IMAX Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results are in U.S. dollars unless stated otherwise. IMAX operates a global premium cinema technology and content platform; it reported 1,718 systems in 87 countries and territories at quarter-end. The company revised its reportable segments in Q1 2023 to Content Solutions and Technology Products and Services, and recast prior-period comparisons.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $98.0m | $74.0m | $184.9m | $134.0m |
| Gross margin | $57.9m; 59% | $44.0m; 60% | $107.9m; 58% | $75.8m; 57% |
| Income (loss) from operations | $14.2m | $(0.1)m | $25.6m | $(8.1)m |
| Net income (loss) attributable to common shareholders | $8.4m; $0.15/share | $(2.9)m; $(0.05)/share | $10.8m; $0.20/share | $(16.5)m; $(0.28)/share |
| Operating cash flow | Not presented by quarter | $25.9m | $(5.3)m |
- Q2 revenue rose 32% year over year, primarily from higher system sales and strong film box office. Six-month revenue increased 38%. Film remastering and distribution revenue was $29.2m in Q2 and $59.3m year to date; technology sales were $29.4m and $47.2m, respectively.
- Q2 system rentals and maintenance revenue benefited from stronger box office and network activity. IMAX box office was $268.3m in Q2, up 8%, and $541.7m for the first half, up 29% year over year. Local-language films generated over $114m in first-half box office.
- Q2 SG&A was $38.9m, up 5%; excluding share-based compensation, it rose 9%. R&D was $2.8m, up 104%. Six-month SG&A was $73.1m, up 9%, and R&D was $4.6m, up 81%.
- Cash and cash equivalents were $95.3m at June 30, versus $97.4m at year-end 2022. Reported available liquidity was $420.0m, including $280.0m of unused Wells Fargo capacity and $44.7m available under China facilities.
- Borrowings carried on the balance sheet, net of discounts and issuance costs, totaled approximately $256.0m: $28.0m of revolving facility borrowings and $228.0m of convertible notes and other borrowings. The $230m 0.5% convertible notes mature April 2026. IMAX reported compliance with its credit covenant; its Senior Secured Net Leverage Ratio was 0.00:1.00.
Material changes and notable items
- Profitability and operating cash flow improved substantially from the prior-year periods, reflecting higher box office, system installations, and amendments or renewals of system arrangements. The first-half comparison also benefited from lower credit-loss expense ($1.1m versus $7.3m) and no repeat of the prior-year $4.5m film investment impairment.
- First-half system signings were 74, versus 20 a year earlier; installations were 29, versus 23. Backlog stood at 496 systems, compared with 492 a year earlier. Stated fixed backlog value was $271.2m for new systems and $21.3m for upgrades; traditional revenue-sharing arrangements generally do not carry a fixed backlog value.
- Q2 included $11.8m of estimated variable consideration in technology sales, versus $0.9m in Q2 2022. These estimates depend on future box office and may be adjusted.
- First-half executive transition costs were $1.4m related to the departure of IMAX Entertainment President Megan Colligan; no additional costs were recorded in Q2.
Outlook, risks and contingencies
- Management expects available cash and operating cash flows to be sufficient for anticipated operating needs and capital requirements over the next 12 months. It expects investment in joint revenue-sharing systems to be weighted toward the second half of 2023 and cited a strong film pipeline for the remainder of 2023 and visibility into 2024. These statements are forward-looking, not guaranteed results.
- On July 12, 2023, after quarter-end, IMAX proposed to acquire the remaining 96.3m IMAX China shares for approximately HK$10 per share, or $124m, subject to shareholder and other approvals. The boards approved the proposal; completion was expected later in 2023 but is not assured. A $130m standby letter of credit was obtained to support the proposed proceeds and transaction costs.
- China is a significant exposure: it represented 25% of first-half revenue, had 795 operating systems and 197 systems in backlog. Risks include regulatory and political change, Hollywood-film release restrictions, currency and economic conditions, and uncertainty over approvals for the proposed acquisition.
- Other risks include film availability and box-office performance, exhibitor demand and installation timing, the 2023 writers’ and actors’ strikes and possible release delays, foreign exchange, and the Russia-Ukraine conflict. IMAX resumed maintenance revenue and finance income in Ukraine in Q2 after systems reopened and payments were received; operations in Russia and Belarus remained suspended.
- Cineworld/Regal had been in Chapter 11. IMAX reported receiving scheduled pre-petition payments by April 17, 2023; Cineworld’s approved reorganization plan provided for assumption of the IMAX agreement, payment of current arrears, and a revised installation schedule. IMAX recorded no additional expected credit-loss provision, but noted the outcome is not guaranteed.
- A long-running arbitration award against E-City, calculated by IMAX at $25.8m including interest as of June 30, 2023, remained pending enforcement in India. Management said other legal proceedings were not expected to materially affect financial position or future results; outcomes cannot be assured.
Key investor verification points
- Track whether box-office strength, film releases and system installations convert into sustained revenue, margins and cash flow, and whether backlog converts as expected.
- Assess the quality and collectability of receivables, including financing receivables and estimated variable consideration; monitor exhibitor financial health and the Cineworld reorganization.
- Verify the status, funding and final cost of the proposed IMAX China acquisition, including required approvals and the standby letter of credit.
- Review liquidity and debt maturities, especially the 2026 convertible notes, variable-rate borrowings, and the effect of the China cash and foreign-exchange restrictions.
- Consider the effect of China exposure, geopolitical developments, labor strikes and potential film-release delays on box office and system demand.