Imax Corp (IMAX) 2015 Q2 法說會逐字稿

Good day. Welcome to the IMAX Corporation's second quarter 2015 earnings 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. Please go ahead.

Thanks, Alicia. Good morning and thanks for joining us on today's second quarter 2015 earnings conference call. Joining to me today in our New York office is our CFO, Joe Sparacio, who will have prepared remarks and Rob Lister, Chief Legal Officer and Head of Business Development. In addition, our CEO, Rich Gelfond, who will also have prepared remarks is joining us remotely from Vienna, where he is attending the global premiere of Mission: Impossible 5 tonight. The premiere is being held at the Vienna Opera House, one of the most iconic locations in the world, and has been retrofitted into an IMAX theatre which is the way Paramount and Tom Cruise wanted to position the movie for global audiences. Also with Rich in Vienna is Andrew Crips, our President of EMEA Sales. He will also be available for questions during the Q&A section of the presentation. In addition, Greg Foster, our Head of Entertainment is joining us remotely from Los Angeles and he will be available for Q&A.

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 the factors that could affect our future results or outcomes.

During today's call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities Exchange Commission. Discussion of management's use of these measures and the 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 second quarter earnings release, along with the supporting financial tables, are 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 Rich Gelfond.

Thank you, Teri. Positive momentum continued in the second quarter across all areas of the IMAX business and reflects the leverage of the IMAX business model when our film's delivered. Looking at our record-breaking box office, better-than-expected theatre installations, continued performance internationally; particularly in China, and the progress we made on new business initiatives, it is clear that IMAX is performing very well.

Second-quarter results were robust across the board. Revenues were up 35%, compared to the same quarter last year. Resulting in our highest revenue generating quarter ever. We also delivered 60% growth in adjusted EPS, despite additional expenses related to the China IPO and new business initiatives.

Our growth this quarter was primarily driven by our stellar box office performance. With Jurassic World, Avengers 2 and Furious 7 driving three consecutive months of over $100 million at IMAX box office for the first time in our history. We generated $343 million in global box office, which was up almost 60%, compared to Q2 last year and, substantially higher than our previous best quarter, which is in the fourth quarter of 2013. In addition, our global per screen average was the strongest quarterly PSA we've seen since the release of Avatar back in 2010.

We continue to be pleased with our China business. Furious 7, Avengers and Jurassic World all performed very well resulting in an almost doubling of IMAX China box office this quarter and a 45% increase in the per screen average compared to the second quarter of last year. Looking at the third quarter film slate in China. We're currently in a blackout period, meaning Hollywood films aren't playing in China right now. Therefore, we've been playing Mandarin language titles this month. Encouragingly, our current local film, Monster Hunt, delivered the best opening weekend box office for IMAX for any Mandarin language film we've ever played across the IMAX network in China.

As we previously announced, we filed a prospectus for an initial public offering of shares of our IMAX China business on the Hong Kong stock exchange in late May. The recent volatility in the mainland Chinese markets has not altered our plans. And, we continue to work our way through the Hong Kong IPO process, including meetings with investors and analysts. As is always the case, we will make timing decisions is appropriate, based on market and business conditions.

Turning to innovation. We believe our laser projection system, our new 12 channel sound system, and our new 2D digital cameras continue to further differentiate IMAX, and help to provide moviegoers a uniquely immersive experience. Since agreeing on our framework with ARRI Group to co-develop 2D digital IMAX cameras, we've announced that key sequences of Captain America 3, as well as the entire next two Avengers sequels, Infinity Wars Parts 1 & 2, are scheduled to be shot using IMAX and ARRI's next-generation digital cameras. Just briefly to remind you, a whole film has never been shot with IMAX cameras before. The two-part Avengers saga marks the first time that a Hollywood film has ever been used entirely with our technology.

In addition, as Teri mentioned, I'm in Vienna for the Mission: Impossible 5 premiere, which is in a specially designed IMAX theatre in the historic Vienna Opera house. Tonight's MI5 event is the continuation of the transformation of IMAX's brand from the smaller successes to right onto center stage. More agreements to use IMAX cameras, as well as IMAX premieres such as the one tonight, Furious 7 and Jurassic World are a powerful marketer for our brand and also signal the increasingly important role IMAX plays in the entertainment ecosystem.

As we look at the film slate for the rest of the year, we'll have an impressive list of movies to come, including Everest, The Walk, the new Bond film, SPECTRE, the final chapter of Hunger Games, Star Wars: Episode VII, and more. Importantly, IMAX differentiation will be prominently featured in several of the IMAX films slated for release in the second half of the year. This is an important part of our strategy, as we tend to generate a higher share of the box office when IMAX DNA such as our cameras, aspect ratio, or early release windows are utilized.

In addition to our cameras being used by J.J. Abrams and Star Wars, we also announced that two upcoming films, Everest and The Walk will enjoy one-week early release windows in IMAX. Both of these movies were designed with IMAX in mind and feature the type of visual spectacle that lends itself well to the IMAX format.

Moving on to the network side of our business. We continued to experience strong momentum. We installed 35 theatres in the quarter, which was more than expected, as operators worked as hard as possible to open their theatres in advance for the blockbuster season. Our installations spanned 15 countries and included our first theatre with Toho in Japan, as well as our first commercial theatres in Denmark, Vietnam, and Slovakia. In fact, this is the fastest pace of openings for the first half of the year that we've experienced in a long time. As a result, we are increasing our full-year installation guidance. Joe will go through the specifics. But, we now anticipate installing around 120 new theatres this year.

Our positive momentum has also kept our sales team very busy. We signed deals for 30 theatre agreements across 10 countries in the quarter. Our signings included two new theatres with Vue in England, deals with VOX and Gulf Films in the Middle East, a new theatre with a shopping mall developer in Brazil and our first theatres in Nigeria and Lebanon, to name a few. We also recently attended CineEurope in Barcelona, a large industry conference bringing together studios and international exhibitors where we had a full schedule of meetings with exhibitors from around the world. Based on these meetings, we believe there's significant demand for new IMAX theatres globally. Particularly, in regions such as Japan, Europe, Africa, the Middle East and Latin America.

At our investor day in June, we announced that based on a detailed review, we've increased our targeted global zones from 1,700 to 2,450. Almost 2,000 of these zones are earmarked for international locations. With 482 international commercial theatres currently installed, we are only 25% penetrated in the international markets. So, we still have a long way for runway for growth in front of us. We have also been making progress on our advancing our in-home initiative in China and the Middle East, as part of our joint venture with TCL. In June we opened the showcase at Le Royal Meridien hotel in Shanghai for our premium in-home theatre system. And, we're in the process of establishing sales channels across China and the Middle East.

As you can see, there are a lot of exciting initiatives underway at IMAX and a lot of exciting results. We have a strong balance sheet with $146 million of cash at the end of June and we're looking to invest in opportunities that will help us grow the business long term. As we talked about at our investor day, we are focused on growth in four areas: growing our core theatre business, continuing to grow our China business, expanding our content strategy, and expanding our distribution platforms, including in the home. We're making progress across all of these areas, and we'll continue to keep you posted as we achieve additional milestones going forward. With that, I'll turn it over to Joe, to go through the financials in more detail.

Thanks, Rich. Total revenue in Q2 of $107.2 million helped drive gross margins of $69 million, or 64.4% of sales. A 400 basis point increase over the same period last year. In addition, adjusted EBITDA for the second quarter was $50.4 million, representing a 53% increase over Q2 last year. Record global box office of $343 million was driven by the release of 11 new titles in the quarter, generating a worldwide PSA of 415,000. We had a nice rebound in domestic performance, with $133.7 million of box office, resulting in a robust per screen average of $360,000, which, was over 40% higher than Q2 last year.

But, this quarter was not only about strong domestic performance. As we generated 61% of our box office from international markets with strong per screen averages around the globe, despite the strength of the US dollar. Our international box office this quarter was $209.3 million, a 70% increase compared to 2014 and an international PSA of $459,000. The IMAX China box office of $112.2 million in the quarter resulted in a per screen average of $512,000. The strong box office drove robust results for our recurring revenue lines. DMR revenue of $36.6 million was up 52%, compared to Q2 last year, with a resulting gross margin of $28.5 million, or 77.8% of sales.

Our DMR cost of goods this quarter was $8.1 million, as compared to $5.4 million in Q2 last year. The increase was primarily driven by higher marketing and production costs supporting the big blockbuster films this quarter. We continue to expect our full year DMR costs to be at the lower end of the $25 million to $30 million range. Revenue from joint revenue-sharing arrangements was $31.6 million, up 63% from $19.4 million last year. Gross margin for the JV line was $24.1 million or 76.2% of sales, a 710 point increase over last year, despite including seven hybrid JVs this quarter, compared to only five in Q2 last year.

Revenue from sales type lease arrangements was $18.7 million, a 29% increase over last year. Primarily the result of four additional sales type installations. Gross margins from full new sales and sales type leases was 65.7% in the second quarter versus 61.7% in Q2 last year. Of the 35 theatre systems that we installed this quarter, 15 of them were sales type and 20 were joint revenue-sharing, of which seven were hybrids. These installations resulted in a quarter-end commercial network of 852 theatres spanning 65 countries.

As Rich mentioned, based on our pace of installations this year, which has been higher than originally anticipated, we are increasing our full-year 2015 installation guidance. We now expect to install approximately 120 new theatres this year. Just under 40% of them are anticipated to be sales type installs, with about 60% of them to be JV installs. We also now expect to install about 30 hybrids this year. In terms of the cadence for the remainder of the year, we anticipate a more balanced install schedules across Q3 and Q4 as opposed to recent years, which were more heavily weighted towards the fourth quarter. For Q3, we expect to install approximately 35 new theatres with about 10 of them being sales type and 25 JVs. Of the 25 JVs, we estimate that approximately 11 will be hybrids. In addition to the new theatre installations, we continue to expect to install about 18 laser upgrades in the second half of the year.

In regards to signings in the second quarter, we signed deals for 30 theatre systems, with 28 new and two upgrades. This resulted in a backlog of 391 theatres at quarter end. Roughly 87% of this backlog is scheduled to be installed in international markets, the majority of which are new builds.

Turning to operating expenses. SG&A, excluding stock-based compensation, was $23.9 million in the quarter compared to $18.8 million in Q2 2014. The increase was primarily driven by higher staff costs, as well as additional expenses associated with the China IPO and new business initiatives, as described during our June Investor Day. R&D expense for the quarter was $2.3 million, down from $3.3 million last year, reflecting tail-end costs of laser and ongoing general R&D.

Our OpEx guidance for the full year, as defined by SG&A, excluding stock-based compensation plus R&D, had been set to grow at 5% to 8% over last year. Given the additional expenses for the China IPO, along with new business initiatives and the FX impact so far this year, we now anticipate that we will likely land in the upper end of that guidance range. Our total tax rate for the quarter was 25.5%. And, we continue to expect our full-year 2015 tax rate to come in at around 26% with about $16 million to $19 million of cash taxes.

In terms of EBITDA, we achieved substantial growth this quarter, despite realizing the NARI interest at a full 20% versus this time last year, when it was only 10%. The minority interest portion of EBITDA in the most recent quarter was $3.5 million. We expect the full-year minority interest from the China transaction to reduce EBITDA by about $11 million to $12 million for the year. On the P&L side, minority interest impacted net income by $2 million in the second quarter. And, we expect full-year minority interest impact to net income to be approximately $7 million to $8 million.

The continued development of our in-home initiative with JV partner, TCL, resulted in an expense of $749,000 this quarter. And, we continue to expect roughly $2.5 million of expense for the full year associated with our TCL joint venture. With regards to cash flow, we generated $8.5 million in operating cash flow in the quarter, which was impacted by a build in receivables attributable to the strong box office in the quarter as well as an inventory build up primarily related to laser. We invested $6.7 million in the quarter in JVs and $11.8 million was invested in -- on the completion of our new Playa Vista facility. We ended the second quarter with a cash balance of $146.4 million. Overall, we are pleased with the first half of 2015 and we are excited for what the future holds.

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

Thank you, sir.

(Operator Instructions)

Steve Handler, MKM Partners.

Yes, thanks, that would be Eric Handler. But, anyway, two quick questions for you guys: First, with regards to the IMAX China IPO, can you tell us what milestones are next to come, before you actually can price the deal?

And then, secondly, for Joe, looking at free cash flow this year, it seems you have a higher working capital expense going on. You've got higher CapEx -- more front-loaded. So, just wondered how that should pan out in the back half of the year, and how we should think about CapEx and free cash flow for the full year?

So, I'll take the first question, Eric. It's Rich. The milestones that you should look for -- although I don't believe we'll publicly announce them, and as I said during my remarks, we're not going to comment on specific timing -- are that we have a formal hearing before the Hong Kong stock exchange.

Obviously, there's interaction before the formal hearing, where you get formal approval to list. You get reports from equity analysts. It's done slightly differently in Hong Kong than it's done on other markets.

So, before you actually start your roadshow, you get analyst reports, which set up their opinions on valuation. And then after that, you start your roadshow and you list. And those would be the steps that would happen.

Joe, do you want to answer the other question?

Sure. In terms of CapEx, Eric, for the rest of the year, I think it's really geared towards the JV investments. The spending on Playa Vista is basically complete at this point. And then, you'll have some general CapEx as well. But certainly not at the run rate that we were running in the first six months.

In terms of working capital items, this quarter is a blip because of the high levels of box office. And, as you're aware, our big JV deals settle the quarter after. So, you're not going to see the cash impact from our earnings this -- in the second quarter until really the third quarter. So, I would expect that to even out through the rest of the year.

Thank you very much.

Steven Frankel, Dougherty.

Good afternoon. Film marketing was big in the quarter. What should we anticipate you spending on the marketing side between now and the end of the year?

Joe, do you want to answer that?

Yes, let me just pull that out; hold on a second. So, we would anticipate a marketing spend probably in the neighborhood of about $10 million for the full year, not for the half year -- for the full year.

Okay. And, for Greg, so, with the RE JV, you can have a lot more films using the cameras. How do you balance wanting to have IMAX DNA in as many films as possible, and not having so many that you kind of dilute the specialness of it?

So, that's absolutely the right question, and that's precisely what we're doing. We're being very discreet about dealing with the supply/demand ratio. Many of you have heard me say we turn down four or five, sometimes six, movies for every movie we say yes to. And the same thing is starting to be the case with the cameras. The RE partnership has been fantastic.

We are also working very hard on the development side of adding additional DNA -- IMAX-specific DNA -- into the camera. We've had a tremendous reaction, as you've already seen, from the Avengers people, from Luc Besson, from Captain America, et cetera. There's more coming.

And we're going to be careful not to have every movie have specific IMAX DNA and cameras to it, precisely for the reason, Steve, that you just said. What we don't want to do is make it ubiquitous. And that's never been our -- what we've done -- and it will continue to be something that we're very cautious and deliberate about.

Okay. And lastly, for Rich, for a long time we've looked at Latin America as kind of the -- one of the next big territories where you could attack, and you've made some progress, but what do you think it takes to get to the tipping point where that business really starts to accelerate?

Well, as you know, because you've followed us for a long time, it usually takes two elements: one is, reference theatres that are successful, and, two, competitors in the market. You look at countries like the UK and Japan -- you've seen our business really take off -- Canada -- when that environment was achieved. We have that environment right now in Brazil. And I would've thought that it would've kind of accelerated more quickly.

I think what's going on in Brazil is because of the strength of the US dollar and the weakness of the real, and other issues in their economy. Mall development and spending have really slowed down. So, I think that's more a macro issue.

I think from IMAX's point of view, we're in a position right now to take advantage of the market, as long as the market is in a normal circumstance. But right now, I think that's beyond our control, and we're doing fine in signing onesies or twosies. But we'll need some kind of economic turn to really capitalize.

Okay. And in India, has there been any progress in removing some of the structural roadblocks that have slowed that development down?

Steve, you know that I'm a bear on India. So, I've never been particularly optimistic -- I think a combination of the judicial system, the slow pace of construction, the lack of transparency.

I know the world is very optimistic that Mr. Modi is going to be able to change things overnight. But I think they will change, but I don't think that's an overnight thing. So, the short answer is no.

Okay. Great. Thank you.

Thank you.

James Marsh, Piper Jaffray.

Great. Two quick questions -- first, maybe just a follow-up on the IMAX DNA comments you made earlier, Rich. Are there any plans to have more IMAX DNA showing up in foreign DMR films?

And then, just the second question, probably largely for Joe, but relates to foreign exchange. And any estimate on what PSAs might have looked like if currency was constant?

And then just, as far as the currency impact on system sales, it sounds like maybe that's had a little bit of impact in Latin America. But just wondering if you're seeing much impact on system sales outside the US?

So, I'll answer the first one about foreign DMR films. The answer is yes, James. And, in fact, after we're done with the whole question, Greg ought to circle back. But there are Chinese films where we're committed to using our cameras. We're into -- obviously, we announced a Luc Besson film that is using an IMAX camera. We're talking to people in Russia about it.

So, there's no doubt in my mind, and we're even in discussions about keeping some of the cameras outside the US. So, yes, there will be more foreign DMR, and Greg should add at the end.

The second question you asked, about the currency, is that affecting sales? As you know, I'm in Vienna, and Andrew Cripps, who runs the international for us, is with me. So, Andrew, do you think that the strength of the US dollar has had an impact on sales?

I think it's had a minor effect in places like Russia, where there's been a tremendous devaluation of the ruble. I think across Europe, it certainly -- it's an issue that exhibitors and customers are cognizant of. But I don't think it's impacted sales at this point, no.

And, Joe, do you want to answer the question about the FX effect on PSAs?

Sure. On a ballpark basis, we estimate that foreign exchange impacted our box office by about $17 million for the quarter, which would be about $20,000 per screen.

Okay, excellent, thanks very much, guys.

Greg, do you want to add anything about the foreign films?

Yes, in China in particular, I think Rich has already announced that we're going to have a post-production facility in China, and that there's likely a camera that will be there. And when you have a movie like Monster Hunt that's exceeded our expectations in terms of the actual performance so far over the first five days, rather -- actually six days -- in a pretty significant way; we're up to $12 million so far as of yesterday. What's happening is the phone calls start to come in at a rate that we haven't seen before.

So, we also, during these blackout periods, have a longer runway of being able to play a Mandarin language title. And that's what serves the cameras specifically best, when you're able to really market it and accrue benefit from having the additional DNA to it. So, I think China is the primary place that you can expect this to happen, although it will be in other places.

And I think many of you know we're doing a movie with Toho this summer as well, called Titan 1. And we're actually doing the sequel, Titan 2, which is also a market that I think has the potential to grow and become more DNA-focused on local language films going forward.

Great. Thanks for the feedback, Greg.

Ben Mogil, Stifel.

Good morning, this is actually Kevin Lee for Ben. A quick question for you on the screen installation guidance increase: Can you give us a sense of what's driving that, and, geographically, where those installations are coming from? Thank you.

So, the first part of the question, I think what's driving it are a couple of things. First of all, the year is such a blockbuster-driven year. And the blockbusters are performing so well in IMAX that people are trying to get open before some of these movies come out. So, it wouldn't surprise you that if you were going to open a theatre on January 1 this year, you would try to get it open two weeks earlier to get it open in time to play Star Wars day and date. And using some of our previous history, if you get a theatre open in time for a real blockbuster, you can achieve a lot of your payback very, very quickly.

The other thing we're seeing is a return to more sign and installs. So, as you know, you can do newbuilds or you can do theatres that sign and install at the same time. And, for whatever reason, I think it probably is movie-driven reason, plus trendline reason, where people really see the results of having an IMAX theatre versus a regular screen.

I think people have gone back to doing more retrofits than they did in the past. So, if you looked at past years, almost all of our signings, or a lot of them, were for newbuilds. And at the beginning of the year, we do a budget for sign and installs during a particular year, and there are a lot of examples.

There are people like the Vue in the UK. There is, in China, a big player, SFC, that's done a number of sign and installs. So, there are just more people retrofitting their theatres. So, I think those are primarily the two factors.

Thank you. And, geographically, is it one way or the other more China, US, or --?

I haven't seen a breakdown on it. But I can tell you that there have been a number in Europe, and there have been a number in China, and a couple in the US.

Thank you very much.

Thank you.

Townsend Buckles, JPMorgan.

Rich, with these strong box office results and a very promising slate for Q4 that's already spurring faster installs, how have you seen your box office as a catalyst in these signings in the past? Would you expect an acceleration in signings ahead over the next few quarters? And could the install pace remain elevated further out, do you think?

Townsend, ordinarily, you're putting a finger on something that we usually call the Avatar effect -- is when Avatar came out, our pace of signings went up very quickly. So, in the past, we have seen an increase in box office performance lead to an increase in signings. This year's a little bit different because it's not just one movie; it's a lot of movies. And it's around the globe.

But you're also in an environment, which we had some questions on before, where the dollar is a little bit stronger. So, I have not seen the Avatar effect take effect yet. But I would expect to see it, and I hope to see it in the back half of the year.

And your new signings this year are skewing a bit more toward sales over JVs. Anything unique there -- whether it's a function of geographies or customer preference? And is that a trend you're seeing going forward?

Going forward, it's really hard to tell because it depends what markets you go into and how far out the projects are and the expected box office. But I think it's happening this year for a couple reasons. One, I think the slate is so good, I think some of our partners would rather put up the capital themselves, rather than share it with us, which, that, to me, is a short-term issue. I don't think that's going to be a long-term issue.

The other issue would be, when you see retrofits rather than newbuilds, for some reason those seem to come with sales-type leases rather than joint ventures. So, again, I always hesitate, Townsend, to take a short-term thing that's happened through one or two quarters, and say it changes the way you look at your business. As you know, the trajectory of our Business over a number of years has been 50/50. The short term's been a little bit different, but I don't really expect that to be the long term.

Got it. Thank you, Rich.

Thanks.

Eric Wold, B. Riley.

Thank you -- a couple questions. One, looking at China box office in the quarter -- these are the hundred and -- what is the mix there between local language content and Hollywood? And then, what have you been seeing if you drill in, in those two, in terms of the underlying IMAX share of box office on Hollywood films versus local language? How has that been trending over the past couple quarters?

Well, I'll answer it generally, and that I'll turn it over to Greg to be more specific. But the second quarter was just such a great quarter for Hollywood product when you looked at the films that were playing there. And the Fast and Furious, and Jurassic World and Avengers, did so well in China, as well as the rest of the world, that they, kind of, wiped out the whole box office during that quarter. There wasn't a lot of time to show a lot else. So, I don't think you can -- it was way more dependent on Hollywood that it was on China.

I think longer term in China, as more money -- as their box office continues to grow, as it has historically over the last number of years, I think you'll see more money going into production value in China; you'll see more releases of Chinese movies. And I think you'll see more releases of Chinese movies, and that's why our position of playing both movies is where we like to be.

So, the record opening we had this weekend for Monster Hunt was almost double what our previous weekend opening was for a Mandarin language film. And, again, I certainly can't predict in the short run, and who knows? But, over the long run, I think if the box office continues to increase in China, you would see more of that contributing in the long term.

Greg, would you like to add anything?

Yes, the only thing to add is that it -- as I mentioned earlier, it's definitely had an impact on what you're going to see as there are these windows. We are prepared to be able to be nimble one way or the other. So, when there's a Hollywood movie -- so, the second quarter, there was very little, as Rich pointed out, local language films because there wasn't a blackout period. During the third quarter, where we know for the first six to seven weeks of the quarter it's going to only be Mandarin titles, we're releasing four of those films. So, we're able to adjust accordingly.

And because we know what's going on, because of our relationships, and have a better sense of the spacing of the so-called blackout period, what we're able to do is be able to have the right titles. And do what we're doing in China what's happening in the US, which is be more a part of the spacing of these titles. So, we're able to have longer and more productive windows during those various releases.

Thank you. And then, just one follow-up question -- following up on the last guy's question. You talk about, you've seen some trends, a little bit, in terms of exhibitors moving toward sales-type lease as they look at the slate and get more excited and want to put that capital up themselves to get more return. How much of that can you reverse back into your favor? I mean, is there ever instances -- do you play the card where you -- someone wants a sales-type lease, but you not willing to give it to them, and say you're getting a JV or that's it, given the great returns that can come to IMAX, or is that just not something you play?

I think you can play it, Eric, where there's competition for a specific site. So, if you have a choice between two potential customers, and one's offering a JV and you really like the location, and the other isn't, you can sort of push it that way. But there tend to be so many pieces involved in a transaction, I don't want to overstate what that means for us.

So, there's a question of what the location is, what the exclusivity is, how many years it's for? What our expected return on the film side is, besides our expected return on the JV side? If it's an [STL], what's the royalty there? What's the guaranteed minimum? So, as you know, there are hybrids in there.

So, I think it's way too complicated to generalize, and I'm just going to use an example from last year. So, in Russia, as you probably know, we don't do JVs, for a variety of reasons. But when you look at what the box office is in rubles -- now, this year, that's worth less than dollars because of currency issues. But we were making more on STLs on a recurring revenue basis in Russia than we were on JVs in other countries because the box office was so large. I think you can't -- there's no easy answer to that.

No, that's helpful. Thanks, guys.

Thank you.

Mike Hickey, The Benchmark Company.

Hey, guys, great quarter. Thanks for taking my questions. Just curious, your view on online ticket pricing in China. How much this may have added to the recent strength in the box office in that region and your performance, I guess? And how long do you think this discounting can sustain? And I have a follow-up.

As far as we can tell, it's not involved in the IMAX box office, and we've actually -- I don't want to lead you to believe that we've done a detailed study, but we don't think it's had an impact on IMAX. In terms of its impact on the rest of the box office -- I was over there about a month ago, and there's a lot of speculation but no one seems to know the facts. And since it doesn't really relate to us, we haven't paid much attention to it.

Okay. Thank you.

And then, curious, your view on competition from domestic PLF solutions? Particularly wondering your view on Dolby's solution that seems to generate some support from the industry? And if you think this could be impactful from your domestic business in future?

I mean, we just came off what is probably our best domestic quarter ever. And we keep getting better and better as PLFs in general continue to proliferate, including Dolby.

We've always said -- there's room for good, better, best. And we've positioned ourselves as best, and we've allied ourselves with the right film makers, things like premieres and cameras and an end-to-end solution. We're the only one really offering a differentiated experience with the kind of brand.

You look at the data over the last several years and percentage of multiplex that IMAX has gotten, and it's steadily increased as the number of PLFs has increased. You look at performance on specific films, especially these big blockbuster films -- PSAs and IMAX continues to significantly outperform the PLFs. So, I think it's a fine alternative for people who want it. I think it's probably a good business for the exhibitors, but I don't really see it as a threat to us.

In terms of Dolby, we're approaching our 1,000th screen, and Dolby has five. So, I don't really see that as a material threat at the moment either.

Fair enough. Thanks, guys. Good luck.

Matthew Brooks, Macquarie.

Good morning, guys. I was wondering if it's possible for you to specify separately the revenue guide in Greater China? Also, signings backlog, and whether you can say the IPO expenses?

Well, I'll start. The first part, which is the IPO expenses that we've expensed in the quarter -- were about $1 million. There are IPO expenses that are, kind of, held in advance, and you amortize them against the deal when you have it. But not going to disclose that right now because that's not the road we're heading on.

Joe, do you want to answer the other parts of the question?

Yes, I'm just taking a second to look that up. It's in the --

While he's looking that up, maybe you can make some comment. You've had the display, now, I think, in Shanghai for a while now -- the new home product. Do you have any more thoughts on, maybe, how many of those you might be able to install in a year based on, maybe, the level of interest you've got so far from the demo?

Yes, it's a -- we had a number of leads -- significant number of leads coming from the various demo's we've had. But it's premature -- I mean, this just happened a month or two ago -- to draw conclusions as to what the size of the market or how many are going to convert into actual sales.

In terms of the revenue in China for the quarter, it was $26.3 million.

And can you say what the signings and backlog are in China now?

No, we really can't comment on that right now.

Okay, and just another question as well: The Monster Hunt was like a record opening for local language. I'm just wondering how that compares to the Hollywood movies when they open, in terms of how you're going to go through the next few weeks, if you're still in a Hollywood blackout?

Greg, do you want to answer that?

Yes, we have a total of three movies between now and what we anticipate to be the end of the blackout period -- right around August 20, August 23. We're going to continue to play Monster Hunt, which, by the way, I think is also worth noticing that the percentage of IMAX box office on that movie is higher and has gone up, which shows that the traction that we're having with local language films continues to grow and get stronger, which is obviously good news.

There are two other movies coming out in August that we'll be a part of. One is a title called, [To the Fore], on August 7, which is a bike racing movie. And then there's another movie that has a title called -- and I'm just reading it verbatim as it is -- Go Away, Mr. Tumor, and that comes out on August 13.

And then, sometime in the early 20s of August, we anticipate that there will be the first Hollywood movie released over the last couple months. So, we're kind of set for that window. I can't emphasize enough, whether it's a Mandarin title or a local -- or a Hollywood title, we're prepared 52 weeks a year now in China.

Okay, good. And just one final question, if I can? I was wondering if you can comment on some of the new Board appointments that you've had? And what you think that they bring to the table in terms of things that you want to do in the future or your strategy?

Sure. So, as the Company has transitioned from a much smaller entity without significant cash generation into a much larger entity with significant cash generation and our oars in a lot of different waters, I think we wanted to make sure that our Board followed the similar diversification and ability to analyze opportunities.

And the two Directors we put on, Darren Throop, who's the CEO of eOne Entertainment, and Dana Settle, who's a partner of Alan Patricof in venture capital, both bring a skill set that we didn't have on our Board. So, Darren brings a little bit more of an international perspective, which is really important for a global company. And Dana brings a real -- a technology background, and her background is especially in new media. And she's sold a number of companies to the major studios, and she's also got a lot of connections in that area where we didn't have them. So, I think, as we assess both how to steer our core business and what the opportunities are going forward, having a broader array of skills will be good for our Company.

So, it could -- would it be fair to conclude that you might have something similar to, like, a Google Ventures where you invest in VC type deals, based on Dana's experience? In that --? (multiple speakers)

I don't think that's the direction we're going to go. And as a matter of fact, in the past we dabbled in sort of that kind of idea. But I think the business of startups is not really what IMAX is good at. I think what we're better at is figuring out how to leverage our brand and also our position in the ecosystem.

And I know I talk about this a lot, and we spent a lot of time on Investor Day talking about it, but, literally, I'm sitting in a room looking outside at the Vienna opera house, and I'm marveling at the fact that it's one of the most iconic locations in the world, and for the world premiere of one of the most successful franchises, they put an IMAX theatre in there. And, this year, the Jurassic World premiere; Furious 7 being in the first laser theatre. Look at the marketing around Mission: Impossible 5. You can't look at it without seeing IMAX everywhere. The next two Avengers films being filmed with IMAX cameras.

I mean, if you just have some perspective year over year, we're in a -- we're grateful for Hollywood, and pleased to be in a very, very different place. And I think that utilizing and leveraging the brand and leveraging our place in the ecosystem, rather than tinkering around with startups, is probably a place we'd much more likely go.

Jim Goss, Barrington Research.

Thanks. First, I was noticing, I believe I counted only 3 of the 14 films on that early release syndication for 2016 that were in 3D. And I realize you're indifferent about 2D versus 3D, but I was wondering what's driving that discussion? And do you have almost greater exclusivity if it is an IMAX 2D versus a 3D?

Greg?

Jim, your first point is the most accurate one, which is, we really don't make decisions based on whether they're 2D or 3D. We do what we think is the best IMAX movie.

Obviously, you point out, there's 14 that have been announced. But we've been very clear about the fact, and this year is proving to be the case, we'll do 40 or more movies this year. We'll do 40 or more movies next year. So, the question is not about what 14 we've announced, but what 25 or so we haven't.

An example of two exclusivities that are both 3D focused are Everest and The Walk. So, we really don't make the decisions. We do like 2D movies. Mission: Impossible is a 2D movie. There's plenty of them coming up.

But we can't pick our movies based on whether they're 2D or 3D, because then we'd miss out on terrific movies. And again, our goal is to find 52 weeks of compelling content, and that's really the only focus we have.

Okay. Also, with the early -- or the acceleration of the install pattern to earlier in the year, is the fact that you are increasingly international in that expansion driving that factor? And are there other metric shifts you anticipate, given the increasingly international footprint?

Jim, again, as I said to an earlier question, I'm one of the most reluctant people to say, after a quarter, that it starts a trend. So, I think it's way too early to say that the metrics have really changed. As you know, our international PSAs have been better than our domestic PSAs. Although, this quarter, the domestic PSAs were extremely strong.

As you also know, because we addressed it during our formal remarks, international is much less penetrated than domestic. So, I think those are, kind of, positive trends. But we'll see whether they continue or not.

Okay. And lastly, the China financial market turmoil -- you said it's not going to affect the IPO. How does that affect the timetable? Or can you just pick your spot in terms of when it actually takes place, and it just depends on how you're analyzing the situation?

Jim, just to be clear, I said that it has not altered our plans. You should know that the volatility in the Chinese markets has been way more centered on mainland China than it's been centered in Hong Kong. And the run-up wasn't similar in Hong Kong as it was in mainland China. And the correction wasn't the same in mainland China as it was in Hong Kong. So, that's the environment we're looking at.

But you need two factors to do an IPO. You need a company to be performing well, and you need an external market that's receptive to it. And I'm just not going to make predictions about the latter at the present time. And we still have plans to do it, and we'll keep you posted.

Rob Peters, Credit Suisse.

Thanks very much for taking my question, and, Rich, it sounds like you've got a better view than most of us this morning.

Just maybe for Greg, when you look at the blackout that you're seeing in China right now, and the ability to bring local language films into that spot, I was just wondering, a lot of the times you guys are saying when you are getting IMAX DNA into the film, you're turning away a number of films that want to work with you.

When these blackouts do come up, is that kind of a similar situation in China, where you've got a lot of local language studios already knocking at your door? That it's just a matter of opening it up and say -- all right, we'll do this, this and this? Or is it a matter that you have to go out and find these films?

No, it's the former. An example is, when we realized that the blackout period was going to be extended from its normal drop off, which is at the end of July, into the second half of August, our team in China, as well as Anthony Vogels from our LA office, met in Beijing, and I believe in a three-day period saw 14 movies that were offered to us.

So, we're able to -- I don't want to say pick and choose, because it's a partnership and it's incredibly collaborative. And we have to, obviously, have the relationships with the film makers and the studios. But we're in a fortunate position, given the fact that the brand and the box office have been working so far, as you've seen from the first half of the year to be able to have a little bit more of an interactive conversation about what makes the most sense for us. And then, we make what we think is the best business and partnership decision going forward. So, I hope that answers your question.

At this time, that's all the time we have for questions. I'll turn the call back over to Ms. Loxam for any additional or closing comments.

Thanks, Alicia.

Before turning it back over to Rich to close the call, I wanted to let you all know that today is my last earnings call with IMAX, as I'll be leaving to pursue a new opportunity. I was not looking to leave, but a terrific opportunity was offered to me and I had to take it, despite all the exciting things that are happening at IMAX.

My time at IMAX and my interactions with the IMAX team, as well as all of our shareholders and analysts, have truly been amazing. And I'll forever be a fan and supporter of the Company.

I'll be around for the next few weeks to ensure a smooth transition, and I'll be able to share more details about my new job over that time. My predecessor and IMAX veteran, Heather Anthony, who has been heading up our budgeting and financial analysis activities will be stepping back into IR on an interim basis until a full time replacement is found. And, with that, I'll turn it back over to Rich Gelfond for some closing comments.

Okay, thanks, Teri. And, thank you, Teri, for all the great work you've done over the last couple of years.

So, when you look at the Company through two, kind of, silos, you just have to be extremely pleased with where the quarter is and where the first half of the year is. So, we've done over $0.5 billion in box office for the first half of the year. And although, when you talk about domestic and international, you mix apples and oranges, but by any measure a year that's going to approach $1 billion in box office is just quite a statement about where we've come over a period of time. During the quarter, we beat virtually every matrix that we could be measured against. So, we're delivering financially.

But, as I say very frequently on these calls, one of the key things for me is really where you stand in the ecosystem and where you stand as a company and are you making progress? And, I think, whether it's the scope of the things we're looking at from -- we now have a film fund in China we announced, we now have a documentary film fund, we have an in-home product we're looking at. We've really built out our scope, as well as the ecosystem and the substance, where there really isn't a major blockbuster film that's coming out where we're not a part of the release pattern and we're not in the mix with the director and the producer and the studio.

So, I feel very gratified by, not only the quarter's results, but the strategic progress we've made over the year so far. And I think, given the film slate, particularly for the fourth quarter, I think there's reason for optimism for the rest of the year. And thank you, everybody.

That does conclude our conference for today. We thank you for your participation.