IMAX Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Amounts below are in U.S. dollars. Comparisons are with Q1 2022 unless stated otherwise.
Business context
IMAX earns revenue from film remastering and distribution, sales and leases of theater systems, and system maintenance. Its global network had 1,711 systems in 87 countries at quarter-end, up from 1,690 a year earlier. IMAX reported two segments: Content Solutions and Technology Products and Services.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $86.9 million | $60.0 million |
| Gross margin | $50.1 million; 57.6% | $31.8 million; 52.9% |
| Operating income (loss) | $11.4 million | $(8.0) million |
| Net income (loss) attributable to common shareholders | $2.5 million; diluted EPS $0.04 | $(13.6) million; diluted loss per share $0.23 |
| Operating cash flow | $21.2 million | $(3.8) million |
Revenue increased 45%, chiefly on stronger film box office and system-related revenue. IMAX box office reached a first-quarter record of $273.4 million, up 58%; local-language films generated over $80 million, about 30% of the quarter’s box office. Gross margin rose to 57.6% from 52.9%. The company also reported non-GAAP adjusted net income attributable to common shareholders of $9.0 million, or $0.16 per diluted share, versus an adjusted loss of $8.2 million, or $0.14 per diluted share. This non-GAAP measure excludes specified items, including share-based compensation and executive transition costs.
Cash and cash equivalents were $99.2 million at March 31, 2023, versus $97.4 million at year-end 2022. Total borrowings, including the convertible notes and revolving facilities, were approximately $258.6 million; cash less these borrowings was approximately $159.3 million net debt. Available liquidity was $423.4 million, including cash and undrawn borrowing capacity. The company had $333.1 million of total shareholders’ equity.
Changes versus the prior period
- Revenue rose $26.9 million, with Content Solutions revenue up 53% and Technology Products and Services revenue up 36%.
- Operating results swung to income from a loss. The prior-year quarter included $7.2 million of net credit-loss expense, primarily related to Russia; Q1 2023 credit-loss expense was $0.2 million.
- Operating cash flow improved by $25.0 million. Investing cash outflow was $4.3 million versus $10.6 million; financing cash outflow was $15.0 million versus $13.0 million.
- System backlog was 468 systems, compared with 487 a year earlier; stated dollar value was $278.4 million versus $294.0 million. Backlog is subject to installation, acceptance, and customer execution.
Outlook, risks and unusual items
Management said it expects available cash and operating cash flows to fund anticipated operating needs and capital requirements for the next 12 months. It cited a strong film pipeline for the remainder of 2023 and visibility into 2024. Management expects investment in joint revenue-sharing systems to continue, with spending weighted toward the second half of 2023. These are expectations, not guarantees; the filing does not provide a quantified earnings or revenue forecast.
Risk factors include film performance and theater attendance, converting backlog into installations and revenue, exhibitor credit quality, competition and technology changes, foreign exchange and interest rates, China exposure, and geopolitical developments and sanctions. IMAX suspended operations in Russia and Belarus; it reported 54 systems in Russia, eight in Ukraine, and one in Belarus. Cineworld’s Chapter 11 proceedings remain a contingency, though IMAX reported receiving payments due on pre-petition obligations by April 17, 2023 and did not expect a material network impact.
Q1 included $1.4 million of executive transition costs related to the planned departure of the President of IMAX Entertainment. Income tax expense was $4.9 million, a 48.8% effective rate, including a $1.6 million increase in the valuation allowance against deferred tax assets. A $25.5 million arbitration award against E-City, inclusive of interest as calculated by IMAX, remains subject to enforcement proceedings in India; collection is uncertain. The company reported effective disclosure controls and procedures.
Investor verification points
- Track film slate performance, box-office concentration, and whether strong Q1 results translate into recurring cash generation.
- Verify backlog conversion, installation timing, and the economics of joint revenue-sharing arrangements.
- Monitor receivable quality, especially theater-operator exposures, and the effects of Russia-related restrictions and Cineworld’s reorganization.
- Review debt maturities and facility availability; the $230 million convertible notes mature in April 2026.
- Assess the sustainability of adjusted results, including excluded share-based compensation and other adjustments, alongside GAAP earnings.
- Follow the E-City award enforcement, tax-asset valuation allowance, and any changes to management’s liquidity outlook.