IMAX Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 4, 2021. The filing describes a full fiscal year, not a standalone “2020 Q4” report. All amounts are U.S. dollars unless stated otherwise.
Business context
IMAX earns revenue from digital remastering and distribution of films, theater-system sales and leases, box-office-sharing arrangements, and maintenance. It generally does not own the theaters. At year-end, its network included 1,650 systems in 84 countries and territories, versus 1,624 in 81 a year earlier. IMAX indirectly owned 69.89% of IMAX China.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $137.0 million | $395.7 million |
| Gross margin | $21.5 million (15.7% of revenue) | $214.2 million (54.1%) |
| Operating income (loss) | $(121.8) million | $77.3 million |
| Net income (loss) attributable to common shareholders | $(143.8) million; $(2.43) per diluted share | $46.9 million; $0.76 per diluted share |
| Adjusted net income (loss), non-GAAP | $(112.1) million; $(1.89) per diluted share | $64.8 million; $1.05 per diluted share |
| Cash from (used in) operating activities | $(23.0) million | $90.4 million |
Fourth quarter: Revenue was $56.0 million, gross margin was $20.3 million, net loss attributable to common shareholders was $21.2 million, and diluted loss per share was $0.36. Revenue and gross margin improved from Q2 and Q3, but remained far below Q4 2019 revenue of $124.3 million and gross margin of $62.4 million.
Cash, debt, and investment: Cash and cash equivalents were $317.4 million at year-end, up from $109.5 million, largely reflecting a $280.0 million draw on the revolving credit facility. Borrowings were $300.0 million under that facility and $7.6 million under a China working-capital facility; reported bank indebtedness, net of issuance costs, was $305.7 million. The main facility matures June 2023 and was fully drawn. Investing cash outflow was $9.3 million; capital expenditures, including joint-revenue-sharing equipment, were $16.9 million versus $74.3 million in 2019. The company used $36.6 million to repurchase its shares. No current plans to pay cash dividends were disclosed.
Changes versus the prior year
- Revenue fell 65% and gross margin fell 90%, as theaters closed or operated at reduced capacity, film releases were delayed, installations slowed, and maintenance was suspended at closed venues.
- IMAX DMR box office declined 77%, to $259.2 million from $1.11 billion; revenue from DMR fell 77%. The number of films exhibited was 35, compared with 72 in 2019.
- Box office at theaters under joint revenue-sharing arrangements fell 77%, to $131.0 million from $560.3 million. That segment recorded a $9.5 million gross margin loss, versus $48.4 million gross margin in 2019.
- Theater-system signings declined to 65 from 143, and installations to 71 from 186. Backlog was 527 systems, compared with 531 a year earlier.
- At December 31, 71% of commercial multiplex theaters were open: 44% in the United States and Canada, 97% in Greater China, and 53% in Rest of World markets.
Outlook, risks, and unusual items
Management said it expected available cash and operating cash flows to fund anticipated operating needs and capital requirements for the twelve months following the report. It provided no numerical revenue or earnings guidance. Management noted that recovery depends on theater reopenings and attendance, film-release schedules, consumer spending, exhibitor solvency, and installation timing. It saw encouraging audience returns in China, Japan, and South Korea, but described conditions elsewhere as weak and uncertain.
- Credit agreement risk: The June 2020 amendment suspended the senior secured net leverage covenant through Q1 2021, with modified testing afterward, and imposed a $75 million minimum-liquidity covenant. IMAX reported compliance at year-end but warned that continued compliance depended on EBITDA recovery; a breach could permit lenders to accelerate debt. Management said it could use cash, seek liquidity, or negotiate further relief.
- Credit and asset charges: The company recorded $18.6 million of current expected credit-loss expense, $10.8 million of film-asset impairments, $3.6 million of inventory write-downs, and $0.3 million of impairment on joint-revenue-sharing theater equipment. Goodwill of $39.0 million was not impaired at year-end, though management warned further deterioration could change that assessment.
- Taxes: A $28.6 million deferred-tax-asset valuation allowance contributed to income-tax expense of $26.5 million despite the pretax loss. The company also recorded a $19.1 million deferred tax liability for withholding taxes related to foreign earnings no longer considered indefinitely reinvested.
- Legal matter: A December 2020 final judgment in the Giencourt matter resulted in an $11.3 million recorded liability, including a $4.1 million charge in 2020. IMAX appealed in January 2021; the outcome was unresolved in the filing.
- Other financial items: Interest expense increased to $7.0 million from $2.8 million, mainly due to higher borrowings. COVID-19 relief benefits recognized were $6.4 million from Canada’s CEWS and $0.7 million under the U.S. CARES Act. The company reported a $2.1 million unrealized loss on its Maoyan investment, then sold its shares in February 2021 for $17.8 million gross proceeds.
- Concentration and market risks: Greater China generated approximately 38% of 2020 revenue. Wanda represented 35.1% of the theater network and 16.4% of revenue. The filing also highlights exhibitor and studio concentration, streaming competition, foreign-exchange exposure, and uncertainty in China and other international markets.
Key facts for investors to verify
- Progress in theater reopenings, box-office recovery, and the timing and exclusivity of major film releases.
- Cash burn, collections from exhibitors and studios, and whether the $75 million minimum-liquidity covenant and subsequent leverage tests remain satisfied.
- Actual theater installations and conversions of the 527-system backlog into revenue and cash receipts.
- Whether credit-loss allowances, film-asset values, deferred-tax assets, or goodwill require further adjustments as operating conditions evolve.
- The resolution and financial consequences of the Giencourt appeal, and the effects of customer and geographic concentration, particularly in China.