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IMAX's Q3 Loss Wider Than Expected, Revenues Decline Y/Y

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IMAX Corporation (IMAX - Free Report) reported third-quarter 2020 adjusted loss of 75 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 31 cents. The figure marked a sharp drop from adjusted earnings of 21 cents per share reported in the year-ago quarter.

Total revenues of $37.3 million beat the Zacks Consensus Estimate by 15.6% but declined 56.9% from the year-ago quarter.

In the third quarter of 2020, 85% of the theaters in the IMAX commercial multiplex network, spanning 57 countries, reopened, including 73% of the theaters in Domestic (United States and Canada) locations, 97% of the theaters in Greater China and 78% of the theaters in Rest of World markets. In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers consistent with pre-pandemic attendance.

However, the availability of new film content was limited, especially in the Domestic and Rest of World markets, and ticket sales were significantly lower than normal levels in theaters outside of Asia.

Category-wise, technology sales, Image Enhancement & Maintenance Services, Technology Rentals and financial income were down 27.5%, 67%, 74.6% and 14.2% year over year to $15.8 million, $14.6 million, $4.5 million and $2.4 million, respectively.

IMAX Corporation Price, Consensus and EPS Surprise

IMAX Corporation Price, Consensus and EPS Surprise

IMAX Corporation price-consensus-eps-surprise-chart | IMAX Corporation Quote

Segment Details

IMAX Technology Network Business

IMAX technology network business revenues were $11 million, down 73.7% year over year due to decrease in IMAX DMR revenues.

Within the segment, IMAX DMR revenues were down 74.2% year over year to $6.5 million due to a 72% year-over-year decline in global box office receipts generated by IMAX DMR films in the third quarter of 2020.

In the third quarter of 2020, global box office was generated by the exhibition of six new films and the re-release of classic titles compared with 26 films (20 new and 6 carryovers) exhibited in the year-ago period.

During the nine months ended Sep 30, 2020, six local language IMAX DMR films were released to the IMAX network, including two in Russia, two in China, and one in each of Japan and South Korea.

Joint revenue sharing arrangements-contingent rent decreased 73.1% year over year to $4.5 million due to a 70% year-over-year decline in global box office generated by theaters under joint revenue sharing arrangements in the third quarter of 2020.

As of Sep 30, 2020, 881 theaters operated under joint revenue sharing arrangements compared with 841 theaters as of Sep 30, 2019, an increase of 5%.

IMAX Technology Sales & Maintenance

IMAX technology sales & maintenance business generated revenues of $23.7 million, down 37.1% year over year as the pace of theater system installations slowed significantly and maintenance revenue was not recognized for theaters that remained closed during the period due to the COVID-19 global pandemic.

Within this segment, IMAX systems revenues declined 16.9% from the year-ago quarter to $17.4 million. IMAX maintenance revenues declined 57.1% year over year to $5.9 million as COVID-19-related closures of IMAX theater systems through a portion of the quarter prevented the recognition of revenues.

Moreover, Joint revenue sharing arrangements-fixed fees were $0.1 million, down 96% year over year. Other theater revenues declined 80.3% to $0.3 million in the reported quarter.

New Business & Others

New Business generated revenues of $0.4 million, down 36.6% year over year. Film distribution and post-production generated revenues of $1.8 million, down 47.1% year over year.

Network Growth Statistics

As of Sep 30, 2020, there were 1,632 IMAX theater systems (1,542 commercial multiplexes, 13 commercial destinations, 77 institutional) operating in 82 countries and territories.

Greater China is the company’s largest market, measured by revenues. As of Sep 30, 2020, it had 726 theaters operating in Greater China with an additional 258 theaters in backlog that are scheduled to be installed by 2028. The company’s backlog in Greater China represents 47.3% of its total current backlog, including upgrades.

IMAX installed 23 systems and signed agreements for 10 systems in the quarter, demonstrating continued partner demand for IMAX theater systems despite the temporary delay of major theatrical releases. 

As at Sep 30, 2020, 150 IMAX with Laser systems have been installed, and the company’s backlog included 155 new IMAX with Laser systems and 92 upgrades to IMAX with Laser systems.

Operating Details

Gross margin contracted from 54.5% in the year-ago quarter to 10.3% in third-quarter 2020.

Adjusted EBITDA per credit facility was ($0.3 million) against $32.4 million in the year-ago period.

Selling, general & administrative (SG&A) expenses decreased 15.8% year over year to $24.8 million.

Research & development (R&D) expenses decreased 16.9% on a year-over-year basis to $1.1 million.

Operating income margin contracted from 16.7% in the year-ago quarter to (73.5%) in the reported quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2020, IMAX had cash and cash equivalents of $305 million compared with $319 million in the prior quarter.

Cash flow used operating activities was $30.8 million compared with $20.8 million used in the prior quarter.

Negative free cash flow was $11.8 million compared with $29.8 million in the prior quarter.

2020 Guidance

The company expects average monthly cash flow for the fourth quarter of 2020 and the first quarter of 2021 to be approximately break-even, representing continued free cash flow improvement.

Zacks Rank & Stocks to Consider

IMAX currently has a Zacks Rank #4 (Sell).

Lions Gate Entertainment Corp. (LGF.A - Free Report) , ViacomCBS Inc. (VIAC - Free Report) and News Corporation (NWSA - Free Report) are some better-ranked stocks in the broader consumer discretionary sector, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lions Gate and News Corporation will report results on Nov 5 while ViacomCBS is set to report on Nov 6.

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