Imax Corp (IMAX) 2020 Q3 法說會逐字稿

Good day and welcome to the IMAX Corporation Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded.

At this time, I would now like to turn the conference over to Mr. Brett Harriss. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us on today's third quarter earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; and Patrick McClymont, Chief Financial Officer. Megan Colligan, President, IMAX Entertainment; and Rob Lister, Chief Legal Officer, are also joining us today.

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 third quarter earnings press release and the slide presentation have been posted on our Investor Relations section of our website. At the conclusion of this call, our historical excel model 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 in that they pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.

During today's call, references may be made to certain non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures as well as reconciliations to non-GAAP financial measures, including 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 Mr. Rich Gelfond. Rich?

Thanks, Brett, and good morning, everyone. Thank you all for joining us today. The IMAX global network gives us a unique window on the world in these unprecedented times. Despite the continued challenges the pandemic presents for Hollywood in the movie industry, we're seeing a strong rebound in many markets around the globe, with Asia, in particular, exceeding our best expectations.

Thanks to the resurgent Asian box office, particularly in China and Japan, as well as continued growth in our theater network and strong cost management, IMAX continues to make significant cash flow improvement and stabilize its strong financial position. We believe we remain among the best positioned companies in the industry to manage through this situation. We're the only geographically diversified global platform for theatrical blockbuster entertainment. Our financial position gives us years of runway to manage through the current downturn. And our flexible premium model makes IMAX uniquely suited to thrive as the pandemic accelerates the evolution of the theatrical business.

In the U.S., many industry observers continue to ask, will audiences return to theaters after the pandemic? By virtue of our global network, we at IMAX already know the answer, and it is a resounding yes. We are seeing fans eagerly returning to the movies where theaters are open, the virus is under control and audience is still safe.

Today, I'd like to discuss our success in Asia since its theaters have reopened and the positive signs we're seeing in the market, an update on our strong financial position, and finally, the long-term impact of COVID on the exhibition industry, particularly in North America, and why we believe IMAX is largely insulated and perhaps even likely to benefit from many of the disruptive trends.

First, let's take a look at China. Since reopening in late July, China has generated more than $1.7 billion of total box office. Average weekly grosses at the overall Chinese box office are approximately 70% of second half 2019 levels despite continued capacity limitations that were only recently raised to 75% and a lack of Hollywood film releases, which typically accounts for more than 1/3 of the overall Chinese box office.

More importantly, IMAX's average weekly box office since reopening has rebounded to approximately 95% of our average weekly box office in the second half of 2019. IMAX has recovered more quickly than the industry, not a surprise given we cater to the most passionate and engaged moviegoers.

In the context of a challenging global environment, the strong reopening highlights China's thriving film industry. China's 70,000 theaters, many in new, impressive complexes, have opened with big budget, local language productions that increasingly rival Hollywood's. IMAX has leaned into these long-term trends and built a strong brand in China. And by the numbers, we're leading the box office recovery in China.

Overall, IMAX has delivered $66 million at the Chinese box office since reopening, representing an approximately 4% market share, up from 2.8% in the second half of 2019 and in line with full year 2019 market share levels despite the delay of multiple Hollywood tentpoles, which typically account for 70% of IMAX Chinese box office. Our fans have been among the first back to the multiplex. We've gained market share and continued to expand our brand into local language releases.

We had a huge success with The Eight Hundred, the first local language title shot entirely with IMAX cameras, which earned approximately $18 million in IMAX and became a top 10 Chinese film of all time at the general box office. The Eight Hundred now -- was in that record territory despite being released to theaters constrained at the time by 50% capacity limitations.

Earlier this month, IMAX also delivered a record-breaking box office performance for the October national holiday in China. Overall, IMAX box office for the holiday week was $18 million, up 23% over last year. The holiday was headlined by an animated feature, which earns IMAX's best opening weekend for an animated film in China and second best opening weekend for local language tone. While China has far and away been the leading market as theaters have reopened, IMAX has seen encouraging signs in other places in the world.

Japan, South Korea and Taiwan have all opened strongly, with IMAX gaining market share despite the lack of major Hollywood releases. Since the July 15 premier of the South Korean hit Peninsula, IMAX has earned more than $55 million in local language box office. In fact, in just the past 3.5 months, IMAX has delivered almost half the local language grosses it did in the entire year in 2019, which, at the time, was a record-breaking year for us.

We achieved this despite significant capacity limitations across all the key local language markets. Recent highlights include Japan's Demon Slayer, which, in its first 2 weekends, set new records for the top 2 highest grossing weekend ever for IMAX in Japan, earning more than $6 million in box office to date. It outgrows movies such as Star Wars movies, Frozen, not just local language titles, any titles we released in Japan. The film was the first release in our new 5-picture slate agreement with Japan's Toho Pictures, a longstanding exhibition and distribution partner for IMAX that has seen significant success at the box office, including last year's breakout hit, Weathering with You. Our next film with Toho debuts in November.

Overall, IMAX will have no fewer than 10 local language releases in the current quarter across China, Japan and Russia. And we have promised -- we have promising releases lined up in Japan and China for early next year, including the lucrative Chinese New Year holiday.

Again, we continue to diversify our global network geographically. And in terms of content, we are leaning into that diversity as we anticipate the North American box office and Hollywood releases will take a while to come back online. Where we are fully open for business around the world, we're seeing that audiences are eager to return to theaters. Now turning to financial strength -- and we have the same power to be ready for audiences as they return.

Turning to our financials. We continue to be very well positioned to manage through this challenging period. Patrick will discuss our financials in more detail in a moment. But we currently have $305 million in cash, and we've continued to reduce our monthly cash burn, thanks to our flexible asset-light model. In fact, we expect to generate positive free cash flow in the current month of October and to be breakeven on average for the fourth quarter and through Q1 of 2021.

On the last call, we mentioned that we expected our cash burn in a 0 revenue environment to be less than $10 million per month. Now with the reopening of portions of our network, most notably in China, and the resumption of installations, our average monthly free cash flow decline for the third quarter was less than $4 million or a total of $12 million for the entire quarter.

Furthermore, given the delayed release of Hollywood titles, we decided to temporarily furlough 30% of our global workforce outside of China to further reduce our ongoing operating costs. While it was a very difficult decision to furlough our loyal workforce, we expect these cost reductions to generate approximately $1 million in monthly cash savings. In China, our headcount remains unchanged as the team works to service our fully open and our operational theaters.

Now I'd like to turn to discussion in the industry. While we and IMAX feel very confident in our financial position, there's clearly some uncertainty around the future of the North American theatrical industry. While the challenges facing the North American theatrical business are unique, we believe that the impact of COVID is not unlike what any number of industries are currently experiencing with a pandemic as an accelerator to secular or disruptive trends that were already in hand. We believe IMAX is very well equipped to manage through this evolution and may very well benefit in the long run.

First, let's look at exhibition. There is no doubt that the continued delay in the Hollywood slate and theater reopenings will have a significant impact on our exhibition partners, particularly North America and certain parts of Europe where many exhibitors are highly leveraged with large fixed costs. There's some speculation that this could result in a contraction of the industry, again, particularly in North America. In light of this, it's important to remember that IMAX screens are almost exclusively housed in the most productive and profitable multiplexes.

In North America, for instance, IMAX accounts for approximately 450 out of a total of roughly 42,000-plus screens. And in 2019, about 85% of IMAX's box office was generated in the top 20% of North American complexes. In North America in 2019, only 5% of IMAX's box office was generated from the bottom 65% of multiplexes ranked by revenue. In other words, approximately 3,500 North American mid- to low-performing multiplexes out of 5,400 could disappear overnight, and we believe that it would have no material impact on our business. The approximately $375 million in domestic box office that we produce in a typical year is what we should produce even if the industry shrinks around us.

In short, should the industry contract, our theaters are not the marginal theaters and our consumers are not the marginal consumers. In fact, based on our preferred locations and premium products, if feasible, we could gain market share in any such scenario. Furthermore, should any of our partners be forced to restructure and bankruptcy, we are covered by master lease agreements, which give us significant protection in the context of any restructuring. During the early 2000s, much of the exhibition industry went through bankruptcy after the (inaudible) building boom of the late '90s. Though smaller at the time, IMAX was not impacted. Our partners chose to continue to operate their IMAX screens.

Finally, we grant our partners an exclusive IMAX geographic zone. Should a partner decide to reject the master lease agreement with IMAX, we have the option to move our equipment to an alternative operator after demonstrating whatever the box office potential was in that particular area.

I'd like to talk a little bit about windowing, streaming and the shift of blockbusters. There's also much speculation about how the studios will adapt, whether we'll see an industry-wide shrinking of the theatrical window, more leases move to streaming platforms and multiplexes becoming limited to showing just blockbusters.

First, despite the further delay in theater reopenings, we're encouraged to see that with a few exceptions, most major blockbusters continue to be delayed rather than move to PVOD or streaming. That includes every film currently on the slate that was filled in IMAX or includes IMAX DNA, from No Time to Die, which has moved to 2021, to Wonder Woman 1984, which, for now, is scheduled for Christmas 2020.

The theatrical window remains an important financial and marketing component for major tentpole films. And as I've said, to date, PVOD has been a failed experiment as an option for big budget blockbuster films. Even if we do see a shrinking of the theatrical window, this would have little impact on IMAX. Films typically play in our network for 1 to 2 weeks at most before we move on to the next blockbuster debut.

Likewise, the shift of blockbusters and theatrical distribution benefits IMAX. We're very much in the blockbuster business. As blockbusters move to streaming platforms with potentially shorter windows, the need for studios, filmmakers and streamers to eventisize their content will be even greater. IMAX has proven itself as the primary platform to curate blockbuster content. The top grossing 30 films account for only 55% of the overall industry box office but 85% of the global IMAX box office.

Finally, our experience in China as well as markets like Japan, South Korea and throughout Europe has proven that audiences do return to the movies where theaters are open and people feel safe. And as they return, they're coming back to IMAX in greater numbers than before on a percentage basis. This underscores our position and strength of our brand. We are a premium experience with a premium segment of the market.

To conclude, we believe IMAX remains well positioned to manage through this crisis and continue to thrive well into the future. We're the only global distribution platform for theatrical blockbuster entertainment. We have a unique diversified geographic footprint and content portfolio, which enables us to generate cash flow even as the release of Hollywood films is on pause.

We have the financial strength to endure, withstand and even capitalize on industry disruption and be ready for our audiences when they're ready to come back to theaters. We have a remarkably strong pipeline of blockbuster content ahead. Our brand and the IMAX experience have been in strong growing demand around the world. This unique privileged position we built in the ecosystem gives IMAX a firm footing in difficult times, and we look forward to continuing our success, driving new opportunities for growth and creating value for our shareholders.

Thanks again for joining us today, and please continue to do everything you can to stay safe and healthy. With that, I'll turn it over to Patrick.

Thanks, Rich. Good morning, everyone. I'd like to take this opportunity to once again thank all of our teammates who have helped the company manage through this difficult period. Their commitment, sharp focus and flexibility are essential and appreciated.

With the delay of the late 2020 Hollywood titles into next year and the resulting closure of some theater chains, a global reopening industry appears unlikely this year. As a result, the company recently implemented additional cost reductions. In October, we made the difficult decision to furlough a portion of our workforce, which we expect to further reduce costs by approximately $1 million per month. We expect this to better position our business in the short term during this ongoing period of uncertainty while also maintaining flexibility to snap back quickly as theaters reopen around the world.

While the delayed industry reopening in certain markets is clearly a difficult development, IMAX is well positioned to manage through a longer but still temporary period of reduced box office activity as well as any resulting industry challenges. We continue to benefit from a solid balance sheet, an asset-light business model and a globally diversified network of highly productive screens.

First, let me address our balance sheet. We ended the quarter with $305 million of consolidated cash on our balance sheet, including $229 million of cash at IMAX Corp. and the balance at IMAX China.

Since our network closed in late March, our free cash flow ran at an average use of $7 million of cash per month from April through September 30. We accomplished this without the company reducing headcount through furloughs or layoffs. The trend for free cash flow improved more recently as we averaged a $4 million use of cash per month in the third quarter, substantially better than the 0 cash revenue burn estimate of under $10 million per month we discussed on our last call.

During the quarter, incremental cash generated from reopening of theaters, particularly in our largest market, China, as well as decreased inflation activity drove lower cash burn. We expect these trends to continue, and with additional cost reductions saved in October, we expect our monthly cash flow for both the fourth quarter 2020 and the first quarter of 2021 to be approximately breakeven.

Moving on to this quarter's results. Total revenue in the third quarter was $37.3 million, down 57% versus last year. The IMAX Technology Network gross margin was essentially breakeven on revenue of $11.4 million. Our network revenue was characterized by the partial reopening of our theaters through the quarter. We started the period with most of our theater network closed and benefited from the reopening of major markets in late August and September. As of today, about 1,000 screens or 65% of our network is open. Network results were driven primarily by high indexing from tenants as well as the release of Chinese local language titles, most notably, The Eight Hundred.

The IMAX Technology Sales and Maintenance segment reported revenue of $23.7 million, down 37%, and gross margin of $9.4 million versus $18.4 million of gross margin in the previous year period. The decline in revenue and gross margin was driven by lower installation activity in the quarter. We installed 9 STLs versus 14 and 1 hybrid system versus 4 in Q3 of 2019. While installations were lower, we are pleased to see both installation and signing activity improve in Q2.

We added 18 new systems to the network despite building-related closures and industry uncertainty. It remains clear that our partners understand and value our systems and continue to invest in the IMAX experience.

Maintenance revenue of $5.8 million declined from $13.7 million in the prior year period but increased sequentially from essentially no revenue in Q2. As theaters opened through Q3, we began to recognize contractual recurring maintenance revenue.

SG&A, excluding stock-based compensation of $19.5 million, declined sequentially from the $23.3 million of expense recorded in the third quarter of 2020 and was also down nearly $5 million year-over-year -- I'm sorry, that was sequentially versus the second quarter of 2020.

SG&A benefited from the cost actions we took at the beginning of the pandemic as well as a $2.1 million benefit from government subsidies associated with COVID-19 relief, $1.7 million of which was allocated to SG&A. This benefit was offset by $4.5 million of costs normally allocated to cost of goods sold and assets but which remained in SG&A this quarter due to low activity levels.

Adjusted EBITDA for the quarter was right around breakeven, down from $32.4 million in the previous year period.

Net loss attributable to common shareholders for the quarter was a loss of $47.2 million or a loss of $0.80 per share, while adjusted net loss was $44.6 million or $0.75 per share versus a gain of $0.21 per share last year.

Our results this quarter include some unique items I would like to address. Given the ongoing uncertainty with the exhibition industry, we recorded a $23.7 million or $0.40 per share valuation allowance against our deferred tax asset. We also took a $5.7 million write-off to various film assets given timing uncertainties surrounding reopening of theaters and the release of these films. Finally, we took a $3.9 million reserve provision for expected credit losses, reflecting a reduction in the credit quality of the theater receivables balance.

Moving to CapEx. In the third quarter, we spent $1.4 million on capital expenditures. Remember, typically, most of our CapEx is driven by the installation of theater systems under our joint revenue sharing model. That activity is at reduced levels in the current environment.

Capital allocation, we spend -- we suspend the IMAX share repurchases due to the uncertainty associated with theater closures and the amendment to our credit facility, which prevents any further IMAX Corporation-level repurchases until we return to compliance under our original senior secured net leverage ratio covenant. IMAX China did not repurchase any shares this quarter.

To wrap up, although the pace of recovery is slower than we would like, we are encouraged by the results we've seen to date. In markets where the virus is under control, people return to the movies. We have a strong balance sheet. We're in a good spot in terms of cash flow. And we have an excellent position in the marketplace. IMAX represents a pinnacle of immersive out-of-home entertainment. As the industry reopens in more markets around the world, IMAX is well positioned to excel.

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

Thanks, Patrick. And operator, we'll open it up for questions.

(Operator Instructions) And we will take our first question from Eric Handler of MKM Partners.

Wondered if you could talk about your installations a little bit. Are all the installations right now, are those just taking place in Asia? Or are there other markets where you're doing installations? And I assume the installations is why you're pretty much going to be at a breakeven level. You've got some good visibility in 3Q -- sorry, in 4Q and 1Q of next year. Maybe you could talk about maybe some expectations for the number of installations in each of those upcoming periods.

Sure. In terms of where, it is predominantly in Asia. We've got a fair level of activity in China. We've got activity in Japan as well. And so for the most part, the inflation activity right now has been focused in Asia. It broadens a bit as we get into the fourth quarter. And then in terms of level of activity, we're not in a spot right now where we're providing any guidance just due to the uncertainty in the marketplace. What we will say is that it's following the typical pattern that we have. And so activity has ramped up over the course of the year and our -- every year, our heightened activities in the fourth quarter. That will be the same this year. And then it will slow down again in the first quarter.

And yes, you're right. We have thought about where installation activity looks like and how many of those come with revenue and what that means. And that is part of how we get to the cash flow breakeven in Q4 and also in Q1.

I would just like to add that -- Eric, I just want to add to that, that several of the installations are scheduled for Saudi Arabia this year, and that's been a market that's performed exceptionally well before the pandemic as well as since it's opened.

Great. And then just as a follow-up. As we think about -- just in modeling your maintenance revenue, obviously, you're doing well in Asia, but other parts of the world are having some issues. Are you going to continue charging maintenance revenue in Europe and North America even though there's really not much box office to be generated?

Yes. I think the simplest way to think about that one is if the theaters are open and our partners are operational and we can provide the service, then we'll continue to charge maintenance. And so right now, that's the 1,000 theaters that I talked about.

It will be a bit of a moving target. More opens, we'll be able to charge more. Some regions close down, we'll trend down a little bit. But you should just think about what our historical average maintenance across the network is. And right now, that's 1,000 units that are open.

We will take our next question from Mike of Goldman Sachs.

It was encouraging to see the box office share gains in China. I was wondering if you could elaborate on that a little bit more and talk about some of the reasons why you think you're gaining that market share. And then I have a quick follow-up.

We've done some studies, Mike, that indicate that -- not sure if we did them in China, but we've done them around the world, that indicate that because IMAX is a known branded experience that people are more likely to return to IMAX theaters than regular theaters. And I think like other branded entertainment, people trust the brand. So I think that's one reason. Another reason I would say is the types of content that were released were more blockbuster sort of content. And as you know, consumers associate IMAX with blockbusters. So I think those are part of the reason.

I have to tell you, we were somewhat pleasantly surprised by what happened in Japan. I didn't go through the numbers in the scripted part. But as we mentioned, we had 2 -- the record weekend, the opening weekend of Demon Slayer, which was $2.3 million. And that was something like 18% over the record we'd ever had before. And then the second weekend was $2 million, which is a very small drop. And also you look at our market share actually went up in the second weekend.

So I think it may also have something to do -- and again, this is not empirical in any way that after people have been cooped up and they were watching TV and streaming and whatever it is, when they get out, they want to do something really special, not just go to a small screen, which is a marginal improvement over what they do at home, but they want something that really transcends the ordinary. And they can't travel out of the country, they can't travel to a lot of places, makes them feel somewhat transported, and IMAX does that. That's conjecture, but I'm pretty sure I'm right about it.

Just adding to that, the -- Mike, The Eight Hundred movie in China did particularly well during the quarter. That was filmed with our cameras. And as we typically see when we've got DNA, we do higher indexing. And that movie did particularly well for us.

Great. That's really helpful. It was also helpful to hear about if a theater operator rejects a master lease agreement, you can move to alternative operators. I was just wondering if you could talk a little bit about whether or not this has happened in the past and how quickly you could move to -- move equipment if you need to.

I mean we've never had the experience of someone rejecting a master lease agreement. And as a matter of fact, we said when kind of a bad situation in the exhibition space in 2000, almost every theater was reaffirmed, so we really don't have experience about it. But what I was alluding to in the prepared remarks, Mike, where -- you have data on what the location did across the street. So we're saying if you had a profitable location, it would be pretty easy to convince someone else to go into that -- to go in across the street or whatever it is because you already have a built-in market that's not speculative. But we don't have data about it now.

We will take our next question from Eric Wold of B. Riley Securities.

Just a couple of questions on kind of the slate as you look into next year. I guess given somewhat rapid changes in slate almost on a daily basis as well as your earlier comments, Rich, that consumers are associating IMAX with blockbusters, how flexible do you want to be on the slate into next year? I mean, would you move quickly to put smaller, kind of mid-level titles on your screens to fill gaps even if you can only do it kind of maybe on a breakeven basis? Or is it better to keep the slate somewhat open?

Eric, I think when you look at next year, it's a little bit of an embarrassment of riches. So if we -- if films were to move in to -- starting at the beginning of Q2 next year, I think we only have 1 or 2 places where we could actually put films. Right now, one of the issues I think the studios are going to face is there's not a lot of room in the schedule to put them. So I think it's not about filling in with mid-level movies, which, historically, we've done if we had to, to keep the theaters' program. I think there's not a lot of room.

So -- and also my expectation, Eric, is that when theaters open, they're going to pretty much open. So it's not going to be like last time where there was only one movie and things moved around. So I really think it's the opposite problem, how we're going to manage to curate and fit in all the content that's there.

And I should add, you didn't ask this but I'm sure you would have as a follow-up, which is because the pandemic production was halted on a number of projects, but most of what's scheduled now for 2021 is in the can or is in the editing room. So the big movies like Top Gun and Fast and Furious and the Marvel movies, those are all pretty much shot already. There are some in production today like Mission Impossible and Avatar and some other things. But I just think this -- when it opens, there's going to be a lot of blockbuster content.

Okay. Then a follow-up on that. Given kind of -- the kind of crowded film slate in a positive way next year with the -- everything kind of moving in there and we have a few slates open -- slots open, have there been instances where you previously contracted a film to do multiple weeks on your screens, but now, for the moment, they won't have that so have a lot more curtailed kind of windows for films at IMAX? And is that actually a plus, in your mind, given that you had basically the opening weekend for much tighter film slate?

When people use IMAX cameras to make a film, and we recently put out a release announcing an expanded camera program and more films shot with our cameras, we give them more weeks to play, more of a slot, both as an incentive to use the cameras and because those films typically index higher. So it gives them more play time.

However, all of the films that we schedule are around a certain date. So when you move to another date, they don't have a contractual right to 2 weeks or 3 weeks around that date. But we're trying to do the best we can to project really important movies, especially those that used our cameras and especially those with filmmakers and talent that we're close to. So we're doing our best, but there's not really -- the contractual rights aren't implicit because the dates have moved.

We will take our next question from Chad Beynon of Macquarie.

This is Aaron on for Chad. Thanks for your comments on China. I was wondering, could you talk about what you saw during -- especially during Golden Week? Do you see any kind of different trends in between the Tier 1 and 2 cities versus 3 or 5?

So I can't comment specifically on that week, but we did a fairly detailed analysis on how each tier, Tiers 1 through 5, rebounded during the -- after the pandemic in China. And what our results found -- and we were somewhat surprised because we thought it might be that the Tier 1 and Tier 2 cities rebounded more quickly than the lower-tier cities. But the extent of rebound was pretty much uniform across all tiers. So it was -- again, I'll say it was somewhat surprising to us. And -- so by way of example, in Tier 1, if the city did x in 2019, it came back -- went up to 0.95x this year. And then if we look at the fifth tier city, it was very similar results within a margin of error. So it was pretty uniform.

Okay. Great. That's helpful. And do you have a sense of what percent of the 70,000 Chinese screens are open? And can you talk a little bit about what you're seeing with other premium large format openings in China?

Yes. So it's about 99% of IMAX screens are open and about 90% of the country is open. I don't exactly know what premium large format is. I know people call themselves that. I know what IMAX is. But in China, whatever that category is, is a very small category. And we've looked at some of those reopenings, and they have not captured their past market share to the extent IMAX has. We studied that.

We will take our next question from Mike Hickey of Benchmark Company.

Rich, Patrick, Brett, congrats on your success in Asia. Nice to see the rebound there. I guess the first question is when you think about the U.S. market, sort of broader question is what needs to happen to sort of kickstart this market again. And within that, you have New York, New York, and L.A. that I think are still shuttered. And of course, you have offices in both those key markets. So curious, as much as you can, Rich, just your view on how close we are. Maybe I missed it this morning, that'd be embarrassing, but how close we are those markets starting to open?

And then when you look at Wonder Woman '84 here, how confident are you or not that this can be a Christmas release? And I have a couple of follow-ups.

Sure. So to kickstart the U.S. market, I think the first thing you need is people feeling safe to go to cinemas. And there are kind of 3 parts to that. One, the government has to open the area. Two, it has to really be safe. And three, people have to feel safe. So in terms of the reopening, pretty much the whole country is open, except, as you said, New York and California. In New York, Governor Cuomo opened the theaters outside of New York City subject to certain infection levels this past weekend and subject to 25% capacity limitation.

So New York is starting to reopen. And I think put aside where the future goes, let's pretend the virus stays where it is, today, as long as areas are below a certain level, I think those will reopen, and over time, capacity limitations will increase.

In terms of California, most of the state is open, but Los Angeles is not open. And that's subject to the Mayor, Garcetti, and the Governor of California has delegated that responsibility.

And I was out in L.A. last week. And I have to say, people are really somewhat skeptical as to what the pace of reopening would be there. I'm sure you just read the articles about the opening of Disney and other theme parks out there. So that's a hard one to predict. And again, I would layer over that, obviously, the increased level of pandemic in the U.S. and abroad. So very, very difficult to predict. So the first thing I said was government. And the second thing I said was the theaters being safe.

And the theater industry, I think, was a little bit cautious at the beginning but has really done a good job of putting in safety protocols. So whether that's wearing masks in the theaters or whether that's lining up in certain lines to go in and otherwise to go out and how their employees act and the handling of concessions, I think, it's become safe. And I think it's in very good shape.

And then the third element, which is people feeling safe, that's a harder one. I just found out yesterday, I was talking to the CEO of our China subsidiary where -- it's public, but that we own a large stake in. And I didn't know this, but he said, people in China don't wear masks. In theaters they do, but walking on the street, they don't wear masks. And despite the conspiracy theories, the restaurants are full there and occupancy of hotel is going up. So it's a place where they feel safe. And when that happens, I really don't know.

So then that relates to your next question, how close are we to normalcy in the North American market. And the headline is I don't know, but my instincts are, given the increase in the rates of infection and given what's happened in other countries, it's probably going to be a while off before people in North America feel safe. I just think it was handled differently here with leadership in a lot of different levels than it was in different countries. So I'm not optimistic that it's imminent.

And then your last question, which is related, the Wonder Woman question, I just don't know. When I was in California, I met with some of the people involved, and these are very serious people with very unserious approaches to these things, like what -- how is the movie going to work, how are they going to help cinemas, all kinds of issues, marketing, health, public regulation. And I think they hadn't made their minds up yet. I think they were integrating all those factors. So I think we're going to have to wait and see.

The second question is sort of being the opportunity maybe for some of these blockbusters going to streaming. I know you had some great comments on your view of how that initial experiment went, didn't sound great. But I guess recently, we saw the No Time to Die Bond film potentially being shopped to streaming services for sort of a rumor of $600 million. Ultimately, it looks like that deal didn't work. But I'm just sort of curious as you think about that exercise overall, what it could mean to some of these bigger films that have been delayed.

Well, first of all, I wouldn't believe every rumor I read in the papers. I read and I heard it. But I was very skeptical -- the Broccoli Family owns the rights to No Time to Die, and it's a franchise, and I was skeptical that -- whether that was real or not. But I'm not in a position to comment on that.

But virtually, every blockbuster, with a few exceptions, has rescheduled itself for a theatrical release next year. And I could spend a lot of time on this, but I'll just spend another minute on it. Last week, when I was in L.A., I met with filmmakers. I met with probably half of the studio heads. I met -- talked to different people in the industry, and nobody thinks that a streaming model only works for blockbuster releases.

So in the short run, you might get a shot of subscribers, which will make a good headline for a while. But when you look at last year, this is my favorite example, Disney did $11 billion in revenue from box office around the world. I just -- maybe you have a different pencil than I do, but I just don't see how you get to $11 billion. And that was just the theatrical part. That didn't include merchandise, secondary rights and on. Usually, the general number is that you put a multiplier on that, maybe of up to 2x. So it's just difficult for me to see for blockbusters of how that model works.

For non-blockbusters, I could see mid-level movies go to streaming. You don't pay the marketing costs or you can use -- take advantage of the marketing costs in a different way. You can target audiences. But first reason is I don't think the model really works. Second reason is I think you need a theatrical release to promote a streaming release. So I don't think that bigtime filmmakers want to see something -- by the way, I'll get a little bit technical, but you shoot a movie differently for a theatrical release than you shoot it for a streaming release in the home. And I don't think filmmakers that have shot a theatrical release are going to say, "Yes, sure, fine. Put it on the television, that's good with me."

And then you add to that, I think a lot of what a theatrical release does, it's -- even today, it's a trailer for other windows. And as I said before, I think it's likely that, that window shrinks in some way. But I think you don't promote big event movies with movie stars and sound and special effects in the way that works for the industry. I mean Disney has been -- made a lot of their success by being geniuses using the theatrical platform across channels and ending up with theme park rides. I mean they monetize them in some brilliant ways over the years. And I don't think people are going to abandon a proven method. I don't want to be redundant on this, they may be tweaks to windows and other things, but I think the theatrical release is in a crucial part of the revenue stream.

And I think during COVID, 2 things happen. One is the real issues of theaters not being open, people not going. So it made sense for those companies to go to streaming with some of their non-blockbuster titles. But I think the other thing that happen is the narrative right now, and as you heard during my remarks, I don't think -- I know the narrative isn't correct about the future of streaming versus the future of theatrical. I think people just want to take advantage of the current narrative, but I have no doubt that the theatrical release is going to be integral, maybe even more so the IMAX component of it to the chain that results in streaming.

We will take our next question from Jim Goss of Barrington Research.

I'm wondering if you could talk a little more, Rich, about the Japan film slate deal and the expected impact on your footprint transactions in Japan. And sort of in a related area, are there other countries in which film slate -- indigenous film slate makes sense beyond U.S., China, Japan, South Korea, where you might be able to do something similar?

So the film slate deal, as I mentioned in my remarks, was 5 pictures, Jim. I think 3 or 4 are identified and one is to be determined. Maybe Patrick remember the name of the next one. But the next film is a very highly anticipated film in Japan. And I would say, I have no idea what the box office will be. But it was even a title that was more important to us than Demon Slayer, which was the film we just did and set records. And that next one is supposed to come out in about a month. And we're very encouraged because Toho is one of our leading theatrical partners there. And also partnering with them on the film side further solidifies the relationship. So it's a very positive thing for us.

In terms of other countries, Jim, again, I try and separate out the COVID period from the normal period, which we can't predict when it will come. But during this period of time, it made sense to do a slate deal, but we haven't lost sight of the fact that one of IMAX's primary revenue generators is Hollywood films released on a global basis. So we don't want to run ahead and make local film deals, slate deals that will interfere with our potential global strategy. I think it's going to depend country by country. And I think, certainly, during this period of time, it makes sense to do things like that. But I really couldn't predict what we do in the future.

Okay. And in terms of the construction program, has the COVID experience had any impact on your desire to either go with sales-type lease agreements versus drive revenue sharing?

So by the way, first, I forgot to answer the second part, your last question, which is on the theater network in Japan. And I would think the film slate and maybe more importantly, the success on our indexing -- I don't remember the numbers, but the per screen numbers over those 2 weekends were extremely high. If I recall, they were around $50,000 a theater, Jim. So I think that's going to catch people's attention. And I do think it will help us grow the network in Japan.

In terms of has it influenced the kind of deals we do, I'd say, in the short term, it has because we're in a position where we want to maintain what we talked about on this call, which is our neutral cash flow position over the next 6 months going through the pandemic. So it's -- during this period of time, it has made us less reluctant to install JVs now and more different kinds of deals. But again, let's see what happens coming out the other side before we say how long term that policy is.

Okay. One last thing...

And just -- sorry, just to jump in, this is Megan Colligan. The film is -- the next film up is Stand By Me on November 20, just so you have that.

Okay. The last thing I was going to ask was, I wondered if the increased viewing in-home has impacted how you've approached your IMAX DTS relationship.

I'll start, and then I'll turn it over to Patrick. I'd say, Jim, we've always thought that our brand was kind of underutilized and that we have a wonderful global brand in the theatrical space and out-of-home entertainment, and we work very hard to try and transition it to something in the home. And during the pandemic, I think we've said before, while we've been shut down, I think we've been doubling down and figuring out ways that we might leverage our brand assets in the home better. And it's accelerated that.

But in terms of specifically on the Enhanced DTS relation, Patrick's been managing that. So why doesn't he respond?

Sure. I think what's happened, most of our content partners are now in the streaming business. They have some SVOD platform. And so the pandemic obviously has resulted in more consumption of content. That's aligned with people launching their new subscription-based programs. And IMAX Enhanced can add a lot of value to that. So what I would say is our dialogue with our partners who are now in the streaming business about how we can integrate IMAX Enhanced into those platforms has picked up meaningfully during the crisis. We just got -- we think that that's an area where we could actually help them differentiate their content and deliver better experiences to their customers.

We'll take our last question from Alexandra Quadrani of JPMorgan.

It's Alexia Quadrani. Rich, you made some very good comments, I thought, on the fact that with China and some other markets, the reaction to the virus is different than it was in terms of the government, I mean, here and some other places around the world, and they were able to kind of get back to the -- opening theaters, I think, at a different pace than what we're seeing here.

And I'm curious, with that in mind, is there just the risk that the consumer sort of gets used to consuming content in a different format because it just takes too long to kind of get back to a normalized -- the actual experience, and therefore, it's kind of harder to get back to the way we were?

And then just a quick follow-up. I know we're running out of time. On the slate for 2022, I mean, if things keep getting pushed, I guess, how crowded does that already look?

So in terms of the risk of consumers not coming back, I think you could theorize about a lot of things. But I don't really see it. You have to remember that China shut down several months before the U.S. And I think Japan did, too. So if you look at the net time, it's not going to be all that different than it was here, first thing.

Second thing is, I've said it and it's a little bit of a sound bite, but I don't think 8 months does 100 years of consumer experiences. And I think it's not just a bigger screen or more transport of -- it's something you share with friends, it's something you talk about around the -- whatever the new version of the water cooler is. I think you tweet about it, you text about it. It's a social cultural experience.

And I think people are not going to have to experience cultural things on their couch with their -- whoever they happen to live with. I think that's part of the human nature. I mentioned this before, but I went to Pompeii, and they have theaters from I forget how long ago. I just don't think human nature changes because there's a thing called the streaming service. And remember, there were lots of changes. There was television, there was radio, there's all kinds of things. I should use the opportunity to remind people that 2019 was the biggest year in North American box office history.

So I think that's really remote. But let's even say to the extent it's true, I think with shorter windows, the people who really want to see it in a movie theater, they'll be sort of compacted into that shorter period of time, whatever it is. So there will be enough to certainly support IMAX, which has 1- or 2-week runs, and support whoever plays it during that period. And then people who choose to stream it, they'll have plenty of runway to do that also. So I don't really think that's a factor for us.

In terms of 2022, as I said, production has started to reopen in a number of places. You have to remember that because things were closed, there's a lot of films in the can that are going to push into 2021. So I don't really see a significant change in 2022 from where I sit now.

Like I mentioned that Mission Impossible was in production. They're filming 2 movies at once, one released in '21, one in '22. That's pretty far along -- well,that's in the middle of shooting. You've got Avatar, which I think is now scheduled for 2022, and Jim has resumed production at pretty rapid pace in New Zealand. So I don't really think that's going to be an issue, Alexia.

We have no further questions. I would now like to turn the conference back over to CEO, Rich Gelfond.

So as I mentioned a few times during the call, I was in L.A. last week and I met a lot of interesting people with different perspectives. And I really needed it from a headspace point of view because all of us sitting at our home offices on our Zoom or on our telephone all day, it's hard to get perspective.

But whatever people thought about the industry, whatever they thought about streaming, whatever they thought about exhibition, it was kind of unanimous that people felt that IMAX would come out of this in a better position because of the experience we provide and what that's going to mean to the entire ecosystem. And when you combine that with the results we've seen in places where we're open, it was a much needed wake-up reminder for me.

But I really do feel that, obviously, this situation has been terrible for the world from a health point of view, economic point of view, obviously, it's really unfortunate that we had to furlough some employees. And I feel really bad about that. But I do think the combination of our financial strength and where we're positioned, we're going to come out of this in a very good place. So thank you all for participating.

Thank you, ladies and gentlemen, for your participation in today's call. You may now disconnect.