Imax Corp (IMAX) 2014 Q4 法說會逐字稿

Good day, and welcome to the IMAX Corporation fourth quarter 2014 earnings conference call. All participants are currently in a listen-only mode.

(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, everyone, and thanks for joining us on today's fourth quarter 2014 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 of the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking in that they pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of these 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 the definition of these measures, as well as the 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 results 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 the call over to Richard Gelfond.

Thanks, Teri. For IMAX, 2014 was a year of setting the stage to optimize growth for the long term. We launched our world-class laser projection system, sold 20% of our IMAX China business to two prominent Chinese funds, signed multi-year picture deals with Disney and Universal and Legendary, restructured our marketing organization, began rolling out our new brand campaign, and continued to grow the network and signed new theater deals globally. We believe these accomplishments and many others position us well to take advantage of what looks like to be a blockbuster film state for 2015 and beyond.

Kicking off with our network growth, we had another solid year of building new theaters and globalizing our network. We installed 121 theater systems in 2014, resulting in the expansion of our total network to 934 theaters globally. In fact, we expect to pass the 1,000 theater mark in the second half of 2015 which is an important milestone for IMAX.

We also signed 118 theater agreements last year, which helped to replenish our backlog to almost 400 theaters and provided us with a good pipeline for network growth in future years. We now operate in 62 countries worldwide with 55% of our commercial network and 61% of our box office coming from international markets. Over 70% of our signings in 2014 were for international theaters spanning 26 countries.

Given this fact, we continue to expect a greater proportion of our box office to be derived from international markets as we continue to expand our theater network globally and take advantage of positive international box office trends, particularly in China. China continued to generate healthy growth for us throughout the year with about 40% year-over-year revenue growth and we look forward to what's to come from this market in 2015 and beyond.

We installed 62 new theaters in China in 2014, bringing our Chinese network to over 200 theaters. Between our installed base of theaters and theaters in backlog, we're well over the 400 zones that we originally estimated for China.

We're in the process of re-evaluating our potential network size for the country and we will update you on our zones forecast in the coming months. We also saw significant growth in our Chinese box office, which grew roughly 40% compared to 2013.

In 2014, we exhibited a portfolio of 28 IMAX films in China, by far the most we've ever played in the region, with six of those being local Mandarin language titles. Looking at our China business over the past two years, we more than doubled our theater network and yet maintained a per-screen average of $1.2 million, which we believe bodes well for our growth going forward. 2015 is off to a great start in China with the final installment of Peter Jackson's The Hobbit, which opened in January, and is on track to generate almost $20 million in IMAX box office in China, which represents roughly 15% of the country's total box office for the movie, while IMAX accounted for about 1% of the screens.

As we move in to the Chinese new year, we have several local language titles that we are playing which is an important part of our portfolio films each year. Although it's early into Chinese new year, the films have started to perform in a very strong fashion. We also closed a significant deal in China last year by selling 20% of our IMAX China business to two prominent Chinese funds which helps us position us for ongoing success in that fast growing market.

In addition, we were pleased to see the recent IPO success in China of our largest partner, Wanda Cinema. The stock price has more than quadrupled since their IPO in January. We believe this demonstrates the growth prospects for the cinema industry in China and Wanda's importance in that growth story.

Moving on to our film performance more broadly, while 2014 was a difficult box office year for the industry, especially domestically, there were important highlights for IMAX. As we look at our entire portfolio of domestic films the last year, we are encouraged that IMAX's market share on the titles we played continued to grow, demonstrating the increased demand for the IMAX experience. Chris Nolan's Interstellar was very successful for IMAX, grossing over $105 million globally in Q4, our third highest grossing title ever, with IMAX doing over 30% of the total domestic box office.

Chris's use of IMAX cameras continued to pave the way for moviegoers to choose IMAX as the preferred way to see Interstellar. The Hobbit also generated significant box office for IMAX in December, bringing in over $50 million, which was a nice start for the film even before its strong opening in China in early 2015.

As we saw in 2014, with movies like Guardians of the Galaxy and Interstellar, and with American Sniper so far this year, audiences will come out to the theaters to see quality films. As a result, we've increased our focus on marketing to let audiences know that the unique experience that they will get when they see a film in IMAX, which we believe is unparalleled to any experience in the world, that they can get in any other theater. For example, we believe the exclusive sneak peek IMAX exhibition of 17 minutes of Guardians of the Galaxy, a month before the film's release, helped Disney in establishing its new Marvel franchise in the minds and hearts of filmgoers globally.

In 2014, we also began the launch of our new brand campaign with the tag line Never Compromise. We believe we are seeing strong trends from these recent marketing efforts. Brand equity research firm Millward Brown tells us that IMAX is by far the most differentiated brand in the theatrical space with more than double the awareness of any specific exhibitor or format brand as measured across nine countries.

We also continue to innovate on the technology front. We're happy to announce that we successfully launched our laser projection system in December and the product exceeded our very high expectations.

We recently debuted the new system to several institutional and commercial clients to rave reviews. We're on schedule to continue our laser upgrades throughout this year for the largest theaters in our network, such as AMC's Lincoln Square, Metreon and Citywalk, as well as the TCL Chinese Theater in Hollywood, the BFI in London, the Smithsonian, and many more.

The new laser system is truly a ground-up development and unique among the other products being developed in the industry. We designed a whole new optical engine for the system to capitalize on all the benefits of laser, beyond just a brighter light source. Leveraging IMAX's 47 years of experience, our licensed Kodak patents, and new space age hardware, the system is capable of projecting a digital image at a full 1.43 to 1 aspect ratio with maximum sharpness and perceived resolution even beyond 4K, even when you're sitting close to a 100-foot-wide screen.

The system's attributes include tremendous 3D brightness and substantially greater contrast, which combined with our unique optical design has created not only unprecedented sharpness and detail, but also an expanded color gamut, allowing filmmakers to present more vivid and exotic colors than ever before. In addition, the new laser system comes with an upgraded 12-channel IMAX sound system that will allow us to deliver a more visceral audio experience that positions sounds around the auditorium with even more precision and clarity. We believe this new technology is a giant leap forward in the quality of cinema presentation and has cemented IMAX's position as the leader of providing the most differentiated premium experience to consumers around the world.

Before moving to 2015, I wanted to quickly highlight the strength of our balance sheet. We ended 2014 with a strong cash position of just over $106 million, which is up almost $77 million from the same time last year, resulting from $87 million of operating cash flow in 2014.

As we had talked about at the beginning of last year, we have been constructing a new office in Los Angeles and we're happy to announce that the facility is nearly complete and the construction is expected to be completed on time and on budget. We also repurchased about 27,000 shares in the quarter.

In terms of future uses of cash, we continue to invest in joint revenue sharing theaters which continue to generate strong returns. In addition, we remain committed to our share repurchase program over the next three years and will continue to explore new business opportunities such as our in-home initiative.

On the new business front, we continue to invest in a measured way, ramping up our investment as specific benchmark goals are obtained. As we round the corner into 2015, we're excited for what's to come.

The year has certainly gotten off to a good start with the strong opening of The Hobbit in China, the launch of Game of Thrones, and our domestic release of American Sniper, which is an example of how we are being more flexible and nimble in our film programming, making changes opportunistically, and quickly optimizing our box office throughout the network. The remainder of the 2015 slate is shaping up to be very promising with a number of IMAX-centric, well-spaced films slated for release.

The blockbuster season officially kicks off on April 3 with Furious 7, followed by The Avengers sequel, Tomorrow Land, Jurassic World and the new Terminator, to name a few films. In addition, Mission Impossible 5 has moved and is now set to release at the end of July which is a great addition to our summer slate. And, of course, we can't talk about 2015 without mentioning the release of Star Wars: The Force Awakens in December which features select scenes filmed with the IMAX camera.

We continue to invest behind our brand and the blockbuster films this year, as well as continuing to innovate in R&D. Also, we remain very focused on controlling costs overall and creating additional operating leverage and cash flow in 2015. I'm happy to announce that we'll be hosting an investor day this June in Los Angeles, California in our new facility.

(Technical difficulties) at the Company. It will be a great time to get everyone together to lay out our long-term strategy in more detail. You can expect a press release with more specifics to come out sometime next week. With that, I will turn it over to Joe to go through more details on the 2014 financials and 2015 guidance. Joe?

Thanks, Rich. Let's start with box office. In the fourth quarter, we generated $226.9 million in global box office with $134.2 million or almost 60% coming from international markets. Our global PSAs in the fourth quarter came in at $292,000 with a domestic PSA of $248,000 and international PSA of $333,000.

Our annual global box office of $750 million was up roughly 3% from last year. Global PSAs for the year came in at $1.020 million with domestic and international PSAs coming in at $800,000 and $1.235 million, respectively.

As Rich mentioned, based on our solid indexing in 2014, especially domestically, we continue to believe that our decline in PSAs in 2014 was a function of the challenging film slate. The 2015 film slate is stronger and we are off to a solid start to the year so far.

It was another strong box office year in China with about a quarter of our annual and Q4 box office coming from this region. Annual PSAs for the country came in at $1.2 million which is consistent with the previous two years despite (technical difficulties)

Ladies and gentlemen, please stand by. Please do not connect your lines. One moment, please. (music) Please continue.

Hello, everyone. We're back with you. Sorry for the interruption.

I'll start in terms of talking about the Company's revenues for the year. The Company generated $102.5 million in total revenues in the fourth quarter, down from $105 million in the same period last year. Full year revenues of $290.5 million was up about 1% from the prior year, and overall gross margins for the year as a percentage of revenue, increased 250 basis points to 59.7%.

Revenue from sales-type installations was $33.2 million in the quarter compared to $32.6 million in Q4 of 2013, reflecting the installation of 26 full new sales-type theater systems in the most recent fourth quarter compared to 24 in the fourth quarter of 2013. The Company also installed two digital system upgrades under sales of sales-type lease arrangements in the fourth quarter of 2014 compared to three in the same period last year.

JV revenues totaled $23 million in the fourth quarter which includes revenue from the installation of 10 new hybrid joint venture theaters. This compares to 2013's Q4 JV revenue of $24.5 million which included the installation of six hybrid joint venture theaters. The lower JV revenues for the quarter were largely the result of lower domestic box office receipts in 2014 versus the same period in 2013.

DMR revenue for the quarter was $25.6 million resulting in Q4 DMR margins of 77.2%. DMR margins for the year were 75.7%, 850 basis points higher than 2013. This is the result of lower than average DMR costs in 2014 of $20.3 million driven by a predominantly digital film slate of fewer big blockbuster movies in 2014.

As we think about DMR costs for 2015, we would expect to be somewhere in the lower end of our typical $25 million to $30 million range. While we expect to continue to see savings from being fully digital, the benefit of having no film print cost is expected to be somewhat offset by higher marketing spend on films this year given the anticipated blockbuster titles in 2015. This increase in the number of films we plan to DMR also contributes to the expected increase in DMR spend in 2015 over 2014.

Moving on to operating expenses, SG&A excluding stock-based compensation, came in at $21 million in the fourth quarter, an increase of about $900,000 over the same quarter last year. Included in the Q4 costs is an FX hit of about $525,000. Our full year SG&A, excluding stock comp, was $78.2 million or 7.3% higher than the $72.9 million spent last year when excluding the one-time $2.2 million curtailment benefit incurred in 2013.

Our full year FX impact on SG&A was $1.5 million in 2014. Excluding FX and the curtailment benefit, SG&A grew roughly 6% in 2014 as compared to 2013.

Stock-based compensation for the quarter was $3.8 million, resulting in the full year 2014 stock compensation expense of $15.1 million. In terms of guidance for this year, we expect full year 2015 stock compensation of approximately $19 million.

R&D for the quarter came in at $4.6 million, resulting in full year R&D costs of $16.1 million. The higher than expected R&D costs were related to the completion and launch of our laser projection system.

For 2015, we expect our combined OpEx spend, including both SG&A excluding stock comp, as well as R&D, to grow approximately 5% to 8% over 2014's total OpEx which was $94.3 million. Throughout the year, we expect to have to make decisions around allocating our discretionary spend including decisions around spending on marketing initiatives and R&D.

These decisions will be driven by how well our film slate is performing, as well as the value and timing of various R&D projects. In terms of tax, our fourth quarter tax rate was 25.4%, translating to a full year tax rate of 25.2%.

Our full year tax rate came in a bit lower than expected due to shifts in jurisdictional income, mainly to China. We expect our full year tax rate to be around 26% including an estimated $15 million to $18 million of cash tax.

Moving along, adjusted EBITDA for the quarter came in at $45.5 million, resulting in annual EBITDA of $108.5 million. Remember that our adjusted EBITDA, like our adjusted net income and EPS, is after our China minority interest is removed. For Q4, minority interest reduced adjusted net income and EBITDA by $1.5 million and $2.2 million, respectively, and for the full year reduced adjusted net income and EBITDA by $2.4 million and $4 million, respectively.

For Q4, adjusted EPS before and after minority interest was $0.36 and $0.34, respectively, and for the full year was $0.78 and $0.75, respectively. For 2014, the minority interest reflects our investors' 10% stake in the China business.

The second installment of the China investment closed on February 10, therefore, the China minority interest in 2015 will reflect our strategic investors' full 20% ownership for both our adjusted net income, as well as our adjusted EBITDA calculations. We expect the impact on net income for the full year 2015 to be about $6 million to $7 million and the reduction in adjusted EBITDA to be about $10 million to $11 million.

In addition, we continue to make progress on our in-home initiative with the TCL joint venture in China. In 2014, $1.1 million of the investment from this initiative hit our loss from equity account investments line on our income statement. At this point, we expect the loss from equity investments to be about $2.5 million for the full year in 2015.

We will give more color on our in-home strategy on our investor day in June, but we currently aim to roll out a product over the next 12 to 18 months, most likely in China and the Middle East to start. Looking at cash flow, we generated $14.7 million in operating cash flow in the quarter and $86.6 million in operating cash flow for the year, the highest in the Company's history, resulting in $106.5 million of cash at the end of the year compared to $29.5 million at the end of 2013.

Our year-end cash position reflects $28 million of cash expended by the Company in connection with the purchase of land and the completion of our L.A. facility and the $40 million in cash that we received in April for the first installment of the China transaction. We received the second installment of $40 million last week which will be reflected in our 2015 cash balance.

Moving on to our network, we installed 121 total theater systems in 2014, 113 of which were for new commercial theaters. We installed almost 50% of these in the fourth quarter with 55 new theater systems in Q4, including 29 JVs and 26 sales-type installations. All of these were commercial theater installations.

Our total commercial network now consists of 809 theaters, of which 451 are JVs. In addition, in the fourth quarter, we signed deals for 16 theater systems, bringing our full year 2014 signings to 118, of which 104 were for new systems. As a result, our backlog at the end of 2014 was 397 theaters, 370 of which are for new theater systems.

Consistent with our recent trending, roughly 90% of the theaters in backlog are new builds and 90% are scheduled for installation in international markets. As we announced on our Q3 call in October, we continue to anticipate installing a similar number of new theaters in 2015 as compared to 2014. Furthermore, the mix in 2015 looks to be about 35% to 40% sales or sales-type lease theaters, and 60% to 65% of our installations expected to be JVs, of which about 20 are expected to be hybrids.

You can also expect a similar rollout cadence to what we saw in 2014 with about 50% of the installations expected to take place in Q4 of this year. Similar to 2014, we expect our first quarter installs to be light with three to four STL installs and probably one full JV and one to two hybrids installs expected this quarter.

In addition, as we discussed on our October call, we continue to expect to install about 10 to 15 laser upgrades in 2015. Several of these laser upgrades are expected to be JVs, so no up front margins are associated with those in the year.

For sales-type upgrades, the revenue and costs are quite variable based on screen size, with more lasers required as the screen size increases. Thus, it is difficult to give an average margin per theater.

For the full year 2015, we continue to expect these upgrades will deliver total incremental gross margin in the neighborhood of $1 million. In terms of schedule, we continue to 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.

Overall, 2014 was a good building year for the Company, with expanding gross margins and strong cash position, consistent network growth, continued signing activity around the globe and film deals with all the major studios. This progress sets us up well for 2015 and beyond.

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

(Operator Instructions)

Eric Handler of MKM Partners.

Yes, thanks for taking my question. Wonder if I could focus a little bit on China right now. Would you be willing to give what the total revenue and EBITDA was for 2014 in China just so we can start thinking about the progression as you move towards an IPO?

And then, along those lines, do you have any idea what multiple was given for the movie theater IPO there? I'm blanking on your biggest partner there. But does that accelerate your thinking about a possible IPO from what Wanda came out at on their IPO and does that change your thinking at all from an IPO perspective there?

First of all, Eric, we can't yet break out the revenues and EBITDA and the earnings in China, although during my remarks, I went through that on a general basis. Did you want to add something there, Joe?

We have in the K, which will be published today, the revenues in greater China was $78.8 million for the year. So that we can disclose.

Okay. In terms of your second question, it's Wanda, which is our largest partner in China that went public. They went public at 22 RMB and the last time I heard it was trading at about 80 RMB. I have no idea what multiple that is, Eric.

You probably can get that through one of the services, but I don't know. The answer is since we brought in our partners in China, we had mentioned that part of our long-term strategy would include the possibility of an IPO of our China business at some point, and there are a lot of things to monitor, the health of the business, our growth curve, signings, the films we're playing, all sorts of things, as well as the capital markets in China. And I would say we continue to monitor all of those things when we decide what we're doing, if it's an IPO, or some other route.

Great. Thank you very much.

Townsend Buckles of JPMorgan.

Thanks. For Joe maybe, can you give how much of your backlog of new screens and upgrades as laser systems? And maybe for Rich, as you talk to exhibitors about building new screens, what is the receptivity to building new larger laser screens, and should these be a bigger part of your signings going forward?

I'll answer that first and then Joe will give you the numbers. There's a lot of interest in building larger screens. As you know, just to make sure everybody else understands it, because the laser system throws out more light, there's the potential to build larger screens over time, and as we keep engineering it, it will be larger and larger.

And won't surprise you, Townsend, that there is an appetite for building larger screens, particularly in Asia and in developing parts of the world where there's, obviously, capacity constraints in smaller theaters. You take a market like India, which has a lower ticket price, but you can put a lot of people in those theaters. That's where we are seeing inquiries about that. And I would be surprised if over the next several years you didn't see a generation of IMAX screens that was materially larger than the large ones that are out there today. And, Joe, the other part?

Yes, in terms of the total numbers in the backlog at the end of the year, there were 71 systems including 25 upgrades.

Lasers, you're saying?

Laser upgrades, yes.

Okay. Thanks. And, Greg, you tried a lot of new things this quarter and it seems like they've been pretty successful. Looking ahead beyond your real tent pole titles that you'll devote the full network to, do you see the model shifting more toward playing the top movie at the time, regardless of genre, and giving exhibitors more of a choice of what they want to play, at least in these [fuller] months like we're seeing right now with Fifty Shades?

We're definitely going to continue to support more than anything else our pillar titles. That's the sort of hallmark of what we do. The Chris Nolan movies, the Marvel movies, Star Wars, et cetera. But we're definitely going to continue to show within shoulder periods more flexibility to meet demands of customers, of moviegoers.

What we can't do is be -- the word I'm using is sort of fundamentalism. We can't say this is the movie that we're going to play and we only play fanboy movies and that's that. We have to be careful to not cross the sort of boundary of what's an IMAX movie and what's not.

But at the same time, like we did with American Sniper, which, obviously, proved to be quite successful and which we picked eight days before the movie came out, or Game of Thrones, or what we did last week with Fifty Shades of Grey, we have to show flexibility particularly in the shoulder periods and that's what we'll continue to do.

Got it. Thanks, guys.

Ben Mogil of Stifel.

Hi, good morning, and thanks for taking the questions. So Townsend got my one on programming. So my question is sort of more broadly, you had sort of an accelerated install run rate if you will in the fourth quarter. Can you talk about what kind of comments you're getting from exhibitors as they head into the 2015 slate?

Are you seeing accelerated RFP activity, or are you seeing, you have sort of given the cadence of when you see the installs, but I'm kind of curious in terms of what's not yet in backlog but what you think is probable going forward, what sort of commentary you're getting from your partners?

Every year when we put together our budget, a part of our budget and what we give you is our analyzed installs for the year as a sign-and-install bucket. What we've done this year is we've done it consistent with past practices as to what that sign-and-install bucket is. I think what you're asking indirectly, is it possible that that could be more than we think because the slate is so strong this year, and the answer is, yes, that is possible.

That's not the way we forecast it. That's not the way we're setting up expectations. But there is a lot of excitement about the 2015 slate throughout the industry. And one thing that's important that -- just to remind everyone -- is that so much of our business is international.

So films that you guys may never have heard of like we opened Dragon Blade in China today and we had Wolf Totem last week. Those are exciting Chinese exhibitors in a way that they're not particularly exciting US exhibitors. So you have to break it out on a country-by-country basis and look at it.

But there is a lot of optimism around the world in the exhibition industry about the slate. And I should add, we're optimistic too. We think it's going to be a really good year for film.

And, Rich, and I'll follow up to that. In some markets where the economies are really weak and/or where the currencies are really weak, and maybe we can even just set aside Russia because that's, obviously, a bit of a unique situation, are you seeing any kind of more tentative scope from some of the exhibitors there [and true] were previously sort of much more gung ho on adding installs?

Remember about half of our business is joint ventures. So the currency may affect they're proposed payback terms, but we're putting up the money, so in a sense the stronger dollar helps our investment side in some of these countries because we're putting up the capital. But the short answer is, no, really haven't seen much of a change.

You nicely didn't ask it, but happy to comment on Russia, as well, which is that in Russia a few things are going on. One, if you look at the box office in rubles, it's actually just as strong as it's been. It's doing very well, including in the Ukraine, by the way. If you look at it in dollars, obviously, the conversion makes it look somewhat different.

One way we're protected in much of the world is our royalties are paid in dollars and with minimum royalties in dollars. So we're less subject to the movement of the dollar than many other companies. That doesn't mean in a place like Russia we're not interested in making some short-term concessions, and we've done that in exchange of concessions from the other side of the table.

So we've spent a lot of time thinking about currency risks, but because of the fact that the minimums are generally paid in US dollars, we don't think we're as sensitive to currency risk as many other multinational companies might be.

And those minimums you're talking about are sort of on the JV side, it's the usually formula but there is a floor. Is that what you're referring to?

Yes, on the sales-type leases, there's a minimum royalty which is payable in dollars. So there's no currency risk where that happens. On the JV side, there are mix things. Obviously, in local currency, if we're investing in dollars, we can get more for our dollars in local currency.

So that might help our cost on some of the JVs. On the ticket price side, obviously, it could have somewhat of an impact if the dollar weakens, but overall we don't think it's going to be a big deal for us. It definitely could impact us a little bit. But I don't think you should think of us as a typical multi-national Company because of the fact that of this natural hedge from the dollar minimums.

That's great. Thank you very much.

Eric Wold of B. Riley.

Thank you, good morning. So a couple of follow-up questions to previous questions asked. One, on the pipeline, the guidance for installs includes assumption of some deals signed. Does it get inherently more difficult for sign-and-installs in a given year, especially as you move through with more of the business focused on international and new theater builds versus retrofits?

Really good question, Eric. The answer is in general, yes, and that's why we've taken a fairly conservative approach to sign-and-installs this year in our guidance. On the other hand, though, when you have a year like this one, which the film slate is so expected to perform very well, I think that would cut against it in certain ways and we have seen some early interest in sign-and-installs that we hadn't seen before.

So I don't think we're going to get bit by your observation, and, again, who knows, it's too early in the year, but I do think it's possible that there are more sign-and-installs than we expect.

Perfect. And the second question, I know you're trying to devote more dollars toward marketing to build the brand. I guess, a question, maybe for Greg. As you think about the choice of films that are put on screens like 75 towards Fifty Shades of Grey and Game of Thrones and maybe some smaller limited runs, is the goal always to make a profit on those runs above the DMR cost, or are you willing to take a little bit of loss as kind of marketing to build the brand and keep those screens filled?

I think the answer is we're not looking to not make a profit, but at the same time, if there's something we can do like Game of Thrones that generated so much chatter and was clearly beneficial to what we're trying to build in terms of alternative content, et cetera, we're willing to do it. We are always looking for new and innovative ways to create 52 weeks of compelling programming for our theaters. That's what our goal is.

And when I looked at our slate before this conversation, we basically have one week this year that I don't know what we're programming. That's it. Now it doesn't mean all the movies are going to work. And when they don't work, we'll be able to move things in and move things out, obviously, in consultation with our exhibitor and studio partners, but we're in a pretty good spot with 51 of the 52 weeks present. And then, again, just directly answering the question, we'll take some risks if we think it's in the long-term benefit of our brand and our customers.

By the way, Eric, I think Game of Thrones was profitable.

Perfect. Thanks, Rich. Thanks, Greg.

Yes, it was literally profitable for sure. It was even more profitable on a brand basis.

That's great. Thank you, guys.

Steven Frankel of Dougherty.

Good morning. Given the slate this year and next year, have you had any discussions with your domestic partners about splitting some of the zones to increase your density in some of the bigger metro markets in the US?

They've always been able to put a second theater in their zone, Steve, and that's something we've encouraged, and in fact, there are a number of them that have a second theater in the zones. But specifically the answer is, no, not in relation to that, but that's something we always talk to them about.

We're always like, with our major clients, saying why not go in this multiplex in this zone? Why not go in this multiplex in that zone? And that's ongoing. We do it all the time, not specifically in relation to the 2015 slate.

Okay. And in China, the PSAs continue to look impressive. But if you kind of broke that down and looked at the more mature markets, maybe the ones you went into a couple of years ago, have those PSAs held up and is it just the new builds that are maintaining the average, or are you still getting good performance in some of those older markets?

No, there does not appear to be any deterioration because of the new building which is another way of answering your question. But no, Steve, it's pretty much uniform across.

Perfect. Thank you.

Aravinda Galappatthige of Canaccord Genuity.

Good morning. Thanks for taking my questions. Rich, I was wondering if you could comment a little bit more on the signings outlook? You had 104 new systems signed in 2014.

As you look to 2015, in addition to China, is there any sort of other international markets you're starting to see more traction from? I wanted to get some commentary on that. And, secondly, with respect to the TCL joint venture, I know you touched on the timing there.

But I wanted to maybe see if you can provide some additional commentary around what progress has been made on that front thus far, and to the extent that you can, how you see the magnitude of that opportunity? Thanks.

First your question about signings. Our level of business activity is really good. Aravinda, we have a monthly call with our sales force around the world and we had it, I think, last week. And in fact, the level of activity seems to be as it's been the last several years, quite strong. I think a lot of stuff going on in Europe and the Middle East.

Believe it or not Russia, there's a number of things that surprises you and surprises me. Japan, we had a very key strategic signing with Toho, and Toho is the number one exhibitor in Japan, as well as number one studio, and they've never been in our business. And their opening is in mid-April actually.

And I think that's from -- and it's in downtown Tokyo. So I think if that one goes well that could certainly open up that market in a more material way. Latin America is starting to open up a little bit more than it had before. The Middle East. China, as you alluded to, is just a juggernaut.

Our budget is consistent with our past years budget for signings and I haven't seen any slowdown. And then, maybe to add a little more to that, usually when there's a good film year, there tends to be an uptick. We didn't budget for that to happen. Remember 80% of our signings come from existing customers.

So when people see really good results come, they tend to want to go more into the IMAX business. So I feel pretty good about that tone. In terms of the TCL, I think you're mixing two TCLs. One is the TCL theater in California where we're converting to laser, and that's expected to open at some point in April. I think when you were asking about TCL, were you asking about the home theater business, Aravinda? I think that's what you were asking about?

Yes, Rich, the home theater system in China.

Okay. So that business, we recently hired a CEO to run that business with some good experience. There is some very straightforward benchmarks that we're putting in, and our commitment, as well as TCL's commitment to that venture, is based on meeting those benchmarks and that rollout.

And I think by later this year we'll understand more, and one of the reasons we set investor day for June is I think we'll talk in a lot more detail at that point about that overall strategy.

Great. Thank you.

Daniel Ernst of Hudson Square.

Yes, good morning. Thanks for taking my call. Two questions, if I might. First, looking at your operating cash flow, up 57% year-over-year, I think that speaks to the benefit of the scale you're seeing in the size of your network. So as you look at how you deploy that cash, does it make more sense, given the success you're seeing from that scale, to invest in more scale?

In other words, can you grow your network faster, understanding that the new builds in China, you are awaiting on property development, but around the world and domestically, making smaller zones. Is there a way to grow the network quicker than you have been, which arguably has been faster, but given the success in the cash flow, it seems like there's an opportunity to potentially accelerate?

And then, secondly, as it relates to China, not withstanding the success of the Wanda Cinema IPO, the property market in China declined, or the growth rate declined substantially in 2014. Is that having an impact on the pace of new builds for Wanda or your other partners in China? Thanks.

So your first question, can we accelerate the growth of the network because of our cash position? The answer is we're always trying to do that, but the limitation is really new builds internationally. So you can't build a mall faster than you can build a mall. So if it takes two years to build a mall in India, no matter how much cash you have, you can't build it in four months.

So through conventional ways it's difficult to accelerate our build-out just because of the inherent timing of building new buildings, which is a lot of our international growth. With that said, though, and I'm really glad you asked the question, IMAX's place in the ecosystem of Hollywood has changed radically over the last number of years.

So when dates are set for release of movies, most studios, virtually all for blockbusters, consider the possibility of an IMAX date when that movie might be released. It's not a complete coincidence that this year a lot of the blockbusters are three weeks apart and that we're involved with virtually all of them, or the vast majority of them. So from those relationships with studios and from those relationships with filmmakers has come a lot of interesting opportunities our way.

They include things like Game of Thrones, they include things like Crouching Tiger. They include a lot of things that we're experimenting with. And I think some of those things, there's a lot we're not talking about because we want to flush them out farther. And I think, if we flush them out, and if we get convinced that they are good opportunities, I think they would be places where we would feel a high likelihood of a very good return on our cash investments.

But the way we run our Company is to really explore it, meet the benchmarks, and then talk about it, and not to talk about it and spend money before we know we're going to make money. I think, again, in June we'll talk in more detail about those things. But we do have our eye on that ball.

We do understand what the cash balances are. I think we're going to find some very profitable places to put it, but we're not going to talk about it until we're sure and we're ready to do that. As to your second question about the property market in China, we have not seen any slippage at all. As a matter of fact, China, I would say, is the most reliable market in the world in terms of lack of slippage against schedules to build out theaters.

I think the Wanda IPO of Wanda Cinema, as a matter of fact, helps give us comfort on the Wanda side of it, which is a large part of our backlog, about their ability to fulfill those commitments because they raised a large amount of cash and I think that just adds to our comfort level. And remember, the Chinese kind of central plan is to invest more in domestic consumption.

And the movie business has been growing at 30% a year in terms of number of screens and box office. So I really think it's highly unlikely that anyone is going to take their foot off that pedal because that's a pedal that's really working very well. I don't see that as a risk.

Thank you.

Mike Hickey of the Benchmark Company.

Hey, guys, great quarter. This is sort of a fun question, I guess, but I'm sort of curious what you think your top three films would be for your domestic market as it relates to your FY15 performance opportunity and maybe China, if you can? And then, any local China films that you see potential that we should consider, that would be helpful? Thanks, and I have a quick follow-up.

There's no way I'm going to talk about 2015 without talking about Star Wars. So that's the safest but most honest answer I've ever given in my entire life. Obviously, the Marvel titles are always -- have a built-in audience. But I think what's really interesting this year, and this is not the place for me to be a prognosticator, so I'm not going to do it on this call, but if you go and look at the slate, you'll see that there are a handful of really, really interesting movies that I think have the potential to break out.

And one of the things that's most interesting about this year, as I was relating to the fact that we have 51 of our 52 weeks already programmed, is there a pretty interesting amount of films that have moved to what you would traditionally call the shoulder periods. One I will point out, which I'm personally quite interested in, is a movie called The Walk, which is the Bob Zemeckis movie, which comes out in early October. There's just a lot of really interesting movies that have moved to different timeframes, which gets to the bigger notion that seasonality is a bit of the thing of the past.

It's not completely. But when you have a movie like American Sniper opening up in the middle of January and it does $300-plus-million and you combine that with the year earlier when Gravity opened up in early October and did what it did, I think there's lots of opportunity to kind of come in, in different areas. Anyway, that's the answer to that one.

And, obviously, Jurassic World, there's just so many of them, Terminator, Hunger Games. The other thing that I think is interesting in China is that the amount of movies that we've gotten in is quite fascinating and significant. As we mentioned on the call, it's 28 last year and my guess is it will be that, if not more, this year. But five, six, seven of those movies are always local language films.

As Rich mentioned, Dragon Blade opened up very nicely and Wolf Totem already has this week which is Chinese new year. There's more to go with that. And I think you can find -- you can count on a robust international Mandarin language slate for us. So there's my answer.

Thanks, Greg. You touched on this briefly. By the way, that was helpful.

And I guess, you don't always have the most visibility on this as you would want, but when you look at sort of your top films for 2015, I'm curious how you see those films successful entering into China, and maybe any comparable launch timing issues, I guess, or relative to the domestic launches that we should consider? Thank you.

Yes, that's all about China Film Group and I think it's not something we're in the middle of. Obviously, our goal is for it to be as fast as we can in terms of day and date, but we don't have any behind the scenes impact in that. That's all done through the studios and through China Film and we go along for the ride. So far, so good, but we'll see what happens as the year progresses.

Thanks, guys. Best of luck.

Rob Peters of Credit Suisse.

Thanks, and thanks very much for squeezing me in. I was just -- I just wanted to clarify. I think Joe may have already touched on this. But you've got a very strong start to the year and it looks like there's a number of titles coming out in Q1, and just how we should think about the number of releases for the back half of the year? And I know previously you've done kind of mid-30s, but should we be looking above that going forward?

Globally, we'll hit 40 this year. Between the Mandarin titles, the quick switches in the shoulder periods, and the slate that we've already announced, I would be very surprised if the first number and the number of titles that we release globally didn't have a 4 in it.

So I'd like to wrap it up and just kind of share with you a little bit about how we think about our own business. So I stole this comment from someone else at a recent conference, but what the person said was when trains dominated transportation, people in the train industry saw the advent of alternative means of transportation like cars, and eventually planes and boats, as competition because they thought of themselves as being in the train business.

I just wanted to make sure everyone understands that we don't see ourselves as being in the IMAX business as narrowly defined as it exists today. We see ourselves as being in the entertainment/technology business. And we think there are unbelievable opportunities jumping out around us from all the changes going on, and we think we're just extremely well positioned in the infrastructure and we see ourselves as innovators.

We see ourselves as not holding on to the status quo for dear life. We see changes in area of opportunity for us. As I alluded to, we'll put more meat on the bones later. I think these are among the most exciting times at IMAX.

I think you can focus on the 2015 slate and you can get really excited. But pun intended, you could focus on the bigger picture, and I think IMAX is really well positioned. Thank you.

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