IMAX Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in U.S. dollars unless stated otherwise. IMAX operates a global premium cinema technology network and earns revenue from theater systems, maintenance, film remastering and box-office-linked arrangements.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $51.0 million | $8.9 million | $89.7 million | $43.8 million |
| Gross margin | $25.6 million (50.2%) | $(7.7) million | $42.9 million (47.8%) | $(2.6) million |
| Operating loss | $(3.0) million | $(41.5) million | $(13.8) million | $(79.9) million |
| Net loss attributable to common shareholders | $(9.2) million; $(0.16) per share | $(26.0) million; $(0.44) per share | $(24.1) million; $(0.41) per share | $(75.3) million; $(1.26) per share |
| Operating cash flow | Not separately presented | Not separately presented | $(17.0) million | $(20.9) million |
At June 30, cash and cash equivalents were $214.1 million, down from $317.4 million at December 31, 2020. Total assets were $881.9 million and total liabilities were $446.4 million. The balance sheet reported $222.9 million of convertible notes, net, and $9.5 million of revolving-facility borrowings, net; the latter primarily reflects $11.0 million of China working-capital borrowings less issuance costs. The $300 million main credit facility was fully repaid during the half. The filing separately cites approximately $347.8 million of consolidated indebtedness, a figure not clearly reconciled to the balance-sheet debt figures in the provided filing text.
IMAX issued $230 million of 0.5% convertible notes due 2026, receiving $223.7 million net proceeds, and spent $19.1 million on capped calls. It had $300 million available under its main revolving facility and $18.4 million available under its working-capital facility. A $75 million minimum-liquidity covenant applies; the leverage covenant is suspended through Q1 2022. The company reported compliance with its amended credit agreement. Management expected available liquidity and operating cash flows to fund anticipated needs for the next 12 months.
Material changes versus the prior comparable period
- Revenue and gross margin improved substantially as theaters reopened, box office recovered, system installations resumed and maintenance services restarted. At June 30, 89% of IMAX commercial multiplex theaters were open: 93% in the U.S. and Canada, 90% in Greater China and 75% in other markets.
- Q2 IMAX DMR revenue was $11.8 million versus $0.5 million; joint-revenue-sharing contingent rent was $7.9 million versus negative $0.1 million. Six-month IMAX DMR gross box office was $218.8 million, up from $97.9 million a year earlier.
- Six-month theater-system installations rose to 28 from 15, while signings declined to 14 from 44. Backlog was 514 systems, versus 559 a year earlier, with stated backlog values of $295.8 million for new systems and $23.5 million for upgrades.
- Credit-loss expense reversed by $1.6 million in the first half, compared with $11.7 million of expense in the prior-year period, reflecting better-than-anticipated collections. Management cautioned that future customer credit losses remain uncertain.
- Cash flow from operations remained negative. The company attributed the first-half outflow partly to an $11.0 million increase in accounts receivable and a $9.5 million payment to settle the Giencourt dispute.
Outlook, commentary, risks and unusual items
- Management was encouraged by box-office recovery and the planned second-half 2021 film slate, but provided no specific earnings or revenue guidance. Film release schedules and theater operations remained subject to change.
- COVID-19 remained the central risk: renewed closures or capacity limits, variants, vaccination progress, consumer demand, delayed film releases and exhibitor solvency could affect box office, collections, installations and asset valuations. Management warned that estimates for credit losses, film and theater assets, goodwill, variable consideration and deferred tax assets could change materially.
- A $12.5 million increase in the deferred-tax valuation allowance was recorded in the first half, including $10.0 million through income tax expense, reflecting uncertainty over future taxable income in certain jurisdictions.
- The Giencourt dispute was settled in June 2021. IMAX paid $9.5 million; the settlement vacated the judgment and dismissed litigation, and a remaining $1.8 million liability was reversed as a benefit.
- IMAX sold its Maoyan shares for $17.8 million in February, generating a $5.2 million gain relative to year-end fair value. First-half investing cash flow was positive $11.4 million, largely due to these proceeds.
- COVID-19 government relief benefits reduced expenses by $2.0 million in Q2 and $3.5 million in the first half. The Canadian wage-subsidy program was extended through September 2021; future benefits were not assured.
- Other risks include dependence on Greater China, currency exposure, theater-installation backlog conversion, competition and debt covenant/refinancing risks. The filing reports effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether theater reopenings, film releases and box-office receipts continued to recover after June 30, 2021, and whether the reported pipeline translated into sustained revenue and cash flow.
- Whether the 514-system backlog converted into installations and revenue, given lower first-half signings and continued customer, construction and financing risks.
- The reconciliation and definition of the filing’s approximately $347.8 million consolidated-indebtedness figure versus balance-sheet borrowings, and the company’s capacity to meet debt and minimum-liquidity requirements.
- Whether exhibitor collections, overdue financing receivables and management’s credit-loss and asset-valuation estimates remained adequate as pandemic conditions evolved.
- The effect of deferred-tax valuation allowances, government support and unusual gains or legal-settlement benefits on reported and adjusted results.