IMAX Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also presents unaudited quarterly data, including fourth-quarter 2015. Unless noted, amounts are U.S. dollars.
Business context and reporting period
IMAX designs and supplies premium theater systems and earns recurring revenue from theater-system maintenance, joint revenue-sharing arrangements (JRSAs), and film conversion and distribution. Its network reached 1,061 theaters in 67 countries at year-end, up from 934 in 62 countries. International markets generated about 60% of revenue; Greater China contributed $110.6 million, about 30% of total revenue.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $373.8 million | $290.5 million |
| Gross margin | $219.3 million; 58.7% | $173.4 million; 59.7% |
| Income from operations | $87.8 million | $57.9 million |
| Net income | $64.6 million | $42.2 million |
| Net income attributable to common shareholders | $55.8 million | $39.7 million |
| Operating cash flow | $83.7 million | $86.6 million |
- Revenue rose 28.7%; gross margin dollars increased, but the gross-margin rate declined, partly reflecting lower-margin laser upgrades. Adjusted net income, a non-GAAP measure excluding stock compensation and related tax effects, was $82.4 million, or $1.15 per diluted share, versus $54.9 million, or $0.78.
- Fourth-quarter 2015 revenue was $119.3 million, gross margin $71.9 million, net income $26.2 million, and net income attributable to common shareholders $22.5 million. Reported diluted EPS for common shareholders was $0.32.
- Cash and cash equivalents were $317.4 million at year-end, versus $106.5 million. Operating cash flow was $83.7 million; investing activities used $78.8 million; financing activities provided $205.2 million. The increase in cash included substantial proceeds from the IMAX China IPO.
- Bank indebtedness was $29.7 million, related to the Playa Vista property loan. The $200 million secured revolving credit facility was undrawn; the company reported compliance with its covenants. Total assets were $931.0 million and total shareholders’ equity was $673.9 million.
- Capital expenditures, including JRSA equipment and other specified investments, were $91.9 million. Financing receivables were $117.2 million; accounts receivable were $98.0 million.
Material changes versus the prior period
- JRSAs revenue increased 44.9% to $99.1 million, supported by network growth and stronger film performance; 529 theaters were operating under JRSAs, versus 451 a year earlier.
- Film production and IMAX DMR revenue increased to $107.1 million from $83.2 million. IMAX DMR gross box office grew 31.3% to $985.3 million; including original films, total gross box office exceeded $1 billion.
- IMAX systems revenue increased 40.6% to $119.7 million. The company installed 154 systems, including upgrades, compared with 121 in 2014.
- Selling, general and administrative expense increased to $115.3 million from $93.3 million, including stock-based compensation of $21.9 million versus $15.1 million. Non-controlling-interest income rose to $8.8 million, primarily reflecting outside ownership of IMAX China.
- IMAX China completed an IPO in October 2015. IMAX Corporation retained approximately 68.5% ownership and continued to consolidate the subsidiary.
Outlook, risks, contingencies and unusual items
- Management estimated 135–140 new theater installations in 2016, excluding upgrades, and expected a similar number of DMR film releases to 2015. These are estimates; installations may be delayed or fail to proceed. The filing listed 26 announced 2016 DMR titles at the time.
- Year-end theater backlog was 372 systems with a stated value of $270.9 million; 88.2% of systems were scheduled for international markets. Backlog is not guaranteed revenue and excludes some contingent and maintenance revenue.
- Key exposures include China regulation and market conditions, currency movements, film availability and box-office performance, competition, customer concentration, and the conversion and timing of theater backlog. China represented 57.8% of backlog. Wanda and AMC together accounted for about 16.0% of 2015 revenue, 31.1% of the commercial network, and 18.8% of backlog.
- The Shanghai customs audit’s potential impact was not assessable. In Giencourt arbitration, the claimant sought up to approximately $10.4 million; IMAX counterclaimed for lost profits exceeding $24 million. Outcomes were uncertain. A proposed U.S. credit-card receipt class settlement was estimated at $0.4–$0.455 million, pending final court approval.
- Unusual or notable items included $21.9 million of stock-based compensation; $0.4 million of investment impairment; $0.4 million of asset impairment; and $0.6 million of inventory write-downs. The company repurchased 1.0 million shares for $34.3 million and paid no dividends on its common shares.
- The auditor reported that the financial statements were fairly presented under U.S. GAAP and that internal control over financial reporting was effective at year-end.
Most important facts for investors to verify
- Reconcile annual EPS disclosures: MD&A cites $0.90 diluted EPS for net income, while the consolidated statements report $0.78 diluted EPS attributable to common shareholders; confirm the differing numerator and share basis.
- Assess the quality and timing of cash generation, including the IPO and subsidiary-share proceeds, working-capital changes, and continuing JRSA investment needs.
- Test backlog conversion assumptions, especially the large Greater China concentration and the stated 2016 installation range.
- Review customer concentration and box-office dependence, particularly Wanda/AMC and IMAX China, and monitor the customs audit and other unresolved legal matters.
- Evaluate the effect of stock-based compensation, share repurchases, and non-controlling interests when comparing reported and adjusted earnings.