Imax Corp (IMAX) 2017 Q2 法說會逐字稿

Good day, and welcome to the IMAX Second Quarter 2017 Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded.

At this time, I would like to turn the call over to Jessica Kourakos, Senior Vice President of Investor Relations at IMAX. Please go ahead.

Good afternoon, and thanks for joining us on today's second quarter 2017 earnings conference call. Joining me today in our New York office is our CEO, Rich Gelfond; our CFO, Patrick McClymont; our Head of Entertainment, Greg Foster, who will each have prepared remarks and will be available for Q&A. Also joining us is Rob Lister, Chief Legal Officer and Head of Business Development.

Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our second quarter release and the slide presentation accompanying today's call have been posted on the Investor Relations section of our website. We also provide quarter-to-date box office results on the IMAX Investor Relations website every Friday with a 1-week lag. We also have an Investor Relations Twitter account using the handle IMAX_Investors, that includes this box office disclosure as well as other items that may be of interest to the investor community.

Finally, I would like to remind you of the following information regarding forward-looking statements. Our comments and answers to your questions on this call as well as the accompanying slide deck 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 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 in 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 afternoon's press release.

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

Thanks, Jess. As you can hear, I'm struggling with laryngitis. In order to ensure that all of you can hear my remarks and that I have a voice left for Q&A, I've asked Rob Lister, Chief Legal Officer and Chief Business Development Officer, to read my portion of today's remarks. Anything said in this portion should be attributed to me. At the conclusion of my remarks, Rob will turn the call over to Greg Foster to discuss the film business as usual. And Patrick McClymont will present financials. I'll be available at the conclusion of the prepared remarks for Q&A. Rob?

Thanks, Rich. Good afternoon, everyone, and thank you for joining us today. Throughout my tenure at IMAX, I have highlighted the importance of taking a portfolio approach to managing our business long term, recognizing certain titles will resonate strongly with consumers and others less so. For example, several films in the second quarter underperformed our expectations, which had implications on the short-term results. And while no one film will make or break a year, the recent release of Chris Nolan's Dunkirk, which exceeded our expectations, helps emphasize the value in viewing our business as a portfolio. Domestically, the film achieved $12 million in IMAX and our 400 screens accounted for almost 25% of the total domestic box office, a record for any IMAX film. Internationally, we achieved another $7 million, which resulted in a first screen average of over $30,000 for the opening weekend and these results do not include China, which launches the film on September 1.

The movie embraces the spirit of IMAX in every sense. It was shot almost entirely with our film cameras and delivers a level of immersion that can only be fully appreciated in the IMAX format. An opinion shared by Chris, critics and consumers alike. More importantly, the success of films like Dunkirk is encouraging for a number of reasons beyond the box office of any individual film. Not only do movies like this demonstrate the power of the IMAX experience, they also tend to provide a halo effect lasting well beyond the film's time in our theaters. As evidenced by other IMAX hits historically, these films help to reinforce our brand and positioning in the global entertainment ecosystem. As a result, we tend to see increases in consumer exposure to, and dialogue around IMAX heighten demand from filmmakers, looking to leverage our format with IMAX DNA and greater demand from exhibitor partners who are increasingly seeking to add premium experiences to their multiplexes. And in light of consumer demand for premium experiences, we continue to see robust signings activity from our exhibitor partners around the world. During the quarter, we signed agreements for 92 new theaters, bringing our year-to-date signings to 130 new theaters. Keep in mind, this is on top of the record signings we achieved last year.

Over the past 18 months, we have signed agreements for an incredible 450 new theaters. As a result of this activity, our installation pace continues to operate at strong levels. We installed 33 IMAX systems in the second quarter and continue to expect we will install roughly 160 new theaters new systems this year. And on top of network expansion, we ended the second quarter with a global footprint of over 1,150 commercial screens, not including our backlog, which should grow the network by an additional 580 screens over the next several years. I think it's also worth mentioning that this backlog spans almost 100 different exhibitor partners globally. Growing this footprint remains a key priority because I believe this network serves as a leading contributor to long-term earnings growth.

With that being said, we recognize recent network expansion has not translated to the bottom line to the extent we expected. As a result, we have begun taking meaningful steps to improve profitability over the long term. On the revenue side, the single biggest challenge we faced in the first half of the year is box office performance. Greg will get into specifics shortly. However, we have recently begun to refine our strategy with regard to programming our screens, 2D versus 3D choices and reseating, to name a few. We believe the combination of factors such as these could contribute to greater revenue productivity of our network. It's also worth mentioning that a notable source of this quarter's weakness came from China. While we still view that market as a big growth driver long term, a number of titles just didn't resonate with consumers. Another factor that contributed to weaker box office was the significant number of new build installations. In fact, roughly 28% of our 443 theater network in China was installed in the last 12 months, and most of these installations were in newly built malls, which take time to ramp up. With that said, while newly built IMAX theaters have been the foundation of our network growth to date, a growing China Cinema network affords IMAX the opportunity to retrofit theaters. This is something we've been very successful with in in the U.S. market. Retrofit installations can provide greater box office transparency, quicker ramp-up periods and can be installed more quickly than their new build counterparts.

Moving along, the second area which has hindered recent earnings growth has been our cost structure. As many of you saw, we took a significant step towards mitigating this impact going forward. Last month, we announced a cost-reduction initiative aimed at streamlining our business and introducing a more efficient cost structure, which should facilitate more operating leverage. While recent box office trends accelerated the implementation of this initiative, realigning our cost was an important and crucial exercise regardless of any one quarter's box office results. Patrick will elaborate further. However, we believe this initiative will remove roughly $20 million in annualized cost from the P&L. As a result, we believe the company is better positioned to increase shareholder value going forward.

And on the topic of shareholder value, our board recently approved a new $200 million buyback program, which runs through the year 2020. This new repurchase program follows the completion of our prior $200 million buyback program. We repurchased $46 million worth of stock in the second quarter this year and continue to believe that buybacks will serve as a tool in delivering shareholder value. Our intent is to use this program opportunistically as we have done in the past.

Moving on to new business. We opened our second VR Center in New York City at AMC Kips Bay this past Memorial Day weekend. This location differs from our standalone site in L.A. as it is our first foray into a multiplex and occupies the lobby space there. This type of location is exciting, given the built-in the foot traffic that comes with a multiplex location. Looking ahead, we anticipate opening 5 to 8 additional VR locations by year end, with the next locations opening in early fall in Shanghai, Manchester and Toronto. We'll be using these centers to not only test different markets around the world and their appetites for VR but also to evaluate different types of venues, standalone locations, multiplex locations within shopping malls and retrofitted multiplex auditoriums. And while this initiative remains in the pilot phase for the time being, I can tell you that there has been sizable interest from various partners around the world.

All in all, there are a lot of exciting things on the table. Our backlog is at record levels, facilitating increased installations. We have a exciting film slate ahead of us. Virtual reality is off to an encouraging start and we authorized future share buybacks to maximize our flexibility. Our capital allocation priorities continue to focus on network growth, new business and capital returns. Couple these opportunities with our cost reduction efforts, and I believe IMAX is well positioned to drive meaningful value to shareholders.

And before I pass it off to Greg, I'd also like to mention that we recently hired a new CMO, JL Pomeroy. JL started this month and will lead the company's global marketing efforts to ensure filmmakers, studios, exhibitors and moviegoers around the world embrace the power of the IMAX experience. JL is a senior marketing executive with 25 years of international experience in the luxury, media and entertainment sectors, where she built a reputation as a brand builder and a change agent. We're looking forward to JL helping us further strengthen the IMAX brand.

With that, I will turn the call over to Greg, who will discuss our film business. Greg?

Thanks, Rich/Rob, and hello, everyone. I'd like to begin by highlighting some of our Q2 results. We delivered global box office of $269 million with $86 million coming from the domestic market, $97 million coming from China and $86 million coming from other international markets. This resulted in a global PSA of $238,000, with the domestic market coming in at $216,000; China, $235,000; and the rest of the world ex China at $268,000.

It's worth highlighting that we saw strong results in the international market, excluding China, which achieved box office growth of 14%, and PSAs which were in line with last year. Moreover, our domestic PSA was in line with 2016 despite several titles not performing quite as well in the long term, following particularly strong opening weekends.

With that being said and as mentioned in Rich's remarks, we are continuing to adapt our film strategy to changing cinema and consumer dynamics. First, we continue to see more and more demand from directors who want to leverage IMAX DNA for their blockbuster firms, including two of the biggest films of the next 12 months. Specifically, Star Wars: The Last Jedi, was partially shot with IMAX film cameras, and Avengers Infinity Wars was filmed entirely by the Russo Brothers with IMAX digital cameras. This is a key differentiator for prominent filmmakers as well as consumers and we typically over index on films that utilize IMAX technology. Needless to say, there's no better indication of the benefit of IMAX DNA than looking at the performance of Chris Nolan's Dunkirk this past week where IMAX represented 23% of the opening weekend and continued with over 20% each of the first 2 days of this week. It's also worth noting that Dunkirk was shown exclusively in 2D for which consumers in many markets are showing a clear preference.

And on that topic, domestically, we're looking to play fewer 3D versions of movies and more 2D versions. It's apparent that the demand for 2D film is starting to exceed that of 3D in North America, and we'll be looking to keep more of our films in 2D as a result. In fact, we just confirmed with Alcon and Warner Bros. that the domestic release of Blade Runner 2049 will be shown in IMAX theaters only in 2D this fall.

Third, we've begun shortening the play windows for a number of our titles, committing many films for just 1 week. This not only ensures we have fresh content on the screens, it also reduces our exposure to potential second week drops which have become more common provided there's more screens available to consumers on opening weekends. Another focus of ours is screen sharing. We've been screen sharing domestically now on more locations than we have in the past. This is a bit different than splitting the network. Rather, we're playing 2 films simultaneously on our 400 plus screens. For example, an animated family film during the day and a live-action superhero film at night being more nimble and having more flexibility to screen share should also bolster our box office.

And while I've said this before, we're also expanding the types of films we play on IMAX screens. Historically, we never would have played a movie like Beauty and the Beast, given it's not your typical fan title. That's no longer the case, and it's become quite clear that our format can offer a unique experience for a wider variety of programming. This is particularly important, for instance, with Disney Live action films like Jungle Book that we played last year, the upcoming Aladdin and Mulan because these are films that clearly will have an audience in IMAX. Moreover, we're continuing to analyze our network for receding opportunities and we're testing different options with various exhibitor partners. Results from our plush rocker installations have been encouraging and our exhibitor partners are more keenly focused on retrofitting more of our theaters with these premium type of seats. Currently, exhibitors have reseated roughly 50 of our IMAX network and we're working with them to reseat even more.

And lastly, we continue to look for alternative and original content to fill gaps in the release schedule. As you know, we will launch of television series Marvel's Inhumans in late summer, a period of the year that is traditionally absent of big Hollywood tentpole releases. A second trailer recently premiered at Comicon and garnered a lot of attention. Remember, the exclusive IMAX theatrical release of the series' first 2 episodes not only fills a gap in the film slate, it also provides us with an exciting new revenue stream as we share in the entire pie, which includes the theatrical revenue, domestic and international licensing and streaming revenue.

And on the topic of content, we believe there is an excellent slate ahead for us and we have already kicked off Q3 on a strong note. In addition to Dunkirk, earlier this month, we played Spider-Man: Homecoming, which opened to a $17 million global weekend, which excluded China. On that topic and as Rich noted in his remarks, we couldn't be more excited that Dunkirk has been given an official release date in China and will be coming to IMAX screens on September 1.

Looking ahead, several titles I'm also very excited about include: Kingsman: The Golden Circle from Fox, Blade Runner 2049, as I mentioned, from Alcon, Warner Bros, Sony International and directed by Denis Villenueve; Thor: Ragnarok, which has garnered spectacular online buzz; DC's Justice League on the heels of Wonder Woman's success; and of course, Star Wars: The Last Jedi, which was partially filmed with IMAX film cameras by Rian Johnson. And given our long-term film deals, we already have a number of key titles locked in for 2018. These films include: Marvel Studios' Black Panther; Ready Player One directed by Steven Spielberg; Avengers: Infinity War; Han Solo; as well as Jurassic World: Fallen Kingdom. And that's just to name a handful.

All in all, I think the slate ahead coupled with the key initiatives laid out earlier should put IMAX in a good spot going forward. And with that said, I will now pass it over to Patrick.

Thank you, Greg. As we mentioned, signings and installation activity remained robust through the first half of 2017. We signed agreements for 92 new systems during the second quarter headlined by our 40 theater hybrid revenue-sharing deal with Omnijoi in April. On the installation front, we installed 33 new theater systems and one upgraded system compared to our Q2 guidance of 28 new theaters. Please turn to Slide 5 of our earnings presentation to see the breakdown of our 33 new installs by theater type.

Next, I'd like to review our financial highlights for the quarter, starting with our consolidated results and then looking at our core and new business results. Please note, our GAAP figures include the $10.3 million restructuring charge from our cost-reduction initiative, which I will discuss in greater detail in a moment. During the quarter, we saw GAAP net loss of $1.7 million, resulting in a GAAP net loss per share of $0.03. On an adjusted basis, which adds back the restructuring charge and stock-based compensation expenses, attributable net income was $9.6 million, resulting in adjusted net earnings of $0.15 per share. Adjusted EBITDA for the quarter came in at $29.3 million, adjusted EBITDA margin of 31.9% was up 260 basis points above last year.

Turning to our core business operating segments. Network business revenue, which consists of revenue generated from sharing and box office, was $47.4 million in the second quarter and generated margins of 66.3% compared to $48.1 million and a 68.8% gross margin in the year ago period. Theater business revenue, which consists of our systems sales and maintenance business was $32.7 million in the quarter and generated a gross margin of 52.7%. This compares to revenue of $38.9 million and a gross margin of 45% in Q2 of 2016. The lower revenue was due to our having 6 fewer theater installations versus the prior year period. Margins in 2016 reflect an additional laser upgrade last year at lower gross margin.

Total Q2 2017 core business gross profit was $50.6 million, resulting in a gross margin of 58.5%, an increase of over 300 basis points versus last year's second quarter. Total core OpEx, which includes R&D and SG&A excluding stock-based compensation, was down slightly compared to last year. On the R&D front, we saw an increase of about $1 million over last year, which is primarily the result of a ramp-up in the commercial laser project.

Now turning to our new initiatives. Total operating expenses from new initiatives were $2.5 million in Q2 versus $1.3 million in the prior year period. On a year-over-year basis, new business R&D was driven by the development of our VR camera. Slide 6 will provide a more detailed look at the financials I just highlighted, broken down by core and new business.

As discussed, we implemented a cost reduction exercise in the second quarter aimed at reducing redundancies, streamlining our business and driving operating leverage. To give you some additional detail as to how we approach this initiative, we worked with business leaders across the organization and conducted a thorough review of our cost structure, procedures and workflow. We focused on the entire cost structure, paying close attention to cost of sales as well as SG&A. As a result of this exercise, we found several areas across the organization we could streamline.

One such component was headcount which has grown significantly during the past several years, given the company's rapid growth. We identified a number of roles, which, as a result of evolution of the organization, were either redundant or no longer essential to the business as it operates today.

On the new business front, we closed our shipped cycling operation. We also identified miscellaneous costs such as professional fees and facilities costs associated with satellite offices that we decided were no longer essential. We believe this reorganized cost structure enables us to accomplish 3 main objectives: one, to further streamline processes to create efficient growth; two, to achieve greater operating leverage and bolster operating cash flow generation; and three, to continue to invest in new business initiatives.

In terms of the financial impact and timing of this restructuring, we anticipate this exercise will remove approximately $20 million in annualized cost from the business, which we expect to benefit from in the second half of this year with a broader benefit hitting in 2018 and beyond.

Turning to the balance sheet, we ended Q2 with $158 million of cash. As noted in Rich's remarks, we repurchased approximately $46 million of shares during the quarter. We also announced a new $200 million buyback authorization following completion of our prior buyback program, and we intend to continue using the share buyback program opportunistically, while we also -- while also continuing to invest capital in growing our network and financing new business ventures.

Now a brief update on our financial outlook for the third quarter and full year 2017. As part of our recently implemented cost-reduction program, we recognize a restructuring and impairment charge. The bulk of this charge was reflected in the $10.3 million we recorded on the income statement in the second quarter. We anticipate additional restructuring charges in the range of approximately $4 million to be recognized in the second half of this year, $3 million of which should be expensed in the third quarter and approximately $1 million in the fourth quarter. As a result of the cost reduction efforts, we expect consolidated operating expenses, which include new business, to grow at mid-single digits year-over-year, down from the 10% growth we've previously guided to in the Q4 call. We also expect full year of 2017 consolidated stock-based compensation of $23 million, down $3 million from our original guidance of $26 million. Additionally, the core business operating expense, originally anticipated to grow at mid-single digits, is now expected to grow low single digits.

Moving on to installations. We expect to install 42 new theaters in Q3, of which we anticipate 13 STLs, 23 JVs and 6 hybrid JVs. We continue to expect 160 new theater installations for the year. We also anticipate our full year investment in new business to be approximately $16 million to $18 million, in line with previous guidance. We anticipate a full year tax rate of approximately 18% compared to our previous guidance of 23% to 24%. The lower tax rate is primarily driven by one-off items related to our restructuring and impairment charge.

The remainder of our guidance is consistent with what we provided on our Q4 call in February. We will post a full breakdown of this guidance on our website, broken out by core and new initiatives at the conclusion of this call. I'd also like to mention that we just launched our newly redesigned Investor Relations website on Monday, investors.imax.com, which has some interesting new features and resources, including our updated historical financials which we intend to publish shortly. We encourage you to check it out and find -- and hope you find the new layout more intuitive and user-friendly. We would appreciate your feedback on the new site. Also as a reminder, moving forward, we will now be posting our earnings press releases directly to the IR website for download.

In conclusion, strong demand for IMAX systems worldwide continues to provide attractive opportunities to grow our network. We are taking steps to drive revenue productivity in the installed network, and we're implementing actions to optimize our business and streamline costs. We believe the company's better-positioned to generate shareholder value as a result of these efforts.

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

(Operator Instructions) And we'll go first to Eric Handler with MKM Partners.

A couple of things for you guys. First, now that you have a new marketing person in place, as you get more films having sort of like the IMAX DNA using the IMAX cameras, how do you propose marketing to consumers so that there is increased awareness that there's something different with the IMAX films? Secondly, for Patrick, I'm just curious. You have now -- you continue to invest your capital in the JV theaters. You are on the cusp of rolling out more virtual reality facilities. So I'm curious how much cash do you want to have on hand? So just as I try to think about how much you might want to do for -- use for buybacks and how much you use for investing, how do you sort of think about that?

So on the first question, I think JL's has been here 2 weeks. So we're going to give her time to answer that question specifically. But Eric, in general, I think you're going to see much more focus on brand marketing and defining the brand apart from the movies. We'll still do movie marketing. But as a subset of a much more comprehensive branding strategy. In terms of differentiation, obviously, you saw in Dunkirk that, done the right way, marketed the right way and word-of-mouth, et cetera, it's extremely powerful. You saw the weekend results after the weekdays, the first few days, we continue to index at roughly 25%, roughly 25% domestically. And I think that's certainly the area we're going to focus on both in marketing and reality going forward.

And Eric, on your second question. When it comes to the capital that we invest in the JVs, a fair bit of that is in China as you know. And there's some timing issues but by and large, the business provides sufficient cash flow to fund the JVs. As we think, about you mentioned VR facilities, and we are rolling those out but it's a pilot and the capital requirements for those are quite modest. And so with our $150 million of cash on hand, we have plenty of cash, we have plenty of capital. So when it comes to the question of share buyback, it's really a question of being opportunistic, which you've seen us do over time. We don't feel constrained when it comes to capital.

Okay. Great. And then as just as a quick follow-up, and Rich, I love your Kathleen Turner impression. But when do you decide go versus no-go for VR?

We're rolling out about 8 more, as you know. The agreements are 1 year agreements, the VR agreements. By the way, everyone's laughing at me in the room. Just so you're not the only one who's entertained, Eric. So I'll say around a year from now.

And we'll take our next question from Alexia Quadrani with JPMorgan.

Just a question really on China. Obviously the Dunkirk news is positive development. But just if you can maybe give us a bit more color on what your outlook is for that region for the rest of the year and going into 2018. Do you think there'll still be sort of healthy industry screen growth? And I guess, any commentary about what you're expecting on the local language content front would be helpful.

So Lexi, I was there for 3 weeks ago and I met with all of the studio heads that are relevant to us. And I'd say the content, the context was upbeat, in line with kind of the year-over-year development. So I don't think people think it's going to go back to 30% year-over-year growth, but I think people are confident there will be growth. And I think we have a fairly robust film slate, coming after the remainder of the year, which I'm going to ask Greg to talk a little bit about. But I think we feel pretty good about it.

So besides the Hollywood titles, which all of you know, there's also the blackout period, unofficially, that started after Despicable Me 3 and will continue on until -- towards the end of August. And for that schedule, we've got 5 movies. We haven't announced all of them yet because we're waiting for -- sequentially to do so. But I think many of you know that we played WU KONG, which we did nicely with. There's a new movie opening up this weekend. There's a movie August 4 called Once Upon A Time. There are a couple of movies that are coming out on August 11, one called The Adventurers and one called Legend of the Naga Pearls. So there is a lot of local language films. Local language films are very important to us. They're not only important to us in China. They're important to us in other markets that have the network size to be able to justify them from a financial point of view. But local language in China, you can continue to see IMAX participate in a significant way going forward.

And then just a quick follow-up, if I may, and the answer may be, it's too early to tell, but I know it's been a couple of months now since the VR facility was up in New York. And just sort of following your previous question. Is it sort of going as planned or as you hoped? Or do you really have to have it, like you said, for a kind of full year before you make a decision if you're going to go forward or not?

I think we need more time to make a decision. As you know, the one in L.A. has opened up very strong and it's an extremely positive indicator. In New York, it's our first one in a multiplex. We're going to test others in a multiplex, other standalones, other entertainment centers. And I think the New York one certainly is on a pace where it could succeed, but I think we need to see more data.

And we'll go next to Michael Ng with Goldman Sachs.

First, I was wondering if you could elaborate a little bit on some of the changes you're making in the revenue strategy, particularly in reseating and the plush seats. I appreciate that it's early days but what have you learned from the 50 IMAX screens that have been reseated so far? And is there anything in terms of metrics that you could share with us in terms of existing capacity utilization for nonreseated screens and perhaps what you think the attendance uplift might be? And I have a follow-up.

Sure. I'll take this one, Michael. It's Patrick. Thanks for the question. We're in the exploratory phase. It's still relatively early days, and we're still reseating with multiple different partners and, which is great. It gives us an opportunity to see different types of seats. And so you've heard us talk about plush rockers, the theaters installing recliners. We've got at least one test case for a full recliner. We've got test cases for an in-between strategy, a partial recliner, and the early returns are positive. In particular, with the plush rockers, where we've got less feet loss when we installed those with our partners. It does appear to be a product that clients like and we're starting to see some good results from those. And so we're going to continue to push this along with our exhibitor partners. Maybe that's different solutions in different markets, but we are committed to do is spending time with our exhibitors, helping them prioritize our theaters and making sure that we're delivering the product that clients are interested in. We're not in a position now where share any data. It's just too early in the process.

Okay. Fair. And then my second question is on China. I'm just trying to better understand some of the challenges that may have contributed to the slowdown in the Chinese box office. Specifically, I think there's been a fairly rapid growth in streaming subscribers. And I was wondering if you could maybe just comment on that. And also, could you tell us, are there any differences in the theatrical to home video window in China versus the North American markets?

Michael, as I said, I was just over there, and streaming is gaining momentum there. But I don't think that has much to do with theatrical. There hasn't been any change in windows there as a result of streaming. Streaming is mostly different products, television shows, lower-cost things, it's a lower-cost alternative, and it's popular. But I actually met with streaming executives as well as movie studio executives, and I don't think that's playing into the factors over there. Greg, do you know their window structure? Their current window, I think, is similar to here, and there really isn't a move to change those windows at present.

Thanks, Michael. Before we go to the next question, before we get too far, we just noticed that I actually had a typo in my script and you'll see in the press release that adjusted EBITDA margin was 37.9% and in the script, I said 31.9%, but that was just a mistake in the script. So 37.9% is the number you'll see the press release. Thank you.

And we'll go next to Stan Meyers with Piper Jaffray.

So Rich and Greg, I guess, first, I wanted to spend a little more time on China and those new builds you guys discussed earlier in the call. Maybe you can comment on where those are, whether or not those are full JVs or hybrids that's playing in, and then I have a follow-up.

It's a mix, 2/3 JV, 1/3 sales, I believe, is generally.

Yes, I guess. And then on -- I think Dolby, on their call, they talked about having commitments for 325 screens around the globe, and they're sort of growing their platform. Are you seeing them competing with some of your business? Or they're still not really impacting you? If you can update us on what you're seeing with Dolby.

I'd say we don't see them as a factor in our global competition in China, which you just asked about. They have 16 rolled out compared to our 400. And their PSAs in China are roughly half of ours. And many times we're in the same locations in the U.S., I think they have around 60 rolled out, all with AMC. And frankly, the places where they have been most successful are where we have zones we can't go into or one with AMC, which are using a better-best strategy, with us as the best.

And we'll go next to Steven Frankel with Doherty and Company.

Greg, you talked about some changes in strategy, screen sharing, shorter windows. Kind of what should we think of as the new normal in indexing domestically?

I wouldn't focus necessarily on a norm because the titles and the strength of the slate at different times of the year is contingent on each individual title. So I don't think you can compare, for instance, Dunkirk to an animation title. It's apples and oranges. What you can assume is that we're going to have a lot more one-week titles, and you can also assume that the pillar titles, which use our technology and that have an important filmmaker behind them, obviously, none more important than, for instance, Chris Nolan, will have a longer period of play. So screen sharing also makes it more difficult to have a norm because you could have an animated title playing for 3 shows and you could have a live action title playing for 2 shows, and it has an impact, obviously, on the indexing. So I think indexing is -- obviously, we're going to talk about when it's 23%, but in certain cases, we're not going to talk about it because it's not really applicable. I also think it's important to talk about something like Beauty And The Beast, which is a movie that is not your traditional IMAX film, but yet, thankfully, we played it. And 2 years ago, we wouldn't have played it and I don't have in front of me what the number is that we did, but it was a very significant number. And here it is. I'm going to list it. $42.8 million. That's a movie we never would have played 2 years ago. So while that's $42.8 million and it's $1 billion global title, it nevertheless, for what it means for us, and particularly at the time of the year, it's incredibly important. So we have to be flexible. We have to adjust our strategy based on the marketplace. The marketplace is also, particularly in China, as we've talked about, having movies that come out on the opening weekend, 90% of the box office is one movie, and it's offered on 25,000 or 30,000 screens. And we have to be very opportunistic about how we schedule, and it's going to make things a lot more fluid. But that's just how the system works right now and that's how we're going to participate.

Okay. And then either for you or Rich. Any update on Wanda? Given all the things that have been in the press, might that slow down the install pace there?

When you said there, you mean in China?

In China, with Wanda specifically, given the max nations with the government in the parent corp?

I don't think so. When Patrick sort of confirmed our guidance for $160 million this year, that included many more Wandas that were required under the agreement and they are significantly ahead of their rollout. And what was announced with Wanda, which was potential restrictions on capital for overseas acquisitions, had nothing to do with China. And on my recent trip, I met with the CEO of the Cinema Line Company and there was no discussion of slowing down the rollout.

Okay. And then one last one for Patrick. How should we think about the impact of the 70-millimeter prints of Dunkirk on DMR COGS for Q3?

So those prints are doing remarkably good business. We have a partnership with Warner Bros. on it, it's not material enough to certainly talk about the economics of it. But if anyone wants to go try and see the movie at a 70 millimeter location this weekend and goes online, you'll know what I'm talking about. It's hard to get a seat. That doesn't happen all that often when we do the 70-millimeter runs these days on titles like Star Wars titles, et cetera, it really helps. Obviously, Dunkirk is one of those titles. I also think as we go into future programming on how we handle movies, you'll see with IMAX DNA, the prologue that Chris Nolan always attaches to one of his movies has a huge halo effect on that release feature -- in the future, 6 months later. So the 70-millimeter runs have an extra cost that go with them, but they more than make up for it in the incremental box office and the branding effect that it has.

Yes, but from a P&L point of view. To be specific, from a P&L point of view, it will be profitable for us.

This one is a positive for sure, because it's doing so well on IMAX film.

And again, just to confirm, it was included in the guidance for the full year around DMR COGS that you gave out that was fully baked in there?

Yes.

And we'll go next to Jim Goss with Barrington Research.

One more thing on Dunkirk, as well as it's doing, 4 to 6 weeks is a lot to ask for any film. And I'm wondering if you have any contingency plans? Or do you not think it's going to be really necessary because you think it will have legs of that nature?

That's a good question. I think if you are talking about something in the spring, it would be -- we'd have to be more open-minded to it. We're always open-minded to it but if you can find a big huge title in August, you're going to have a lot of exhibitors being really, really happy. August is not the month in the year, particularly as you get towards the second half of it that big tentpole blockbuster movies are release. That's part of the reason why we have Inhumans coming out on September 1. This is a thing that happens 8, 10, 12 weeks a year where the studios just simply aren't in the habit of releasing big tentpole blockbuster movies. So the release date of Dunkirk is a really, really good release date for us, given the fact that it obviously is going to have legs, as we're seeing. And there's always options and opportunities and bring backs and even some new films. But right now, we're just going to enjoy the success of how we're performing with the movie and how the movie is doing altogether. And we can always adjust if we need to, but at this point, it doesn't appear like that's in the foreseeable future or the short-term future, at least.

All right. Great. And just a couple of small things. On the plush recliner rockers or whatever type of reseating you do, what sort of cost-sharing relationship with you have with your exhibitor partners?

Our exhibitor partners pay for the reseating.

They'll do that, okay. And is VR the only ongoing diversification at this stage?

No. We're releasing Inhumans on September 1, which is our new content diversification. There are some lesser -- less costly things still floating around like IMAX Home Theater, but they're fairly scaled down at this point.

And we'll go next to Aravinda Galappatthige with Canaccord Genuity.

Just a couple of for me, actually. Number one, with respect to the China PSAs, I mean, we've been seeing some declines for a few quarters now. I was wondering if you can kind of help us isolate the seasoning factor. I mean, I think in the prepared statements, you indicated that about 28% of the screens are 1 year or younger than that. If you kind of remove that, if you think of the more aged screens, are you seeing more parity on the PSAs there? Just to kind of help us quantify the impact of that on China PSAs. And secondly, I guess for Patrick, with respect to the investment in film, that line item obviously kind of ballooned in Q2 to about $16 million, well ahead of what the normal run rate is. I suspect it had to do with the payment -- the initial payments for the original content. I was wondering if you can kind of confirm that and maybe talk about whether there's additional payments coming in Q3 and Q4.

Aravinda, I don't have the statistic in front of me, but it's material. That it's usually roughly 2 years in that the theater performs at seasoning level. I think it's something like it opens at about 60% of the number to where it gets to over that period of time. Haven't done the math overall, but it's quite material.

Could you repeat the second question? I want to make sure I followed it.

So the investment in TV and film. So for the 6 months, I think it's about $19 million, $19.6 million investments on assets, this is. So yes, it looks like there's a big $16 million lump sum in there. I was wondering if there was a payment to ABC from you guys and that caused that line item to increase.

Yes, so we've been funding our co-funding agreement, we've been funding our share of it. That commenced to the second quarter. We've got a bit more to go in the third quarter. And obviously, we launched during the third quarter. So you'll see it all in our financial statements next time around.

Okay. So Q2 would be a peak? Or would Q3 be a little bit higher as well?

No. We've still got -- what showed up in Q2 is sort of halfway there. And we talked about this being in the aggregate sort of the mid-30s type investment. And so some of that's marketing, obviously. So that will flow through the P&L. A little bit of that P&L impact started in Q2, almost the vast majority of it will be in Q3 as you would expect. So we've still got a ways to go.

And we'll go next to Mike Hickey with Benchmark.

Two for me. Greg, I was hoping you could update us on your expectations for Inhumans. It's -- it looks like the buzz is maybe a little bit light here. I'm curious as you sort of had any change in what you're expecting from that film's release. And secondly, China thinking about the blackout period this year. You can remind us how that compares to prior year, and if you think that's negative for Q3 performance.

So first of all, on Inhumans, it's -- I'm not going to give a prediction, but it's -- you said it's a movie. It's not a movie. It's a television program that we've made into a theatrical IMAX release. It's shot with our cameras. It obviously is bigger than most things that you see on television. We're excited about it. Comic-Con, we had the release of the new trailer that seemed to go over very well. Got a tremendous amount of attention. And we're -- it's -- I think it's a mistake to make a prediction. It's not something that I do on movies and it's also not something that I'm going to do in this case. But it's certainly garnering a lot of attention, and people know about it. And I think there's a lot of very exciting things about it. And we'll find out in about 6 weeks. So that's on Inhumans. As it relates to China, the blackout period, which is technically not a blackout period, is probably a week longer this time than usual, maybe even 10 days longer. It's, again, for all intents and purposes, started right after Despicable Me 3, which was the last Hollywood movie to be released and the next Hollywood movie is not until August 25. So it's a good 6, 7-week period. So it's a long period of time. We have more movies this year than we had last year. And the key is, do one of those movies pop? And you just never know. No one would have predicted some of the movies that popped in 2015. And we're just, again, you never know in that market. We're just going to have to see. But we have lots of variety, different sorts of films, and they all start -- they started with WU KONG last week. And they will continue this coming week with a new one. And as I mentioned, 2 on the fourth, 2 on the 11th and probably one on the 18th and the 25th.

And we'll go next to Eric Wold with B. Riley.

I've just got one question, but it's got 4 parts to it, but all on the same thing. So kind of I wanted to dive in a little bit on your plans for the retrofit theaters in China. What is the earliest we could see these potentially open? Would you allow any of your partners of theaters currently in backlog to ship those commitments from a new build to a retrofit? Would be -- the thought been that these might have been some locations that were maybe passed up originally by your exhibitor partners as maybe not optimal that have actually performed better than expected? And then lastly, what are your maybe preliminary thoughts on how Chinese consumers may react, given that there's a little bit of backlash with kind of IMAX light as it was deemed years ago here in the U.S.?

So Eric, to the extent I want to save my voice, I'll make the answers relatively short. I think, yes, it will happen soon; Two, yes, I think we could shift from the existing backlog in new builds to retrofits; Three, I think they can perform well, and I'm not that -- and I think one reason for doing it is because it's predictable rather than greenfield; and four, I think they'll react well because the brand is very positive and even when we say retrofits, they tend to be fairly large screens because they were recently built. They're not like the smaller screens in some North America cities.

Thanks, Eric.

Just to conclude, I want to just go back to the beginning theme, which Rob read for me, which is that, I have now been at IMAX 23 years. And we've had lots of periods of time where things haven't performed to expectations films, and we've had lots of tremendous successes, including Interstellar, Avatar, Gravity, et cetera. And it's no easier to be CEO than it is to be an investor. But having done it, I've seen the ups and downs over a long period of time, and I don't think there's anything fundamentally different this time. As Greg said, there are small things we could do to make the proposition better. We brought in a new CMO to help market it better, but we remain extremely positive about where IMAX is going, especially in light of the network growth. Thank you.

Thank you, everyone. That does conclude today's conference. We thank you for your participation.