IMAX Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results are prepared under U.S. GAAP. Unless stated otherwise, amounts are U.S. dollars.
Business context
IMAX earns revenue from film remastering and distribution, sales and rentals of theater systems, and maintenance services. It reported two segments: Content Solutions and Technology Products and Services. At quarter-end, its network included 1,731 systems in 87 countries and territories; its backlog totaled 486 systems, compared with 489 a year earlier.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $103.9m | $68.8m | $288.8m | $202.8m |
| Gross margin | $62.7m; 60% | $31.7m; 46% | $170.7m; 59% | $107.5m; 53% |
| Operating income (loss) | $22.0m | $(4.2)m | $47.7m | $(12.4)m |
| Net income (loss) attributable to common shareholders | $12.0m; $0.22 diluted EPS | $(9.0)m; $(0.16) diluted EPS | $22.8m; $0.41 diluted EPS | $(25.4)m; $(0.44) diluted EPS |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $54.6m | $0.5m |
Q3 revenue rose 51% year over year, led by film box office strength and higher system sales. IMAX film box office was $347.1m in Q3, up 96%; nine-month box office was $888.9m, up 49%. Nine-month revenue growth was 42%. Technology Products and Services revenue reached $56.2m in Q3 and $171.8m for nine months; Content Solutions revenue was $44.2m and $107.6m, respectively. Management cited strong performance from films including Oppenheimer, Avatar: The Way of Water, and local-language releases.
Nine-month cash flow improved substantially year over year. Investing activities used $18.7m (versus $40.4m), while financing activities used $24.3m (versus $64.6m). Cash and cash equivalents were $109.6m at September 30, up from $97.4m at year-end 2022.
Balance sheet and liquidity
Total assets were $850.9m and shareholders’ equity was $356.8m at September 30, 2023. Reported borrowing balances were $23.9m on revolving facilities and $228.4m in convertible notes and other borrowings, net of discounts and issuance costs. The $230m convertible notes mature April 1, 2026 and carry a 0.5% coupon. Management reported compliance with the Wells Fargo credit facility covenant; the senior secured net leverage ratio was 0.00:1.00.
At quarter-end, the company disclosed $150m available under its $300m Wells Fargo facility after borrowings and a $130m letter of credit, plus $26.5m and $22.8m of available capacity under Bank of China and HSBC China facilities. Management said it expects cash balances and operating cash flows to fund anticipated operating and capital needs for the next 12 months. This is management’s expectation, not a guarantee.
Material changes, outlook and risks
- Revenue, gross profit and earnings improved from the prior-year loss period, with higher box office, system installations, and joint revenue-sharing rentals. Nine-month credit loss expense fell to $1.6m from $8.1m, largely reflecting prior-year Russia-related reserves.
- IMAX revised its segment reporting in Q1 2023; prior-period segment comparisons were recast. It recognized $1.4m of executive transition costs in Q1 related to the departure of an executive.
- The proposed $124m acquisition of the remaining IMAX China shares did not proceed after failing to obtain the required 90% approval from disinterested shareholders. The related $130m letter of credit was canceled October 11, 2023. Q3 SG&A included $3.1m of transaction expenses related to the proposal.
- Cineworld emerged from Chapter 11. A court-entered stipulation provided for payment of amounts owed and a revised timetable for system installations; IMAX reported that no additional credit-loss provision was required.
- Management highlighted a strong theatrical pipeline and visibility into 2024 and 2025, but gave no specific numeric revenue or earnings guidance in the provided filing text. It expects further investment in joint revenue-sharing systems, with spending weighted toward the remainder of 2023 due to installation seasonality.
- Key exposures include dependence on successful third-party films and exhibitor system commitments; Greater China concentration (26% of nine-month revenue); system backlog conversion and installation timing; the continuing SAG-AFTRA strike and possible film delays; Russia-Ukraine conflict and sanctions; foreign-exchange and interest-rate movements; and theater-operator credit risk.
- An outstanding E-City arbitration award is estimated by IMAX at $26.0m including interest as of September 30, 2023; enforcement proceedings remain pending, and recovery is uncertain. The company says it believes provisions for legal matters are adequate.
Most important facts for investors to verify
- Whether box office momentum and the release slate persist, particularly given the SAG-AFTRA strike and dependence on third-party films.
- Whether the 486-system backlog converts into installations and revenue on schedule, and how Greater China demand and collections evolve.
- Cash generation, receivable quality, and liquidity after cancellation of the China Transaction letter of credit, including restrictions or practical limits on accessing cash held in China.
- The terms and repayment or conversion risks of the $230m convertible notes due in 2026, alongside variable-rate borrowings and facility covenants.
- Developments in the E-City enforcement case, Russia-related exposures, and other disclosed legal and geopolitical contingencies.