IMAX Corporation — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Unless noted, amounts are U.S. dollars.
Business context
IMAX earns revenue from digitally re-mastering films for its theater network, selling or leasing theater systems, and sharing box-office receipts with exhibitors. At year-end, its network comprised 1,624 theaters in 81 countries, including 870 theaters under joint revenue-sharing arrangements. Greater China was its largest market, generating about 31% of 2019 revenue.
Key financial results
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $395.7 million | $374.4 million |
| Gross margin | $214.2 million; 54.1% | $207.9 million; 55.5% |
| Operating income | $77.3 million | $45.2 million |
| Net income | $58.6 million | $33.6 million |
| Net income attributable to common shareholders | $46.9 million; $0.76 per basic and diluted share | $22.8 million; $0.36 per basic and diluted share |
| Cash provided by operating activities | $90.4 million | $110.0 million |
| Cash and cash equivalents, year-end | $109.5 million | $141.6 million |
| Bank indebtedness, balance-sheet carrying value | $18.2 million | $37.8 million |
Q4 2019: Revenue was $124.3 million, gross margin $62.4 million, net income $21.4 million, and net income attributable to common shareholders $18.2 million, or $0.29 per share. Q4 2018 comparatives were $109.0 million, $54.6 million, $3.8 million, and $1.7 million, or $0.03 per share, respectively.
The $300 million revolving credit facility had $20 million drawn and $280 million available at year-end; it matures June 28, 2023. IMAX reported compliance with its leverage covenant. Total assets were $889.1 million and total shareholders’ equity was $637.2 million. Financing receivables were $128.0 million, accounts receivable $99.5 million, and deferred revenue $94.6 million.
Material changes versus 2018
- Annual revenue rose 5.7%, supported by network and theater-business growth. IMAX DMR revenue increased 9.0% to $120.8 million; theater-business revenue rose 7.2% to $180.5 million.
- Gross margin dollars increased, but the consolidated margin rate declined to 54.1% from 55.5%. Theater-business margin fell to 48.1% from 50.9%, partly due to a higher mix of hybrid revenue-sharing installations.
- IMAX DMR gross box office increased 7.4% to $1.11 billion, despite releases declining to 60 new films from 70. Network business revenue rose 6.9%.
- Operating income and net income improved. Adjusted net income, a non-GAAP measure, was $77.2 million, or $1.25 per diluted share, versus $70.2 million, or $1.11.
- Operating cash flow decreased to $90.4 million from $110.0 million; cash declined by $32.1 million during 2019. Investing cash outflow was $66.0 million, including $40.5 million for joint-revenue-sharing theater equipment and $15.2 million for Maoyan equity securities.
- Theater network grew to 1,624 from 1,505, while reported backlog fell to 531 systems from 564; its disclosed dollar value rose to $327.9 million from $304.3 million. Backlog conversion depends on installation, customer acceptance, and other conditions.
Outlook, risks, contingencies and unusual items
- Coronavirus subsequent event: After year-end, more than 70,000 Chinese theaters, including approximately 700 IMAX theaters in mainland China, closed from late January 2020; film releases were postponed. Management expected a material adverse effect on first-quarter 2020 theater-system revenue and noted possible installation delays. The timing and extent of any later recovery were uncertain.
- Management expected sufficient capital and liquidity for normal operations over the next 12 months and anticipated continued cash use for joint-revenue-sharing deployments and DMR activity. It expected R&D expense to decline further in 2020. The filing gives no quantified 2020 revenue or earnings guidance.
- China exposure, international operations, film performance, exhibitor consolidation, foreign exchange, customer collections, backlog conversion, competition, and cybersecurity are identified risks. Wanda represented 16.5% of 2019 revenue and 33.9% of the theater network; the filing also reports that Wanda and AMC together represented about 33.9% of the commercial network.
- 2019 notable charges included $22.8 million of stock-based compensation, $0.9 million of exit and restructuring costs, a $1.4 million documentary-film impairment, and a $0.5 million unrealized loss on the Maoyan investment. In 2018, IMAX recorded an $11.7 million arbitration award charge, $3.0 million of executive-transition costs, and substantial VR-related impairment and exit charges.
- A Florida court denied IMAX’s petition to vacate an arbitration award in a dispute with Giencourt in January 2020. IMAX planned to appeal; the company said the amount and timing of any potential payment could not be determined. A separate effort to enforce an earlier award against E-City remained pending.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Critical audit matters included theater-system revenue recognition and uncertain tax positions.
Important facts for investors to verify
- How long Chinese theaters remained closed, the resulting revenue and cash-flow impact, and whether delayed films and installations were recovered.
- Whether the 531-system backlog converts to installations and revenue, especially the concentration in Greater China and joint-revenue-sharing arrangements.
- The sustainability of earnings growth given lower gross-margin percentage, cash-flow decline, and significant stock-based compensation.
- Customer concentration and the financial condition and payment performance of major exhibitors, including Wanda and AMC.
- The eventual outcome and potential financial exposure from the Giencourt appeal and pending E-City award enforcement.
- Reconcile the filing’s overview reference to $0.95 per share with the audited statement’s $0.76 per share attributable to common shareholders; the filing presents these on different income bases.