IMAX Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results are presented in U.S. dollars; financial amounts below are in millions unless stated otherwise. IMAX earns revenue from theater-system sales and leases, maintenance, and film remastering and distribution. It operated 1,690 theater systems in 87 countries at quarter-end.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $60.0 | $38.8 |
| Gross margin | $31.8 (52.9%) | $17.3 (44.6%) |
| Operating loss | $8.0 | $10.8 |
| Net loss attributable to common shareholders | $13.6 ($0.23 per share) | $14.8 ($0.25 per share) |
| Cash used in operating activities | $3.8 | $11.0 |
| Cash and cash equivalents, quarter-end | $162.3 | $189.7 at Dec. 31, 2021 |
Revenue grew 55%, driven by stronger film box office, maintenance activity, and theater-system installations. Gross margin increased 84%. The company recorded a $7.2 million net credit-loss expense, principally for Russian receivables; management described the Russia-related provision as $6.9 million, or $0.12 per share, on a net non-cash basis. Excluding that provision, management reported a common-shareholder net loss of $6.7 million ($0.11 per share). This is management’s adjusted comparison, not GAAP net income.
Investing activities used $10.6 million, including $4.6 million for joint-revenue-sharing theater equipment and $4.7 million invested in the film Mozart from Space. Financing activities used $13.0 million, including $8.1 million of company and IMAX China share repurchases and $1.8 million of credit-agreement fees. Cash declined $27.4 million during the quarter.
At March 31, the balance sheet included $224.0 million of convertible notes, net, and $3.6 million of borrowings under a China working-capital facility. No borrowings were outstanding under the main credit facility. The notes have $230.0 million principal, a 0.5% coupon, and mature in 2026. The renewed $300 million revolving facility matures in March 2027; it also has an uncommitted accordion feature. The company reported $26.3 million of remaining borrowing capacity under the working-capital facility. Management stated that cash and expected operating cash flows should be sufficient for anticipated operating needs and capital requirements over the following 12 months.
Changes versus the prior period
- Gross box office from IMAX films rose 57% to $173.2 million; reported revenue rose from $38.8 million to $60.0 million.
- IMAX DMR revenue increased to $19.6 million from $11.9 million, and joint-revenue-sharing contingent rent rose to $12.6 million from $8.4 million.
- Maintenance revenue grew to $14.9 million from $8.9 million as theaters reopened and operations recovered. Management said China closures partly constrained box office in Q1 2022.
- Credit-loss expense rose to $7.2 million from $0.3 million, mainly reflecting Russia-related uncertainty. Financing-receivable allowances increased, including a $5.7 million provision for financed sales receivables.
- Q1 2021 included a $5.2 million gain on sale of the Maoyan investment; Q1 2022 had no comparable gain. SG&A increased by $5.0 million, with higher business activity and the absence of $1.2 million of Q1 2021 Canadian wage-subsidy benefits contributing.
Outlook, risks, and unusual items
No quantified full-year revenue or earnings guidance is provided. Management was encouraged by box-office recovery, returning exclusive theatrical windows, and the announced 2022 film slate, while noting release dates and theater operations remain uncertain. As of April 26, 2022, about 65% of Greater China theaters were open at varying capacities, compared with 52% at March 31. The company expected to continue investing in theater equipment for joint-revenue-sharing arrangements.
In March, IMAX temporarily suspended operations in Russia and Belarus. The company reported 54 theaters in Russia, 9 in Ukraine, and 1 in Belarus, plus 22 theaters in backlog in those countries with a stated total value of $25.6 million. Sanctions, suspended studio releases, theater closures, collection risk, and broader geopolitical effects could impair revenue, receivables, and backlog conversion. Exhibitors in Russia, Ukraine, and Belarus were placed on nonaccrual for maintenance revenue and finance income.
COVID-19-related restrictions and closures, particularly in China, continue to threaten attendance, film schedules, customer solvency, collections, and installation timing. Other disclosed exposures include international and currency risks, dependence on theater operators and film performance, and deferred tax asset uncertainty. The company added a $5.0 million valuation allowance against deferred tax assets in Q1 2022.
The Sixth Amended and Restated Credit Agreement extends the main facility to 2027 and includes a $75 million minimum-liquidity covenant during its designated period and a maximum senior secured net-leverage covenant, tested beginning June 30, 2022. The filing reports no off-balance-sheet arrangements with a material current or expected effect. The company’s disclosure controls were assessed as effective, with no material Q1 change to internal control over financial reporting.
Legal matters include a pending effort to enforce an arbitration award against E-City, which IMAX calculated at $24.6 million including interest as of March 31, 2022; the filing gives no assurance of collection. A separate Giencourt dispute was settled in 2021.
Important facts for investors to verify
- Whether the Russia-related receivable reserves adequately reflect collection risk, and whether additional losses or revenue suspensions arise.
- Whether Greater China theater operations, film releases, and box office recover as assumed, and whether the announced film slate is released as scheduled.
- Conversion and timing of the 487-system backlog, including the $25.6 million attributed to Russia, Ukraine, and Belarus.
- Cash generation, theater-equipment investment needs, credit-facility covenant compliance, and repayment or refinancing plans for the 2026 convertible notes.
- Whether the pending E-City award is enforceable and collectible; the stated award value is not a guarantee of recovery.