Imax Corp (IMAX) 2015 Q4 法說會逐字稿

Good day and welcome to the IMAX Corporation fourth-quarter 2015 conference call. (Operator Instructions) Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Jessica Kourakos. Please go ahead, Ms. Kourakos.

Thank you, operator. Good afternoon and thanks for joining us on today's fourth-quarter and full-year 2015 earnings conference call. Joining me today in our New York office is our CEO Rich Gelfond, and our CFO Joe Sparacio, who will have prepared remarks. Greg Foster, our Head of Entertainment, is also with us and will be available for Q&A. Also joining us is 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 the factors that could affect our future results and outcomes.

During today's call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. Discussion of management's use of these measures and the definition of these measures as well as reconciliations to adjusted net income, adjusted EPS, and adjusted EBITDA as defined by our credit facility are contained in this morning's press release -- excuse me; in this afternoon's press release.

The full text of our fourth-quarter and full-year earnings release, along with supporting financial tables, are available on our website at imax.com. Today's conference call is being webcast in its entirety on our website. We are also hosting a separate conference call at 7 p.m. Eastern Time to review IMAX China's full-year 2015 results. The webcast of this call can also be located in the investor relations section of the imax.com website.

With that, let me now turn the call over to Rich Gelfond.

Thanks, Jessica, and thank you all for joining us today. As you can see from our results, 2015 was a terrific year for IMAX on many fronts. We reported record revenue of $374 million, which grew 29% year over year. Adjusted EBITDA of $141 million grew 30%, and adjusted EBITDA margins grew by over 200 basis points to 40.5%. Adjusted net income was up 39% to $73 million and adjusted EPS of $1.02 grew 36%. You should note these adjusted results are spectacular in their own right and include the increase we incurred in minority interest.

Operationally, we installed 136 new theaters around the world, up 20% over last year and significantly more than we originally expected. Global box office grew 31% and per-screen averages grew 13%, with strong PSA growth seen across most major geographies. And finally, we threaded the needle of turbulent markets with the successful IPO of our China business, which is now valued at over $2 billion, up 45% since its debut last October.

To sum it up, with over 1,000 theaters now in our global network and a global cinema industry that is pumping out more blockbusters than ever before, IMAX couldn't be better positioned for what lies ahead.

With that, let me now take a closer look at our box office performance in 2015. IMAX global box office of roughly $1 billion grew 31% versus the prior year. That compares to overall global box office growth of just 4%. Our domestic box office grew 32% versus overall domestic box office growth of only 7%.

Our China box office grew 54% overall versus China box office growing 49%, highlighting that the cinema business is alive and well in that region. And finally, our rest-of-the-world box office grew 13% versus flat growth overall for the industry. Currency fluctuations had an 8 point negative impact to our results, making our global box office outperformance look even more impressive.

We believe that there are two key reasons for our outperformance versus the broader cinema industry. The first is our ability to choose only the very best films for our screens. Our strong relationships with filmmakers and studios as well as our ability to introduce IMAX DNA into the filmmaking process through our cameras and our DMR process all play a part ensuring that we can program the most optimal content for our screens every week of the year.

Turning to -- the second source of our box office success relates to the global trend towards big-budget blockbuster releases. The saying go big or go home couldn't be more relevant than in the cinema industry right now. With TV technology becoming so advanced and with Netflix and Amazon becoming such efficient distributors of film and television content, albeit often on a delayed basis, studios understand that big blockbuster movies are the best way to get consumers out of their homes and into the cinema.

And those consumers are increasingly looking for differentiated experiences when they come to the cinema. They want access to big screens with crystal-clear immersive visuals and sound. They want The IMAX Experience.

This couldn't have been more apparent than with the recent release of Star Wars. IMAX alone accounted for approximately one-third of Star Wars advanced ticket sales in North America, a staggering result. And we couldn't be more pleased that our exhibitor partners were able to benefit from the strong attendance we generated and the fees they collected from our robust online ticket sales performance.

On opening weekend alone, we indexed over 12% domestically and remained above 10% worldwide of all Star Wars ticket sales. Pretty amazing when you consider that we accounted for less than 2% of all screens that were playing the film. Star Wars also broke the IMAX global opening weekend record, with total box office of $48 million, besting the previous record holder, Jurassic World, which had done $44 million in its opening weekend earlier in 2015. All in all, we couldn't be happier with how Star Wars performed in IMAX and are even more excited that there are four more Star Wars films to come.

Our per-screen average for the year came in at $1.15 million, a 13% increase compared to the prior year and in line with our PSA in the years 2012 and 2013. This figure is pretty impressive when you consider that our commercial network grew by over 82% over that same period and the PSAs went up.

While 2015 was a bit stronger than usual, our average PSA of $1.1 million typically moves up or down within a very narrow band of about 5% in any given year. This stability has been tested in recessionary periods, boom periods, strong box office years, and weak box office years. And as we endeavor to launch a broader content strategy that can augment the PSA performance during some of our shoulder periods, our goal for PSA performance is to prove improve even further.

Turning to 2016, while there is no question that the 2016 box office slate faces a tough comparison, we think the slate for this year represents a portfolio of strong titles that are well spread out throughout the year. Q1 is already off to a great start: between Star Wars, Mojin in China, Kung Fu Panda 3 internationally, Monkey King 2 in China, and of course Deadpool, which has broken numerous records this month alone.

This statistic is the most interesting to me of any on this call. If when I look at our 2016 box office through this past weekend, IMAX worldwide box office is up 65% over last year. Domestic box office is up 72%. China box office is up 53%, and the rest of the world is up 70%. I don't think anyone would have predicted such a strong start to the 2016 release year.

And as I look to the rest of the year: 10 Cloverfield Lane, which is JJ's return after Star Wars; Batman V Superman, partly filmed with our cameras; Captain America, filmed in part with our cameras. Independence Day, Star Trek, Suicide Squad, Dr. Strange, Fantastic Beasts -- the JK Rowling movie based on her last novel. The next Star Wars film, Rogue One, and many other encouraging titles are on the slate. We have a portfolio of strong movies that should perform very well.

And let me not forget that with our estimate of 135 to 140 additional theaters to install by the end of the year, we are well positioned to take advantage of what we anticipate to be another strong box office slate in 2017, featuring numerous tentpole film franchises, like the next Fast and Furious; Avengers, filmed in its entirety with our cameras. Episode VIII of Star Wars, Jurassic World, Guardians, and many more.

Moving on to installations. For the full year, we installed 136 new theater systems, up from 113 the prior year. We also installed 18 upgrades to existing theaters, of which 16 were laser. 75 of our new theater installs were in Greater China and 61 were located in rest of the world.

As we look to installations this year, our strategy to seed the China market early continues to pay off. We now expect to see accelerated installations in the China region and are raising our Company total installation guidance range. The 20 or so additional installations from our prior call will be structured as JVs, allowing us to participate more fully in the strong growth we continue to see in the China box office. Joe will go into specifics about these installs. However, at a higher level, we are extremely pleased with the heightened level of activity.

From a signings perspective, in 2015, we signed agreements for 133 news new theater systems and five system upgrades in 2015. Of these signings, 74 were in China and 64 were located in the rest of the world. These signings bring our year-end backlog to 372 theaters, which along with our 943 commercial theaters installed, leaves us significant runway ahead to get to our 2,400 screen potential worldwide, which we released last year. And as you know, we tend to upgrade every year or two.

As I look to our signings pipeline for this year, as you can see already from our recent announcements with top exhibitors like T-Joy in Japan, World Media Holdings, and now Pathe in France and Switzerland, signings momentum is continuing around the world, with notable attractions seen in China, Japan -- and by the way, Japan has seen its network grow by over 60% in the last couple years -- The Middle East, India, and now Continental Europe. And with at least 1,000 zones identified outside of North America and China, we have tremendous runway to increase penetration in the world in the years ahead.

Our immersive visual and audio technology has been a key component to our signing success. The introduction of laser after years of development has been well worth the wait. The 18 theaters that have implemented laser have given us phenomenal feedback among studios, film makers, and audiences. And the word-of-mouth is already having a strong positive effect on PSAs in those theaters.

As I mentioned last quarter, the margin profile on this first-generation laser product is still below what I would like it to be, but the interest it has seeded for our commercial laser system has been extremely valuable. And we are excited to be in a position to launch that product sometime over the next 18 to 24 months.

In addition to reinvesting in commercial laser and funding new JVs around the world, let me now review our other capital allocation priorities over the coming year. As you can see from our balance sheet, we ended 2015 with a total cash balance of $317 million, $91 million of which is held in IMAX China. We have virtually no debt and anticipate continued long-term free cash flow generation and operating leverage resulting from our expanding network.

At a high level, our business development team is focused on finding opportunities to work with our exhibitor and real estate partners on new ventures that take advantage of our technology and brand as they look for other experience-driven initiatives to fill their screens and their real estate developments. For example, we are looking to fund content initiatives that can both bolster shoulder programming windows in our theaters both here and in China.

We are also funding our documentary film fund, which we believe with our recent distribution deal with Discovery can see better economic returns. We also continue to support our home and TCL joint venture businesses, as that business continues to see traction overseas.

You should know as we look to greenlight these investments, we review the overall IRR and the investment's impact to our operating metrics, including their impact to our operating leverage. While we are entrepreneurial at heart, we take very seriously the responsibility of using this cash wisely. These investments will have a modest impact on SG&A this year, but should start having a positive impact on our P&L in 2017.

We also anticipate that share buybacks will be another important element to our capital allocation plan this year. Unfortunately, we did not purchase any shares in the fourth quarter or thus far in Q1, despite our desire to do so, primarily because we were blacked out for most of the period. With that being said, we are looking into establishing a 10b5-1 plan, enabling us to avoid being locked out of the market in the future. We will update you next quarter on the status of our buyback effort, but suffice it to say it is connected to be a more pronounced part of our capital allocation plan in 2016.

With that, let me now turn it over to our CFO Joe Sparacio to go over our financial performance in more detail. Joe?

Thanks, Rich. 2015 was a very strong year for IMAX. The combination of our unique revenue-sharing business model, continued network growth, and excellent programming yielded a 29% increase in total revenue and a 55% year-over-year increase in net income from continuing operations.

Diving into the numbers, total revenue for the fourth quarter came in at $119.3 million, a 16.5% increase year over year. This brought our full-year revenue to an all-time high of $373.8 million. Revenue from sales-type theater installations came in at $33 million in the fourth quarter compared to $33.2 million in Q4 of 2014. It reflects the installation of 24 full new sales-type theater systems compared to 26 last year.

In addition, we upgraded an additional two theaters to laser under sales and sales-type lease deal structures compared to two digital system upgrades under sales arrangements in the fourth quarter of 2014. Gross margins from new STLs were 69.4% compared to 64.8% last year.

Our JV revenues for the fourth quarter increased 39% to $31.9 million from $23 million last year. JV revenues include the installation of 11 new hybrid joint venture theaters compared to 10 hybrid joint venture theaters in Q4 of last year.

In terms of full revenue-sharing agreements, we added 21 full revenue-sharing theaters to the network in the fourth quarter as compared to 19 in the fourth quarter of 2014. In addition, we installed five first-generation laser systems under the full JV model in the quarter: one new system and four upgrades.

Gross margins for the JVs grew by 380 basis points to 67.7%, largely as a result of a 22% increase in box office per screen and network growth that was partially offset by higher launch expenses on new JV installs and an increase in depreciation associated with the increase in the JV network.

DMR revenue for the quarter grew 24.8% to $31.9 million, with DMR margins of 68.9%, which was lower than last year as a result of several blockbuster titles in the quarter that incurred higher marketing and production costs. Our full-year 2015 DMR margins came in at 72.5%. DMR costs for the year totaled $29.4 million, at the upper end of our guidance and in line with our update given on the Q3 call.

For 2016, we currently expect DMR cost of goods to be in the $30 million to $32 million range. We will continue to invest in marketing, as we have seen a positive result from these efforts. For example, we have seen a 28% increase in our domestic per-screen average for 2015 as compared to 2014. We believe a portion of this increase is attributable to the efforts in this area.

Total gross profit for Q4 was $71.9 million, up 13% versus last year. For the full year, gross profit was $219.3 million and grew 26%, with resulting gross margin of 58.7% compared to 59.7% in 2014. As previously mentioned, during the year, we installed 10 laser system upgrades under the STL structure, which had lower margins than our traditional new theater installations. Total Company gross margin, excluding these first-generation laser upgrades, was 60.9% versus 59.7% in 2014.

Moving on to operating expenses, SG&A excluding stock-based compensation came in at $26.1 million in the fourth quarter. This figure includes investment in new business initiatives of $1 million, an FX hit of $900,000. Our full-year SG&A excluding stock-based compensation came in at $93.5 million, which reflects an annual FX hit of roughly $2.4 million, investments in new businesses of $3.2 million, and IPO costs of $1.3 million.

Stock-based compensation for the quarter was $7 million, resulting in total 2015 stock-based compensation of $21.9 million, which was slightly lower than our previous estimate. We currently expect full-year 2016 stock-based compensation of approximately $32 million, including the impact of certain awards associated with the IMAX China IPO.

In terms of guidance for this year, we expect SG&A excluding stock-based compensation to grow roughly 2% to 4% versus last year, with most of the growth coming from new initiatives. R&D for the quarter came in at $3.1 million, resulting in full-year R&D cost of $12.7 million.

R&D related to new initiatives related to -- amounted to $1.1 million for the quarter and $2.8 million for the year. For 2016, we expect total R&D to be slightly lower and slightly down from 2015 levels. That brings combined OpEx spend, including both SG&A excluding stock-based comp plus R&D, to be virtually flat with 2015 levels. This OpEx guidance reflects the inclusion of new initiatives, which Rich mentioned in his opening remarks.

Adjusted EBITDA for the quarter came in at $48.1 million, resulting in adjusted EBITDA for the full year of $140.8 million. This reflects a quarterly and full-year reduction related to non-controlling interest of $6 million and $14.9 million, respectively, which is higher than anticipated as a result of China's outperformance in the quarter.

On a margin basis, our 2015 EBITDA margins came in at 40.5%, 220 basis points higher than what we achieved last year. Our 2015 EBITDA margin calculation reflects higher average minority interest percentage as a result of the reduction in our ownership in IMAX China, from 80% to 68.5% upon the IPO on October 8.

Our adjusted net income for the quarter came in at $27.3 million, which brought our full-year adjusted net income to $73 million. Adjusted net income also includes quarterly and full-year reductions related to non-controlling interest of $3.7 million and $8.8 million, respectively, which is slightly higher than we previously guided to last quarter. We currently expect minority interest expense of approximately $17 million to $18 million in 2016 and minority interest share of EBITDA to be approximately $25 million to $26 million.

Turning now to box office, we had a great year and an excellent quarter. In the fourth quarter, we generated $288.4 million in global box office, with approximately $155.2 million or roughly 54% coming from international markets. The resulting fourth-quarter per-screen average was $319,000, a 9% increase over the fourth quarter of 2014. Of particular note was our domestic PSA for the quarter, which came in at $349,000 and grew 40% over last year's fourth quarter.

For the full year, our global box office was $985.3 million, which represents a 31% increase over our full-year 2014 box office. Of this, approximately 61% came from international markets. As Rich mentioned, we estimate the FX impact on our global box office growth impacted our global box office growth by approximately $17 million in the quarter. And we would have exceeded $1 billion for the year on a constant currency basis.

Our full-year PSA for 2015 was up over 13% to $1.15 million. All in all, our global footprint is a key differentiator for us as we are able to capitalize on opportunistic movie-going trends in many of our almost 70 different markets.

Looking now at installations, we installed 154 theaters last year, of which 136 were for new theaters and 18 were upgrades to existing theaters. Breaking out our new theater installations in a bit more detail, we installed 56 sales-type theaters, 49 full revenue theaters, and 31 hybrid revenue-sharing theaters. Of these installations, 75 occurred in China and 61 were in the rest of the world.

Overall, 2015 was a highly successful year for installs, as we exceeded the historical average for the past four years. More importantly, we expect this momentum to carry into this year.

As Rich mentioned, we are raising our install guidance for 2016 and now expect to install between 135 and 140 new theaters, of which we expect roughly 50 to be STLs, 60 to be full rev JVs, and 28 to be hybrids. We also expect to install 11 upgrades this year. As usual, we expect our installations to be back-end waited, with the majority occurring in the fourth quarter.

The expected uptick in JV installations is primarily the result of Wanda, who has indicated that they plan to aggressively increase their installation pace in order to better take advantage of opportunistic box office trends in China and a promising 2016 and 2017 film slates. While this does not have much of an impact on revenue for 2016, it should have a positive impact on 2017 and beyond.

Please keep in mind that upfront launch costs in the second half of 2016 estimates that these incremental JVs are typically an investment in the quarter in which they install, but yield significant returns shortly thereafter. For the first quarter of 2016, we expect to install approximately six STLs, two JVs, and eight hybrids. We also expect to install eight to nine laser upgrades.

Regarding taxes, we expect a full-year effective tax rate of between 23% and 24%. Now let me turn to our balance sheet and our approach to capital allocation for 2016. We ended 2015 with a cash balance of $317 million, which reflects net proceeds from the IMAX China IPO of $161.9 million, $103.7 million to IMAX Corp, and $58.2 million to IMAX China.

As Rich mentioned, we are beginning to explore key areas that we believe will yield solid returns in the years ahead. In addition to our home entertainment initiatives, we are expanding our investments in content, in part to augment PSAs during shoulder periods and to grow content licensing opportunities that exist for certain types of programming that we believe can benefit from our global theater network.

These investments should provide long-term monetization opportunities in later windows through television and potentially online streaming platforms. Each investment is generally small in size and is tasked with hitting certain milestones before further investment is made, just as you would expect. We have baked this incremental investment into the full-year OpEx guidance, which I provided earlier.

As you can see from our guidance, we are balancing investments in new areas of business while still remaining very focused on continuing to expand underlying margins, growing operating leverage, and ultimately driving more free cash flow.

In summary, it was an extremely strong year. We delivered record box office and revenue, grew EBITDA margins, and began exploring new opportunities that we believe will drive earnings growth and operating leverage for years to come. We have had a great start for the year thus far and hope to carry this momentum throughout 2016.

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

(Operator Instructions) Ben Mogil, Stifel.

Thank you for taking the question. So on the screen guidance for the year, can you maybe give us a sense geographically -- I know you talked about the incremental 20 screens being JRSAs in China. Maybe you can give us a sense geographically of where the rest of the screens are, both sort of maybe even EMEA and North America, etc.? Sort of anything you wanted to highlight geographically that you thought was interesting or worth calling out.

I think what's really worth calling out, Ben, is some of the territories we've made a lot of progress in the last couple of years. So Japan, we had 15 theaters two years ago. Now if you look at the backlog and what we've installed since then, we're closing in on close to 40. And if you remember, that's a zone that we modeled out at 90, but has a way to go.

The Middle East has also been a market that's grown very rapidly for us. I don't remember the numbers offhand, but a lot of additional activity there. India, which is a market -- you guys have tried to give me to talk about for years and there really hasn't been a lot of promise. But for the first time, we've opened a couple of theaters there that are doing very well and that's showing some promise.

I think when you look at Western Europe, the deals we announced this week in France and in Germany. We finally have some activity -- France and Switzerland; I'm sorry. We finally have some activity going on in Germany right now.

In terms of going forward, as you know, a lot of the installs for next year in China, we were particularly encouraged that Wanda really upped its commitment. I know there is a lot of noise around China, but the fact that they increased their installs by more than 20, which is the reason for this increased guidance, I think was a really good sign for that territory, among those who kind of have the cinema industry a little bit out of respect of in terms of how it's doing in China right now. I think that's a pretty decent summary.

Absolutely. And then sort of secondly on the China stake, when you look at your stake, which I think is like 71, something of that range, do you view that as an optimal number? Do you view sort of using some of the China equity for M&A as -- M&A locally as an attractive option? Curious what your thoughts are around that stake and if you see anything in China that's interesting on the M&A side, where given the stock price, M&A would be an interesting -- or stock would be an interesting currency?

So the answer is yes, Ben. We think that especially with some of the issues in the Chinese markets, there's enormous opportunities over there right now. We're actually adding resource to our M&A efforts in China.

Our stake today is 68.5%, just so you know. I think kind of it would be inviolate at the current time for us to go to less than 51%. I think that's kind of a line in the sand. We like the investment very much and the growth characteristics and we want to consolidate it.

But I think we are just very open-minded to how we use our various resources. Joe and I didn't talk about it on the call, but obviously we have an enormous debt capacity, both in China and in the rest of the world. So we have lots of resource to take advantage of market dislocations, whether it's buying other companies or whether it's investing in our own stock.

That's great. Thank you very much.

(Operator Instructions) Alexia Quadrani, JPMorgan.

This is Julia Yue on for Alexia. I have two questions. First, we've previously heard that premium large-format screens are more of an add-on offering at the ticket window and not necessarily direct competition with IMAX. I know it's still early, but how much do you think the rollout of other stand-alone premium format offerings, such as Dolby in the US and in China, could affect IMAX?

And then second, with such strong performance of local language Chinese films and with the Chinese industry box office forecasted to become the largest in the world in 2017, do you expect that the mix of films in China could skew increasingly towards local language films instead of Hollywood films, even in periods that aren't blacked out?

I'll answer the first part of your question, how we're affected by PLTs and other sorts of large-screen rollouts. The answer is empirically we haven't been affected. If you look at the percentage of a multiplex that IMAX does before PLTs ever existed and where it is today, our percentage of the multiplex has actually been better and better.

Here's kind of an anomalous finding, which is in Canada, with Cineplex, in multiplexes where they put in an IMAX and a PLT, the IMAX performs better. And I think part of their strategy is really as there's more competition from the home and as there's differences in windows and more blockbuster movies, the same kind of things that are fueling our growth worldwide, they are kind of remaking a lot of their infrastructure. And they are looking at it to provide the consumer with a broad array of offerings.

So whether it's moving seats or it's their PLT, that's the way they are looking at their physical plan and their capital investment. But we just reported a quarter where -- and a year where we did almost $1 billion in revenues, which is way up anything we've ever done before in box office.

And you look at the PLTs are proliferating. If you look at the results -- I don't want to get too detailed on this -- but also the other thing is that the IMAX revenues tend to be largely incremental to a multiplex. So if you put in an IMAX and you look at how it's doing versus its DMA, when you add an IMAX, it provides a bigger lift to the multiplex.

These PLTs or whatever their brands are, they move people from box number two to box number three, but they don't increase the attendance in the multiplex. So as we just reported today, I don't think they've had much of a negative impact, and in some cases, maybe a positive impact.

Greg, you want to talk about [foot homes] in China?

Sure. So the question on local language films in China is a great one because we've seen over the course of last six months an incredible traction in our local language business. The last six months has brought two records for us in the local language business.

One was Monster Hunt, where we did $27 million, and then with Mojin in December and early January, we've done $28-plus million. We also had the biggest weekend we've ever had in China with Monkey King 2. And we've also seen a particularly strong increase in the per-screen average is in Tier 3 and 4 cities, which tend to gravitate more towards local language films.

As you know, there are certain blackout periods in China and so having local language films is a really important part of our strategy. And we found that our relationships not only with the filmmakers in China, but also with studios and exhibitors has really helped facilitate this growth in our local language business. So you can plan on seeing more in the coming years. We did eight in 2015 and I think eight to 10 is the range that we expect in 2016.

Okay. Great. Thank you so much.

Steven Frankel, Dougherty.

Good afternoon. A couple more China questions, if I may. Where is Wanda today in terms of the number of screens rolled out and what's left in their current commitment?

So Steve, if they roll out this year what they've told us they are going to roll out, they would have fulfilled the current commitment. And in fact, I should remind everyone that those leases are for 12 years.

However, we started preliminary discussions about additional commitments. And again, while I can't promise anything, I personally would be surprised if they accelerated the rollout this year and then said see you later. We haven't heard anything like that.

And again, how many are open today?

I don't know. Do you know, Joe?

It would be -- the total commitment was 195, so probably around -- I'm going to call it 140 to 150. I don't have the numbers exactly in front of me, but that's my gut on it. And that's out of the JV pool. They also have some sales-type leases.

And to follow up on Greg's last comment, could you give us some feel for what the PSA looks like in a Tier 3 city in China versus a Tier 1 city?

Sure. A Tier 1 city PSA is looking in the $1.5 million range and a Tier 3 or 4 PSA -- the Tier 4s are now over $1 million and the Tier 3s are $1.2 million-ish. So we're talking about serious box office in locations that a lot of people wondered if IMAX was ever even going to go into, let alone having PSAs that are strong as that. And again, they have been particularly robust in local language films.

And Steve, the average PSA in China, as you know, is around $1.3 million and only about 15% of our computers are in Tier 1 cities.

Steve, getting back to your first question, there's 146 theaters that we have with Wanda that are open at the end of the year and 15 of them are sales-type leases.

And then maybe an update on what you are hearing from the filmmakers on the ARRI camera?

Well, it's been fantastic. We continue to have more movies that you'll be hearing about that we are partnering with ARRI and IMAX on. In fact, last week, there was another movie that we are in all likelihood going to move forward with.

Not only are the filmmakers liking the partnership that we forge, but the flexibility that they have because of the volume of cameras allows us to do more movies. We're going to be careful and we're not going to -- just like we don't have an IMAX theater on every street corner, we're not going to have every IMAX movie have a camera usage. But we do like it for differentiation. It's something that only we do and it's particularly important to the filmmakers, which is particularly important to us.

And then just a kind of big picture question. If we look at the core business -- so ignore these incremental investments in the new initiatives -- how much more operating leverage do you think is left in the model?

I'll just answer it at 100,000 feet, then Joe can answer it. Tons of operating leverage, Steve. But the question is -- and we have this debate and you hear it from investors all the time -- if we wanted to shut out outside initiatives and if our box office grew next year, which it automatically will because of more screens, you would see tons more leverage.

But the philosophical question is do you want to turn IMAX into a bond fund or do you want to find the right kinds of ancillary businesses that can lever off our brand and could lever off our position in the ecosystem? And I think we have such an enormous ability to do that and the resources to do that, that that's what we're going to do.

So if you ask me to synthesize it, I would say there's tons left if we chose to go that way. But what we're choosing to do is continue to show operating leverage and increase operating leverage and within that context try to grow the business in intelligent ways. And that's the juggling act and that's what we're committed to doing.

Yes. The thing that I'll say that is the two parts of our business that are growing the most are DMR business, which is being triggered by network growth, both by JVs and sales, as well as our JV business. And both of those businesses are 70%-plus businesses. So it's as we continue to widen this network, we should continue to improve margin percentages.

Steve, I guess to put it in a way I think about it: HBO and Netflix probably could've had much better margins if they kept distributing Hollywood films. But they decided to go into other areas, like leveraging off content using their somewhat captive subscriber base.

Remember, IMAX theaters have programming requirements, where if we DMR a film, the theater has to play the film. So for ancillary windows, we think we're going to be able to lever off of some content opportunities, many of which I talked about today, to show that we're only on first base in a long game. So I think there's an enormous opportunity.

And one last quick one. The guidance was for low-single-digit growth in SG&A -- I think it was 2% to 4%. And that accounts for some growth in these new initiatives. Do you think that kind of on a longer-term basis you have the infrastructure that SG&A should remain something that doesn't have a lot of growth in it and you can lever?

Steve, on a steady-state, in theory that would be right. But we may get into other businesses or other initiatives as we move forward. We will have to comment on it at that time, but if things were a steady-state, yes. I don't see us growing G&A significantly above those levels.

Okay. Great. Thank you.

Eric Handler, MKM Partners.

Thanks a lot for taking my questions. A lot of good data that you provided there. Just a couple follow-up questions. So in terms of your installs, is using 80 screens in China -- does that seem to be a reasonable number for 2016?

And then secondly, are you getting any type of pushback from exhibitors at this point about concerns about an economic slowdown? Is that influencing how many deals are getting done at the moment? And then last, when you are looking at alternative content -- I know you talked about documentaries. Are you looking at other types of live events or what could those events or content sort of take the form of?

So Steve, I'll take the middle one first in terms of the tone of our business. We beat our signings budget by a significant amount last year. The first quarter has gotten off to a really good start. There's just lots of leads. It won't shock you coming off of Star Wars and Deadpool and you look at the exhibitor returns.

You can even look at the results of the exhibitors that have IMAX theaters and those that don't, and you can see the results in their fourth-quarter financials. You can back it out and see how it affects them. So our interest on a worldwide basis is extremely robust; extremely strong.

The first part, Steve, I'm sorry -- I hate the three- or four-part questions.

That's all right -- and it's Eric, but that's okay. Looking at your install guidance for the year, is it safe --

That's right -- I remember. So typically, we don't give guidance by region because -- just so you know how we prepare our install guidance for the year is we look at our backlog. We have unsigned, which we estimate based on past practice, and then we have a reserve, a general reserve, we take against that because of slippage in past years.

So I'm hesitant to say a certain number is going to come from a certain region. However, I do think that your number of 80, it will probably be higher than that.

Great. And then the content investments, what form that might take place? You mentioned documentaries; are you looking at some live events? Are you looking at other -- what could that encompass?

So Eric, it's Greg. So the goal of -- let's put quotes around it -- alternative content -- is really code for providing 52 weeks of compelling content. That's all we're looking to do. And that can be in the form of live events if need be, if they are compelling enough. That can be in the form of content like we talked about -- original content -- let's call it cinematic episodes. That could be in the form of anything that moviegoers want to see and anything that exhibitors want.

Our goal again is to have 52 weeks of compelling content. The documentary fund is working out very well. We have several movies that we use that capital for. But for the commercial side, for moviegoers who go to the typical multiplex, we want to provide 52 weeks of compelling content any way that they want to see it and exhibitors want it as well.

So Steve, I have to just to add a little more color to it. There are a number of really live discussions going on -- so Game of Thrones in IMAX, which we did, is one example of something we've done in the past. The China film fund, where we are investing in content pari passu with studios in China, where we release things in the IMAX network. That's another form of it. And these are relatively low risk disproportionate return investments.

But I think as the year goes by and we get closer to investor day, we will be able to provide you -- which will probably be towards the fall, we'll be able to provide you more detail on that. But there is lots of weeks a year that there isn't the kind of content that we want to provide. And we think we can both provide it and make money doing it.

Thank you very much.

Eric Wold, B. Riley.

Thanks. Just a couple questions. I guess one, I know you talked about, Rich, at the beginning of the call about tough comp and everyone is talking about tough comps in 2015, with Star Wars and all that. But kind of following up on comments you made the other day at a conference, as you think about the start to the year, with Star Wars bleeding into this year, Deadpool, the slate you've announced so far, the slate you probably haven't announced so far, along with projected growth in the circuit this year, what are your thoughts around the ability to at least keep flattish box office this year, if not potentially grow it in 2016?

Eric, I tend to think the question really doesn't matter. Because if you look at what I said about the $1.1 million, we've been within 5% of that virtually every year for the last seven years. Sometimes we've been way over it. This year, we are a little over it.

So I feel -- I'll start by saying I feel very confident that we will be within that booking. And when you run the model, as you know, being $50,000 more or $50,000 less, it does make a difference, but not to the overall story. It makes a small difference.

On the other hand, IMAX -- you heard the numbers I said at the beginning. We're up 65% year over year for the first six weeks. And I think this year has less potential home runs than last year, where we had Episode VII and we had Jurassic World and we had Avengers. 2017 has those again.

But I think this year has lots of doubles and triples. When you look at it, I think there are more movies this year that will do in the let's say over $50 million, $60 million than they were last year. I think there are less movies that will do at the upper end of that range. And you have a lot of new theaters, so it's hard to pin down.

But as I said in the script, I feel pretty good about this year. To be overly transparent, my handler has added the word tough comparison. I think we're going to have a very good year this year.

Okay. Then just a second question, kind of thinking about the new investments you are starting to make. And I'm not going to get into the Brooklyn Cycling Studio; I concede that for another time. But in terms of the TCL home theater JV, maybe give a sense of -- I know you had the announcement I think a couple of months ago.

Maybe give a sense of how orders are shaping up there? Delivery timeline on those, opportunity for that business to start being accretive, and then thoughts on moving to other regions outside of China and the Middle East?

So Eric, as I mentioned, we had 80 signings at the end of last year. We haven't put a lot of capital into it. It's a staged capital investment kind of thing. I was pleasantly surprised by the amount of orders we had last year, but you shouldn't look for a significant accretion or dilution from that effort in 2016. I think it's more like 2017 where you'll see an impact, but it's a rounding area error at this point. I wouldn't obsess too much one way or the other.

Okay. And any thoughts on potentially moving outside of those two regions?

Yes, there are, but it's a very complicated question. Because a part of the feature of that is day-and-date content. And obviously, we respect the windows in North America and in other places where they are important to our exhibitor partners. So certainly we could expand at some time, but it's a strategic question and that's one reason we started where we started and that we are going to be very respectful of that issue.

So that affects our rollout speed and that's why I'm telling you it's a relatively small investment. We want to put our foot in that water for a lot of reasons, but we're not going to threaten our partners.

Understood. Thanks, Rich.

Jim Goss, Barrington Research.

I was wondering -- how many DMR movies are you doing in China [locally] this year? And how many are you likely to do in other regions outside of the US and China? Let's start with that.

So Jim, we'll do between eight and 10, as I mentioned this year, in China. And we also have films in the four biggest territories that we have. We have a Japanese title that we'll be doing. We have a couple of Russian titles that we'll be doing, and there are some other markets that we're seriously exploring.

We're very careful about when we do a local language movie, that it appeals above and beyond just that singular market. But at the same time, we're seeing that the local language business is a very thriving business. And again, our goal is to provide 52 weeks of compelling content to all of our theaters. And if there's particular markets that rely on local language films, we have to provide it for them.

Okay. And Greg, how many openings in the 2016 slate exist at this stage of the year?

That you know about or I know about?

That you know about.

That I know about -- very few. Maybe two. That's it.

Okay. So things could be moved a little bit.

I think we've announced 26 titles and you can plan on putting my two hands out -- about 10 more on the Hollywood side, if you will. And then again, there's the local language stuff. But somewhere in that range. We'll be right about where we were last year, give or take three or four either way.

Okay. And then lastly, just in terms of managing growth, China has been such a success. Do you remain laser focused on China? I know you mentioned Japan, Middle East, Western Europe earlier in the discussion, but is there any shifting of more serious attention to those other areas? Or do those sort of wait and move along slowly while you continue with the foot on the pedal in China, given the returns you've been getting there?

Jim, I'm very cognizant of the fact that China has had a certain growth rate and the rest of the world has had another growth rate. And I'm very cognizant of the fact that there are two public companies and you need to tell stories in both.

I'd say we're going to keep our foot to the metal on China, but we're also going to put it to the metal more in the rest of the world. And we've actually made some management changes recently. So the person who ran sales for Asia, including China, is going to run sales for the world. So we hope he brings his magic dust that he did there to other regions.

And we've invested a lot in Europe, as you know. Several years ago, we hired the former president of Paramount International to boost that effort. And we are very committed the laser focus throughout the world.

All right. Thanks very much.

Thank you. So that concludes today's question-and-answer session. Mr. Gelfond, at this time, I would like to turn the conference back to you for any additional or closing remarks.

Thank you. As you can see, we feel very good about our results and where our business is headed right now. Again, I haven't felt better about our business in the 22 years I've been here. When you add up the brand, the network, our positioning in the ecosystem, our cash position, our debt position, the value of our brand, I think it's all there in a way that I would never have imagined even five years ago.

So I'd like to thank you for joining us today. And I'd like to extend my appreciation to all the employees at IMAX around the world who make this happen. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for your participation.