think you know, that we were going to provide alternative content at a time of year when there wasn't a lot of content. In fact, it was one of the slowest weekends of the year. We thought we would give people the opportunity to see it. The exhibitors are appropriately very focused on windows and the importance of windows in film releases, particularly, blockbuster releases and the time of year. We agree with that, and we understand that.

What we thought we were doing was, again, providing people an opportunity during a slow period. It is a very emotional issue for exhibitors. A number of them have been vocal in saying they're not going to do it right now. I get it. In a way, we're like a family with our exhibitors. It played for a headline for one day, but we called the exhibitors and we explained what we were trying to do. They said, we get it.

There has been no real fallout between us and them. We are still really good friends. We're still building out more theaters. We're still lots of signings. Think of it as a dispute within the family. What you said really is what we were thinking. We were trying to do an experiment and find out how it would do. Despite the statements, I think there will be some exhibitors in the world that play it. We will find out how it does. If it doesn't work, it won't be part of a trend. If it does work out, then we will probably offer the opportunity again.

The other thing that was really unique about this one is there are many markets that don't have Netflix, such as China and Russia. Think of the title Crouching Tiger in China. We also have the rights to distribute it in China where there is no competitive Netflix technology. I think for IMAX it was a good thing and a win-win. For the exhibitors, we will see how they feel for it about it as technology continues to evolve. Joe on --

The revenues in greater China were $42.6 million for the quarter, up from $33.1 million last year. And on a box office basis, it was a very strong quarter for that region.

Tear to year, we're up 13% on a per --

Nine months' basis.

Nine months.

In the PS --

on a PSA basis.

Great, thank you.

Thank you. The next question comes from Drew Borst of Goldman Sachs.

Thank you for the question. Rich, listening to you talk about the laser projector and the improvement in visual quality, I was wondering if you thought that retail pricing for the tickets might increase for the laser projector theaters?

I don't think it has to, Drew. Because remember, they can have a lot more seats. One reason we did the TCL, or we did Lester Square is they have between 900 and 1,000 seats. Even if the cost ends up higher, you could obviously amortize it over a much larger auditorium. I don't think anybody's really discussed it.

From a brand point of view, I don't think we're going to create a new product called IMAX Laser. It's going to be called IMAX. I think it's going to lift the image and perception of the entire network early on, especially with filmmakers and critics. Obviously, in time as your networks converts over, the differential will be even greater between we are offering and other people are offering.

Price elasticity is always an interesting question. And as you probably know, the prices are set by the exhibitors, not by us. We don't expect that to happen, but I guess we will see.

Okay, thank you.

Thank you. The next question comes from Steven Frankel, Dougherty & Company.

Good morning. Rich, you've shown some pretty impressive increases in domestic indexing in the face of a growing base of generic, large screen competitors. Is this market share momentum something you feel like you can build on in 2015? Are there any plans for more Guardians-like marketing programs in cooperation with the CEOs that could have been do that?

The answer is, yes, Steve. Two kinds of marketing: one in cooperation with the studios, and two, on our own, as I mentioned in my prepared remarks. We think there is a lot of low-hanging fruit. And we think there is certainly room to go up.

As I said, when I think of marketing, again you need to think of it broader. It may be signage outside. It may be special entrance. It may be up-selling at the theater. There is different kinds of marketing. Yes, we plan to do more of it. Yes, we plan to do more with the studios also. Yes, I expect to have an impact.

You mentioned the private-label theaters, or the PLTs. We have done an awful lot of research. I think I've discussed it before. So I will give the brief version, unless you want the longer version. We've looked at the percentage of a particular multiplex that we did before PLTs. We're in that multiplex and we looked at it afterwards, and it doesn't appear that the PLTs have really had any impact on our box office.

In fact, a really interesting result, with Cineplex in Canada where we have an IMAX theater and they have a PLT in the same complex, the IMAX does better and the AVX does better, which is kind of interesting. We're not completely sure why. There's a lot of anecdotal evidence. On Godzilla, the first weekend we did 14% and then the PLTs went to X-Men, and the next weekend we did 14%. It just doesn't appear that it is competitive from the consumers' point of view.

And then maybe some more color on pipeline in Latin America?

The pipeline in Latin America, as I said, we grew the network 45% year over year. Last year we were very successful in places like Colombia, and I think Peru. This year we changed our strategy a little bit in terms of marketing. We are marketing not only to the exhibition chain but to the developers. The developers have realized, when you look at how will IMAX has performed, that it is a really good anchor tenant.

When they're putting the specs out, they are requiring an IMAX theater. That was the key to our growth in China. There is an awful lot of activity going on now, particularly in Brazil, which is a place where we have under-penetrated. I would expect us over the next several quarters that you would see some tangible progress down in Brazil.

Great. Thank you so much.

I think that about wraps up the time we have. I want to thank you again all for being on the call, and for either following us or being shareholders. I guess I would leave you with a thought that as a Company, we completely get the fact about operating leverage.

As you grow your top line and grow your network, you need to grow your bottom line. This quarter I was particularly gratified by the $37 million in operating cash flow that we brought in and the margin expansion that occurred. I think as we move forward, especially into 2015 and 2016 and have things that will drive our top-line growth, we will demonstrate that leverage on the bottom line. Thank you all.

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