Imax Corp (IMAX) 2018 Q1 法說會逐字稿

Good day, and welcome to the IMAX First Quarter 2018 Earnings Conference Call. (Operator Instructions)

As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Michael Mougias, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Alicia. Good morning, and thank you for joining us on today's first quarter 2018 earnings conference call. Joining me today is our CEO, Rich Gelfond; our CFO, Patrick McClymont; and our Head of Entertainment, Greg Foster, who each have prepared remarks and will be available for Q&A. Also joining us is Rob Lister, Chief Legal Officer. 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 earnings press release and the slide presentation accompanying today's call have been posted to the Investor Relations section of our website. At the conclusion of this call, our historical Excel model and guidance information will be posted to the website as well.

I'd 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 and 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 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. With that, let me now turn the call over to Rich Gelfond.

Thanks, Mike, and good morning, everyone. It's a good time to be in the IMAX business. Our first quarter results were strong, from both the financial and strategic standpoint. Our modified programming strategy and stronger cost control efforts helped deliver adjusted EPS of $0.21 a share, more than threefold the year-ago period and adjusted EBITDA growth of 70% to over $31 million. Adjusted EBITDA margin reached 41.3%, up over 1,100 basis points compared to Q1 last year. In addition to the initiatives we implemented last year, we believe our recent performance also reflects IMAX's growing value proposition to content creators and moviegoers alike. Remember, IMAX is not an exhibitor. We are in the blockbuster business. We provide studios worldwide with a platform to launch their tentpole franchises, transforming their films into an event for moviegoers around the world.

As content creators increasingly favor big event films over smaller ones, and as customers come to expect more differentiated experiences, we believe IMAX remains well positioned to benefit from these trends.

Furthermore, the launch of IMAX with Laser, which was bolstered by an 87-system agreement with AMC and a 55-system agreement with Cineworld Regal further reinforces the IMAX value proposition and our ability to deliver the most differentiated blockbuster experiences. This year, we are prioritizing 3 strategic initiatives; one, continue to grow operating leverage and earnings; two, increase the differentiation of the IMAX customer experience relative to other cinema options; and lastly, three, reinforce the strength of our brand amongst worldwide moviegoers.

With a laser focus on our core business coupled with the introduction of new cutting-edge technology and a reinvigorated marketing strategy, we believe we are well positioned to create value for our partners and shareholders.

On the operating leverage front, we've seen real progress in terms of our revenue and cost initiatives. Late last year, we refined our programming strategy, which included playing more 2D versions of films domestically and more local language blockbusters in China, and we are encouraged by the early result at the box office.

Our cost control efforts also helped drive increased operating leverage last quarter. For example, gross profit of $51 million resulted in total gross margin of roughly 60%, a 750-basis point increase over the year-ago period. During the quarter, we also repurchased approximately $13.5 million of stock. Overall, our capital allocation strategy this year is concentrated on growing our footprint of theaters and opportunistically returning excess capital to shareholders through share buybacks. Another strategic priority is aimed at widening the gap between the IMAX experience and other theatrical options. Looking back as the industry migrated from film to digital projection, the differentiation of the IMAX experience, though still significant, slightly narrowed. We believe last week's launch of IMAX with Laser, our cutting-edge laser projection system, targeted at commercial multiplex theaters will once again widen that gap. It's particularly important considering the industry's increasing emphasis on blockbuster content. We believe IMAX with Laser will provide several strategic and financial benefits. First and foremost, we believe the system provides the most immersive movie-going experience unique to what is available to consumers today. It delivers a noticeably sharper image with brighter whites, darker blacks and a broader, more vivid color gamut. This equips filmmakers with more creative flexibility enabling them to present more exotic colors in IMAX, which is particularly important amid the growing number of films shot directly with IMAX cameras. IMAX with Laser also appeal to moviegoers, who want to experience their favorite blockbuster in the boldest way possible.

On the financial side of the equation, we are able to develop our IMAX with Laser offering at a modest incremental cost to exhibitors to xenon. For example, we anticipate sale and hybrid deal to have a similar upfront margin profile in dollar terms to our existing xenon system. We also anticipate improved take rates and JVs compared to xenon. Perhaps, most importantly, laser provides the company with an opportunity to extend contract terms with our exhibitor partners locking in DMR and JV revenues for additional 10 to 13 years from when they're installed.

Over the past few months, we've hosted demonstrations to the new system with directors, studios, exhibitors and other key stakeholders, who've uniformly provided a fantastic feedback. Ultimately the best validator of its value proposition is the early response from our own exhibitor partners. Today, we have already signed agreements for over a 150 IMAX with Laser systems anchored by our recent deals with AMC and Regal. These agreements are significant for several reasons. First, they extend our contract terms for an additional 12 years from installation. Second, AMC and Regal will be upgrading the entire IMAX experience around their new laser systems incorporating not only our new projection technology, but also our new 12-channel immersive sound system, while also adding luxury seating, updating the IMAX entryways and redesigning the in-theater branding. These agreements validate the IMAX with Laser product and serve as a testament to our strong relationships with AMC and Cineworld Regal and their ongoing confidence in IMAX's value proposition.

Turning to our signings activity last quarter. We signed agreements for 45 new IMAX systems across several strategic markets, including China, The U.S., Japan and India. Looking at India for a moment, we believe this market is now an attractive growth opportunity for us. In fact, our recent activity has doubled our contracted theater count to 40 systems from 20, 12 months ago. As we pursue this growth, we also intend to remaster more Indian language films. This has the potential to capture not only more box office in India, but in other select markets as well such as the U.S. and China, where films like Padmaavat and Dangal have performed exceptionally well. Later this year, we are launching the blockbuster Bollywood film, Thugs of Hindostan, starring Aamir Khan, one of the biggest movie stars in the world. Another market opportunity is Saudi Arabia. Recently, our largest partner in the Middle East, VOX Cinemas, announced an agreement for our first commercial theater, which is located in Riyadh Park. In fact, last night VOX hosted a media screening of Avengers at the IMAX theater, which was well received. Additionally, AMC recently announced plans to open 100 theaters by 2030, and we are in discussions with AMC about locations in Saudi Arabia.

Overall, we believe our premium brand coupled with our existing relationships with exhibitors entering the market provides near-term opportunities to add IMAX screens in Saudi Arabia. So stay tuned.

Turning to China. We recently signed a 30-theater deal with our long-standing partner, JinYi. This agreement was unique in that it encompassed the combination of joint venture, hybrid and sales-type arrangements spanning Tier 1 to Tier 4 cities. Based on the projected box office of each location, we determine which arrangement afforded IMAX the most attractive risk reward profile. This type of agreement enhances our flexibility and is something we intend to do more of, particularly as we keep expanding in emerging markets.

Overall, our sustained signings momentum resulted in a quarter-to-quarter end backlog of 529 theaters, which does not include the 142 theaters we announced with AMC, Regal -- and Regal last week. As a result of our robust backlog, we anticipate strong installation activity for the next several years.

On that front, we installed 60 new IMAX theaters last quarter. In light of our recent signings activity and ongoing conversations with our exhibitor partners, we now anticipate installing roughly 180 theaters this year. This consists of roughly 155 new systems and 25 upgrades of existing systems to IMAX with Laser. The new install guidance is similar to the guidance we provided at this time last year, however, notably higher when you factor in the upgrades.

Another strategic initiative this year is to reinforce the strength of the IMAX brand through a refreshed marketing strategy. We believe a refined marketing effort will reinvigorate the brand and better educate consumers on the strong value proposition of the IMAX experience relative to other options. IMAX with Laser offers an ideal market opportunity to make this important distinction more tangible to moviegoers. We intend to officially launch our new global brand campaign in the next couple of months. Spearheading the campaign alongside our CMO is one of the most well-recognized agencies in the world, TBWA\Chiat\Day, which has created innovative campaigns over the years for a host of companies including Apple, Gatorade and Uniqlo. We will provide more update as we get closer to the unveil.

I would also like to note our improved performance in China recently. As I mentioned, we achieved box office growth of 27% last quarter, led by our record Chinese New Year performance, which was up 75% compared to the same holiday period a year ago. The strong results were primarily due to our flexible strategy of releasing 3 titles simultaneously compared to just 1 during the holiday last year. We intend to devote significant time and attention this year to improving our box office performance in China. In fact, we recently assembled a group of leaders across the company to perform an in-depth on the ground analysis of our China business. As part of this, we worked with our regional stakeholders, including exhibitors, studios, ticketing platforms and IMAX fans to better understand the dynamics of the various Chinese cities where IMAX has a presence as well as local consumer preferences. We expect these learnings coupled with the strategic initiatives implemented in late 2017 will allow us to better correlate our marketing and content offerings with consumer preferences in China, with the ultimate goal of driving more box office.

And lastly, I'm pleased to announce that our box office momentum from the first quarter has carried into the early part of the second quarter. For example, Ready Player One exceeded our expectations, particularly in China where IMAX grossed roughly $20 million. This past weekend, we launched Avengers: Infinity War, which generated over $41 million on the global IMAX network. While these figures do not include China, which opens the film next week, I'm pleased to note that our presales in China are the strongest in the history of IMAX at roughly $4 million. Avengers also established a major milestone for IMAX. It was the first commercial release to be filmed entirely with IMAX cameras. It was also the first film to include some of our new marketing materials. For those of you who did not see our marketing materials, the third slide of our earnings presentation includes a look at how we incorporated IMAX marketing into the film's broader IP. We believe that working with our studio partners to better implement IMAX DNA into their film marketing will be mutually beneficial. To sum things up, there are a lot of exciting developments underway, and we are optimistic that these developments when taken collectively should increase the earnings power of our business. In addition, key initiatives such as the launch of IMAX with Laser and our refined marketing approach should further increase the IMAX value proposition in the eyes of directors, studios, exhibitors and customers alike.

With that, I'll turn the call over to Greg.

Thanks, Rich, and good morning, everyone. We delivered global box office of $247 million last quarter, up 16% compared to the prior year period. Some specific markets outside of the U.S. and China that are worth highlighting include India, which was up 144%; France, which was up 86%; and South Korea, which was up 69% compared to the same period last year. Overall, our results last quarter highlight IMAX's consumer value proposition for blockbuster content worldwide. This is particularly encouraging when you consider filmmakers and studios worldwide are increasingly focusing on tentpole type films. Another area I'd like to point out is our recent indexing, particularly in North America. Since focusing on playing more 2D versions of films domestically, we've seen an improvement in our average indexing. For example, our average indexing in the second half of 2017 was roughly 13%, up from 10% in the first half. And last quarter, we saw strong domestic opening weekend indexing on titles, including Black Panther, which indexed 10%; Ready Player One, which achieved 12%; and Pacific Rim 2, which achieved 13%. It's also worth noting that we increased our average market share, notwithstanding the proliferation of PLFs. For example, in North America, the number of PLF theaters has grown almost 80% since 2014, while the IMAX screen count has grown 10%. Moreover, on a trailing 12-month basis, we've grown domestic box office 11% compared to an exhibitor industry decline of 4%. We believe these metrics highlight the growing significance of our differentiated format for blockbuster films and reiterate that customers continue to seek IMAX for tentpole titles.

Another factor that we believe has driven stronger indexing is IMAX DNA. We continue to add more titles to the slate that were filmed with IMAX cameras or contain our exclusive aspect ratio. This is important to moviegoers, who want to see their favorite films the way the filmmaker intended. Overall, we think the combination of IMAX becoming more involved in the initial stages of film production, coupled with shorter IMAX windows, more local language titles and more 2D versions of films as opposed to 3D should enable us to capitalize on the exciting slate ahead.

And before I get into some of the exciting titles we have coming up, a very quick personal note. Rich and I began having preliminary discussions about my future role within IMAX last summer. Rich asked that we table those discussions until later this year. We haven't yet resumed those talks, and therefore, as you may have seen in our proxy filing last night, both of us felt it made sense for me not to stand for Board reelection this year.

Now turning to some of the exciting films ahead. First, given the recent changes in release schedule, we will now be able to play Deadpool 2 globally for 1 week between Disney's Avengers and Han Solo, which is terrific. Last -- sorry, later next month, Universal's Jurassic World: Fallen Kingdom will make its way to IMAX screens. This film also received an early release date in China, where it will come out 1 week prior to the North American market. In the third quarter, the third installment of China's Detective Dee will hit screens, along with a few additional local language titles that we intend to announce in the coming months for the July, August period. In October, Damien Chazelle's First Man, which was partially filmed with IMAX cameras is being released. It stars Ryan Gosling and tells the story of Neil Armstrong, which we're already very excited about.

On the topic of cameras and aspect ratio, some additional titles over the next 18 months to feature our exclusive DNA include Venom, Wonder Woman 2, Avengers 4 and The Lion King. It's also worth mentioning that sequences of The Lion King and First Man were shown at the industry event CinemaCon last week, and fan reactions were positive.

And lastly, we're pleased to announce that we'll be releasing Universal's How To Train Your Dragon 3 this March. Overall, we remain encouraged by the continued benefits we've seen from our refined programming strategy, and we believe the combination of more differentiated technology, stronger marketing efforts and a promising film slate strategically position the company for the years ahead. With that, I will turn the call over to Patrick.

Thank you, Greg, and good morning, everyone. 2018 is off to a strong start. During the first quarter, we saw robust signings and installation activity. We achieved healthy box office growth of 16%, and we benefited from increased operating leverage as a direct result of our efforts to reduce cost and spend less on new businesses. Beginning with network growth, which is detailed on Slide 4 of our earnings presentation, we signed agreements for 45 new theaters last quarter. Our resulting backlog at quarter end was 524 theaters consisting of 178 sales-type arrangements, 235 full JVs and 116 hybrids.

Keep in mind, these figures do not reflect the 142 systems we announced last week with AMC and Regal, which included upgrades, conversions of backlog theaters from xenon to laser and new systems. Including those new systems, backlog is currently at 550.

Turning to installations. We installed 16 new theaters last quarter, ahead of our Q1 guidance of 11. Broken out by dealer type, our installations consisted of 13 sales-type and 3 full JV theaters.

Before I dive into our financial results and the strong start we are seeing on the P&L, I'd like to remind everyone that last quarter was the first reporting period reflecting FASB's new revenue recognition standard for contracts with variable considerations. We've illustrated these changes for you on Slide 5. The overall impact to IMAX is minimal with most notable change affecting our IMAX systems' contingent rent line within the network business segment. This line previously reflected recurring revenue from certain sales-type theaters that exceeded annual minimum box office thresholds. As a result of the recent FASB changes, we will no longer recognize ongoing revenue on this line. Instead, we are required to present value all the estimated variable revenue over the life of the sales agreement and book this revenue upfront upon installation.

This revenue will be reflected in our sales and sales-type lease line. Effectively, the average sales price we recognized for sales-type theaters will increase marginally going forward offsetting the removal of the contingent rent revenue. In the first quarter, these changes were accretive to our adjusted earnings per share by less than $0.01 per share.

I would now like to turn to our financial results, beginning on Slide 6.

Our performance last quarter reflected the continued benefits from the revenue and cost initiatives we implemented last year. Total revenue for the quarter came in at $85 million, an increase of 24% to Q1 last year. Total gross profit of $50.7 million is up 42% over Q1 last year, resulting in total gross margin of 60%, a 750-basis point increase. GAAP net income of $8.5 million or $0.13 per share compares to $75,000 in Q1 last year. Adjusted net income for the quarter was $13.4 million or $0.21 per share. This compares to adjusted net income of $3.9 million or $0.06 per share in the first quarter of 2017.

Looking at some of our revenue segments. Global box office of $247 million resulted in network business revenues of $44.9 million, up 14% compared to the same period last year. Remember, our network business revenue this year no longer reflects revenue from the contingent rent line. Theater sales and maintenance revenue came in at $35 million, up 50.6% compared to Q1 last year. The increase compared to last year primarily reflects the installation of 8 additional sales-type theaters in the most recent quarter.

From a margin standpoint, network business gross profit of $31.5 million resulted in gross margins of 70%, slightly below last year, partially related to the revenue recognition changes and increased DMR expenses associated with remastering of 10 additional films. JRSA revenue of $19.8 million resulted in a gross margin of 71%, up roughly 400 basis points compared to Q1 last year. Theater sales and maintenance gross profit of $20.5 million resulted in gross margins of 59%, well above the 45% we achieved in Q1 last year. The margin increase was largely the result of higher average revenue per theater compared to last year compared with our installed 1 low-margin upgrade in Q1 of last year.

Total operating expenses, as defined by SG&A, excluding stock-based comp plus R&D came in at $27.3 million, down 9% year-over-year. This primarily reflects reduced investment in new businesses as well as certain marketing activities that will now happen later in the year than originally anticipated. Our operating -- our resulting operating income of $17 million compares to the loss of $291,000 in Q1 last year. Our global tax rate last quarter was 27% and reflected several discrete tax charges.

For the full year, we continue to estimate an effective tax rate of roughly 24%. Adjusted EBITDA per credit facility attributable to common shareholders increased 70% to $31.4 million, up from $18.5 million in the same period last year.

Overall, last quarter's results demonstrate the inherent operating leverage in our business. We believe the progress we've made on the box office front, coupled with our ongoing cost control efforts, should be conducive to increase in the earnings part of our business in the future.

Before I provide updates on guidance, I'd like to take a moment to review the financial impact of IMAX with Laser. Beginning with costs, as Rich highlighted, we were able to produce our IMAX with Laser system at a modest incremental cost to xenon. Moreover, under our full JV agreements, we are depreciating the cost of equipment over 10 to 13 years. Thus, the incremental depreciation expense on an annual basis is nominal. We're also pleased to note that we anticipate upfront margin dollars associated with sales-type and hybrid theater installations of our new laser systems to be comparable to new xenon installations. And for full JV and hybrid JV theaters, we anticipate that IMAX with Laser will command higher take rates compared to that of xenon. Furthermore, we are optimistic for stronger box office generation in theaters upgraded to laser, which in many cases includes updated seating, portals and branding.

Turning to guidance. As Rich mentioned, we anticipate installing roughly 180 total systems this year. Of this, we expect roughly 155 new system installations. Broken out by deal type, we expect 55 STLs, 75 JVs and 25 hybrids. This is roughly in line with the guidance for 2017 we have provided on the Q1 call last year. We also anticipate upgrading roughly 25 JV theaters to IMAX with Laser this year. For the second quarter, we expect to install roughly 34 new theater systems, consisting of 9 STLs, 21 JVs and 4 hybrids.

With regards to new business, which primarily consists of our VR and Home initiatives, we now expect a pretax loss of $7 million to $8 million compared to our previous guidance of $8 million to $9 million. The reduction in new business spend reflects our scaling back of certain segments of our Home initiative as we do not see it producing adequate returns. We took a modest write-down of $420,000 in the quarter in connection with closing certain aspects of that business. The balance of our guidance is consistent with what we laid out on our Q4 call in February. A full breakdown of this guidance will be posted on our Investor Relations website at the conclusion of this call.

Overall, our focus this year is on improving the earnings part of our core business. We believe the launch of our exciting new IMAX with Laser experience, coupled with our refined marketing approach and continued emphasis on cost control, should enable us to generate more operating leverage and enhance the earnings power of our business going forward.

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

(Operator Instructions) We'll go first to Julia Yue of JPMorgan.

The IMAX with Laser agreements that you've announced included the sound systems, rockers, redesigned entryways and branding. Do you plan to sign all the new commercial laser deals with these features as well? Or will it be more dependent on the specific exhibitor? And then also given the broader role of rockers within the laser system, could you talk a bit about the ones that are already installed? And how they've been performing in terms of attendance and maybe the box office list?

So the answer, Julia, is it doesn't -- it's not a standard package and that will be a deal by deal negotiation, it just happened. With Regal and AMC, all of that was included, but we're going to separate out the pieces and the exhibitor can decide which ones they want. However, it's important to us that -- so what we call internally IMAX 3.0 be released that way. So we pushed for that result, and we're going to push for that result. But in certain areas of world where there are margin pressures, it will decouple the package. Your second thing is rockers. We put them in a number of locations around the world today -- trying to see if I had the number, about 30, and the preliminary results are encouraging. There is a pickup in box office attendance [when we receive].

We will go next to Eric Handler, MKM Partners.

Two questions for you. First, Patrick, with the commercial laser systems now out, is there any impact on the P&L on the R&D line? And how does that change anything for this year or next year? And then, secondly, for Greg, since you opened the door with sort of some vague commentary, are you looking to change your role within IMAX or what's -- what are you thinking there?

Sure. It's Patrick, Eric. The commercial laser project is pretty much what we anticipated in terms of the timing and the spend. So there's no change in the R&D guidance for 2018. And then for 2019, we'll talk about that, we'll figure it out internally over the course of this year and talk about it early next year, but you shouldn't expect any change to this year's R&D. We're right on schedule.

And, for me, it's a little bit of graduation in a way. I've been here for 18 years. And I think, this is a really good time to sort of step back and decide what's best to do, not only for me, but for the company. Rich and I are going to do this together. Rich, I don’t know if you have anything to add, but I love IMAX, and I'm sure there'll still be a role here in the IMAX family and we'll try and figure out what it is. But after 18 years, I think, it's time to sort of take a step and look at it.

I think, Greg said it all. We are completely -- we are both on the same page. We do think after doing much the same thing, although Greg has been a tremendous asset and his role has changed. We should just explore what it should be going forward.

We'll go next to Michael Ng of Goldman Sachs.

I just have one for Rich and then one for Patrick and one for Greg, if I could. Rich, could you just talk a little bit more about what you see as the long-term market opportunity for laser? I think for AMC that the current deal represents about 40% to 45% of their U.S. footprint. Is that a good proxy of where you see laser penetration going across your network now? And if you comment about any opportunities about laser in China that would be great.

Thanks, Michael. So I think that long-term laser is going to be the standard product for IMAX. If you recall, we had created a laser product for very large screens that we released several years ago. But that was really a temporary fix because there wasn't a digital solution for those large screens. And it didn't really have market wide potential because of its cost. We've now engineered a cost-effective laser system, which over time will likely replace all xenon theaters and become our standard product. In the short run, I think, especially for developing markets, we'll still offer our xenon product, but that will transition in different ways. And I think, over time, you'll see most of the network convert that way. The second part was...

(inaudible)

China. Under our deal with Wanda, once our commercial laser product was available, Wanda has agreed to take laser delivery in lieu of xenon delivery. So some of our installs in China this year will be laser -- IMAX with Laser. And the take rate increases on those theaters at the time they are installed.

Okay. Great. And then, Patrick, I was just wondering if you could talk a little bit about the cost outlook for the year. You guys did a good job managing costs down in the quarter. I think it would suggest that we see a little bit more of acceleration and cost growth in the back half or later in the year. Is that just the timing of marketing? Or is there something else in the mix that you're planning for?

So the way that we're thinking about it, Michael, is we did take down the new business cost by $1 million. So we know that, that's kind of locked in. The other costs. Some of them I know are timing and so marketing, for example, we will be ramping up, and I think we're going to pretty much end up where we anticipated. There is other costs and some of these show up in cost of goods sold, some of them show up in SG&A, where I think we made really good progress. I'm just not at this point, it is early in the year, willing to say we're going to bank all of that. But clearly, the goal is to keep the costs under control. And as we get deeper into the year and we've got more confidence that we're going to be able to bank them, we'll certainly let people know. It just seems a little bit early in the process right now.

Michael, we're also continuing to look for ways to further reduce cost. So for example, earlier in the year, we looked at our sales commission plan on a worldwide basis, and it's won't necessarily show up in a quarter, but over time, you'll see the reductions in that plan flow through our P&L.

That's very helpful. And then lastly, Greg, I was just wondering if you could comment on the domestic and global opening weekend indexing that we saw on Avengers. Were there any -- was there anything that would have, perhaps, negatively affected that? Just say anything that you could talk about would be great.

Yes. I actually thought our indexing was terrific, considering that the movie did $258 million. Remember, we're a single-screen company. So there is not 10 IMAX locations in a multiplex, there is 1. So we did remarkably well, I thought. I think we were $57,000 a screen domestically and over $50,000 internationally. So I feel very positive about how we did $41.5 million and if we had at China -- so Russia is opening this weekend, it wasn't a part of it. By the way, it's opening 4 days early in IMAX. China was not a part of it, that opens in about 11 days now. If that -- if those 2 countries had been a part of the opening, we almost for sure would've grossed north of $50 million, which would have been either right at or a record. So I actually feel quite good about how we did.

We'll go next to Eric Wold, B. Riley FBR.

Two questions, I guess. One, is there a way to kind of look at China? And can you talk about how some of the theaters installed maybe 1 or 2 or even longer ago are performing relative to the average? I'm trying to get a sense of kind of pulling out the recently installed screen, how everyone defined a recent installed screen, get a sense of kind of relative performance (inaudible) how the market is performing? And how it might kind of ramp up as some of these younger screens continue to season?

We don't have that data. Right now, we're at some cannot dig into it for you. However, you saw the 27.5 -- 27% increase in box office in the first quarter and that wasn't accounted for by all the new screens opening. So whether maturing was a part of it or whether the film programming where we do 2 or 3 films at a time was part of it or I only briefly mentioned on my comments about China earlier. We're starting to do more in the marketing area with some of the ticketing platform, some of the online. 85% of the tickets in China are bought online and that's a place where we were very active and then playing around with it. In a little bit, we had sort of results that are too incredible to even talk about. It's about a 25% return on our targeted audience, which we're never going to keep up. But we made a lot of progress on theater performance, and I think we'll continue we have a way to go there, but I don't have the breakup the way you want it.

Okay. Fair enough. And then on the 155 new screens being installed -- or new systems being installed this year, what is the general breakdown by region? Or do you have it kind of by existing locations versus new builds?

With China continues to be the biggest market for new builds, so that's a bit north of 100 and then we've got -- the balance of it is mostly rest of world and then a limited number here domestically. So it's very consistent with our pattern over the last couple of years.

Okay, then final question, Patrick, around the laser, so just to make sure I understand. So you come in and install a new laser system, a similar install cost for xenon is somewhere in the mid-hundred thousand dollars range. But given that, all the development cost, including Kodak patent acquisition are kind of already in the numbers being advertised. So that's really the only kind of incremental cost. The couple of hundred basis point increase in take rates on your side, that's going to have a fairly meaningful improvement in margins even if you assume the box office is unchanged for these lasers installed, which you would hope it actually does increase.

Yes. As Rich said, the -- it's comparable, but it's a modest premium to the cost of a xenon system, and so there will be incremental depreciation that will somewhat offset the premium will have on the take rates. The way we look at this is, it's a product that works for our exhibitor partners from a cost standpoint. It's a premium product where we're going to get better terms. And then most importantly, we and our exhibitor partners believe that this is going to drive incremental box office. This will be the best product in the marketplace.

Especially, Eric, when you package it with the enhanced auditorium, better sound system, upgraded seats, portals, I think it'll be surprising if you can see a lift, especially given my answer to a previous question was we've seen a lift where we've done some of that without the laser.

We'll go next to Steven Frankel of Dougherty.

Patrick, could you talk about what efforts are ongoing to pull more costs out of the DMR process? I know, at one point, you were working on electronic distribution, for example.

Yes. As we talked about on these calls before, the DMR process is a combination of technology and human value add. It's evolved over the last 10-plus years. What we're doing now is we're looking at -- and it's a complicated process that manages the asset from the moment we get it from the studio until it shows up on the screen. Last year, we spent time looking at some of the big workflows within that and introducing new technology-based solutions that have created some process efficiencies. This year, we're spending a lot of time looking at the rendering component of it and trying to come up with ways to create even more efficiencies to take costs down. But this is a long-term project. We're not going to have in 1 particular quarter show a big change because it is such an important process. And importantly, it really matters to our filmmaking partners. They come in and they collaborate with us. So we have to design something that gives them the flexibility that they need, gives them the user experience. So it's a long-term process, we've already made meaningful progress, more to come, but I think it'll be slow in showing up the numbers.

Okay, and for Greg. In China, you talked about a lot of these changes you're making on the big holiday weekend. And in the day-to-day business, is there anything you can do to cater better to the Tier 3s and Tier 4s?

I think, it's flexibility of programming. Having as we learned over Chinese New Year, and it's not just in the New Year. Having more than 1 option is very important because a Tier 4 or 5 city is a completely different universe than a Tier 1 or 2 city. It's one of the things that the task force that went to China confirmed from their point of view, too. It's -- they might as well be completely different countries. By the way, it's no difference in the various provinces in India as well. So that's what we're looking for, and that's why being able to do more movies at once is a very critical element of our strategy, and we'll continue to be the case in China and others.

And a quick follow-up to that, maybe an update on the China Film Fund.

I think we're -- we just recently closed it. There were a lot of approvals required, Steve, and in the last couple of months. And I think, we're looking at a number of opportunities. The total amount is about 100, I think. And we're looking to make 5 to 10-ish investments in 2 to 3 films a year and leverage our position as providing our technology and releasing the film into attractive returns.

And given the political situation, I assume the renegotiation around take rates for the industry is indefinitely stalled?

I wouldn't say indefinitely. I think there have been even recent negotiations, but obviously, it's not going to be accelerated until lot of issues are dealt with. I should add people have asked about the impact of our -- the trade issues on our Chinese subsidiary, but I'd like to remind everyone that's why it is a Chinese subsidiary. So it's not an American company. And also IMAX, to remind everyone, is a Canadian company. So we don't really see any backlash coming from that.

We'll go next to Aravinda Galappatthige from Canaccord.

Just touch on some of the potential variations to the deal structure that was introduced with JinYi deal that, Rich, you alluded to in your prepared remarks. Sort of the flexibility in that deal structure that we saw, should we kind of look to see that sort of structure installed into, perhaps, the backlog and maybe some revisions to sort of the existing contracts that are out there and obviously, going forward as well?

Since we had our last call, we've been meeting with our clients as we mentioned and the backlog remains completely solid. There's no changes to it. So could it happen in certain circumstances? I never rule it out. But I think, we're comfortable with the way our backlog is now.

Okay. Great. That's helpful. And then with respect to -- is a question for Greg. On the second half slate, obviously, we are in -- the Q2 slate looks extremely rich and obviously, started off well. Based on discussion on the second half slate sort of being a little bit mixed, particularly Q4, which is a seasonally important period. I wanted to get your thoughts on this slate and potentially the ability to kind of strengthen that with local language titles?

So we'll definitely have an abundance of local language titles in December in China. And as Rich pointed out, the Indian title Thugs of Hindostan in October for Diwali. Last week at CinemaCon, I think, everyone, felt way more positive after looking at a lot of the footage from the titles. In the second half of the year, there is definitely more of a frontload, there is no doubt about it. We all know that. But at the same time, there were some nice surprises at CinemaCon. Certainly, First Man was extremely well received. A Star Is Born was extremely well received. And I think that there are many, many more. I could go through a lot more, but I'm not going to do that. But I hear your point, but I think that you have to look at it as it sort of smoothes its way out over the course of the year. And while the first half is going to be incredible, the second half is going to be just fine, I think.

We'll go next to Mike Hickey, Benchmark Company.

I didn't hear much on VR. Just curious if could you update us on how your VR centers are performing and maybe how we should think about the segments contribution, I guess, in the medium term?

As you know, last year, we launched 7 VR pilot centers underlining the word, pilot. Our strategy was to open test sites and explore whether VR was; a, good consumer proposition and, b, provide the economics where we should invest more resources and roll it out on a broader scale. I think the consumer reaction was extremely positive, but the numbers just weren't there. And of the 7 centers that are out there today, one has top line numbers that would meet our parameters. The other 6 don't. So we decided to test different things in them, different models of payment, do you package them, do you do one at a time, how to market them. We're not investing in additional pilots at this time. The strategy is kind of to stay close to the hoop. We like the business. We like our position in the business, but we don't think the economics are attractive enough at this time to warrant additional investment.

And I guess, just a real quick on -- back to the slate, curious of your perspective during the blackout period in the China (inaudible) August what you're seeing. From a film perspective, I guess, there is always the challenge, I suppose, to pick the right film I think adjusted your model to have several films. But if you're getting any indication of, perhaps, where the strength will be and probably if you are working on an easy comp, but just your thoughts will be appreciated.

So for sure Detective Dee 3, which comes out, I believe, July 27, is the date. There's also a title called Dying To Survive that our team has seen that we have big hopes for. And there are -- one of the things that we do is instead of just picking movies based on titles, we look at them. And our group is in Beijing, is looking at many of them, actually looked at some in Tsingtao last week, and they're looking at more of them this week. So we're going to make informed decisions, whereas in the past we would base them purely on the title and the company. Now we have the opportunity to actually look at the titles, and we will make our decisions based on that. But there is always an abundance of local language film, as you know, from basically July 10 until the middle of August. And you can be sure that, that will pick when in doubt more rather than fewer to give ourselves the hedge.

We'll go next to Jim Goss of Barrington Research.

Following up on Mike's question a little bit. Is there any chance that the multiple release approach you've used in China provide a potential means to at least partly access the dark period with some of the American films to the extent that you might do more of the Chinese language films in periods you would otherwise use some of the Hollywood product?

Well, I think, Jim, you have to separate it out. The multiple releases mean in a non-blackout period. You might be able to supplement Hollywood films with local language films because definitionally both are allowed in. During a blackout period, no international content is allowed in. So no, you couldn't mix Hollywood films during a blackout period.

No. I just was wondering if that relent and the blackout period at all, but apparently not. The other issue, you clearly overindexed with blockbuster content, but you've also likely underindexed in the smaller periods. How do you think it's acceptable to you to balance this out over time? Like, you should, I assume you feel you should be able to deliver some increment over the rate of growth of the domestic and international from product as a whole? What would be your expectations or aspirations?

Jim, if you look at the last several quarters, we've had an extreme divergence. The box office for all movies has been down. And the box office for IMAX has been up. When you look at blockbusters specifically, more studios are doing blockbuster, content -- the mid-level movies are less and less and blockbusters are going more and more. If you look at the results we reported today and look at Avengers over the weekend and look what's coming up, Deadpool, Jurassic World, Solo, that's where the world is going. And if you look at 7 movies in any given year will be 75%, 80% of our box office. So yes, we can supplement a little bit by shorter runs, different studios, alternative content, but the name of the game for us is blockbusters. And I think, we're sitting in the right spot in the ecosystem and that's what we're going to focus on.

Okay. One last thing. Is there any seasonal timing of installations and variability by geography I want to point as you to gotten a larger number of installed?

The pattern is going to be the same this year as it has been historically, which is really ramps up in the fourth quarter and that's pretty consistent around the world.

That does conclude the Q&A portion of the call. I would now like to turn the call over to Rich Gelfond for closing remarks.

Thank you. So just to put it pretty briefly, this is a quarter where we checked every box that we possibly could, cost control check, box office China, differentiation check, top line, bottom line check. I don't want anybody to confuse us with getting comfortable. But I think every possible way we could have moved IMAX forward in the quarter financially and strategically we did. And I think it's just the beginning, we've got a lot of great film slate which we talked about. We've got China, where I think we can still make more improvements. And we've got our marketing launched. So I'm feeling very good about the business. Thank you all for joining.

That does conclude our conference for today. We thank you for your participation. You may now disconnect.