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Imax (IMAX) Down 11.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Imax (IMAX - Free Report) . Shares have lost about 11.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Imax due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Lower Sales-Type Theater Installations Hurt IMAX Results

IMAX Corporation delivered first-quarter 2019 adjusted earnings of 18 cents per share, which beat the Zacks Consensus Estimate by a penny. However, the figure declined 14.3% year over year.

Total revenues of $80.2 million narrowly missed the Zacks Consensus Estimate of $81 million and declined 5.6% from the year-ago quarter. The decline can be attributed to lower sales-type theater installations in the reported quarter.

Category-wise, finance income increased 6.3% year over year to $2.7 million. However, equipment and product sales were $15.2 million, down 22.1% from the year-ago quarter. Additionally, services and rentals revenues were down 1.3% and 0.2% year over year to $44.15 million and $18.2 million, respectively.

Segment Details

IMAX network business revenues were $45.8 million, up 2.1% year over year.

Within the segment, IMAX DMR revenues were up 3.3% from the prior-year quarter to $27.9 million.

Gross box office from IMAX DMR films increased 3.8% year over year to $256.3 million in the reported quarter. The increase was primarily due to the release of 24 films (12 new and 12 carryovers) compared with 22 (14 new and eight carryovers) in the year-ago quarter.

Notably, Greater China box office increased 19% year over year to $106 million in the reported quarter. This is IMAX’s “second highest grossing quarter of all time.” The increase was due to release of key Chinese movie titles, partnership with ticketing platform Maoyan and growth in IMAX theaters in the country.

Additionally, Disney’s Avengers: Endgame contributed to the biggest ever IMAX opening in China, with the movie collecting more than $21 million in the first two days of its release. Solid performance of The Wandering Earth also aided the company’s box-office results in China.

Notably, the film’s average ticket price increased 85% from the earlier Avengers film. Additionally, Avengers: Endgame domestic pre-sales surged 70% to $21 million compared with Avengers: Infinity War. The film also broke IMAX box office records in markets like Germany and France.

Moreover, Rest of World box office increased 10% year over year in the reported quarter. The increase can be attributed to strong box office performance of Captain Marvel and Bohemian Rhapsody.

Joint revenue sharing arrangements-contingent rent was $17.9 million, almost flat from the year-ago quarter.

IMAX theater business generated revenues of $30.3 million, down 13.3% year over year, primarily due to lower installations of seven sales-type theaters, partially offset by one new system upgrade and four new “hybrid joint revenue sharing lease arrangements.”

Within this segment, IMAX systems revenues declined 36.8% from the year-ago quarter to $13.2 million. However, theater system maintenance revenues were $12.9 million, up 1.9% from the year-ago quarter. Moreover, other theater revenues increased 18.1% from a year ago to $1.6 million in the reported quarter.

New business revenues increased 37.2% year over year to $834K. However, other revenues declined 28.4% from the year-ago period to $3.2 million.

Network Growth Statistics

In first-quarter 2019, IMAX installed 17 theater systems, of which 14 were for new theater locations. As of Mar 31, total IMAX theater network consisted of 1,514 systems, of which 1,420 were in commercial multiplexes. Notably, total signings were 23 in first quarter, of which 15 were for IMAX laser.

There were 571 theaters in backlog as of Mar 31, 2019 compared with 529 in the corresponding period of 2018.

Also, IMAX signed contracts for 14 new theaters and nine upgrades in the reported quarter. In the year-to-date period, the company signed deals across regions – Europe, North America and Japan.

IMAX recently partnered with an independent theater owner, Lochmann Filmtheaterbetriebe in Germany to bring IMAX’s largest screen in the world. Notably, about 70% of the theater owners in Germany are independent theater owners.

In North America, IMAX extended its partnership with Cinemark Holdings to renew Cinemark's current IMAX locations and two new IMAX laser installations.

Moreover, in the reported quarter, the company signed agreements for two new systems and five upgrades in Japan. Notably, owing to the success of Bohemian Rhapsody, same-store sales in the country increased 21% in the reported quarter. IMAX noted that Japan is the third most contributing country to box office in the world.

At the end of first-quarter 2019, IMAX had 32 installed screens in Japan along with an additional 11 in the backlog. Moreover, the company expects to increase its footprint in the country. Further, IMAX anticipates its box-office revenues to benefit from the release of Frozen 2 in Japan.

Operating Details

In the reported quarter, gross margin declined 340 basis points (bps) on a year-over-year basis to 56.3%.

Additionally, network gross margin contracted 120 bps on a year-over-year basis to 68.9%. Gross margin for joint revenue-sharing arrangements was down 530 bps year over year to 66.1% in the reported quarter. Nevertheless, IMAX DMR gross margin expanded 130 bps to 70.8%.

Theater gross margin was 43.6% in first-quarter 2019 compared with 58.5% in the year-ago period.

Adjusted EBITDA was $28.5 million in the reported quarter compared with $130.2 million in the year-ago period. Adjusted EBITDA margin was 39.8% compared with 39.2% in the year-ago period.

Selling, general & administrative (SG&A) expenses declined 1.1% year over year to $27.65 million. Additionally, research & development (R&D) expenses plunged 68.4% year over year to $1.14 million.

Operating income margin contracted 270 bps year over year to 17.5% in the reported quarter.

Balance Sheet

As of Mar 31, 2018, IMAX had cash and cash equivalents of $123.1 million compared with $141.6 million in the prior quarter.

Cash used in operations was $669K as against cash flow from operations of $15.5 million in the year-ago period. Free cash flow was negative $28.3 million in the reported quarter.

2019 Guidance

Box office is expected to grow in low double digits compared with the earlier guidance of mid-to-high single-digit range. IMAX is anticipated to install 185-190 theater systems. The company expects to upgrade 45 screens to IMAX laser and is anticipated to install approximately 140-145 new systems.

Additionally, adjusted EBITDA margins are anticipated to increase in the range of 41% to 42% compared with the earlier guidance of 40.5%.

The company anticipates its box-office performance to be strong in 2019 owing to popular releases like Avengers: Endgame.

IMAX stated that three films including Bond 25 will use IMAX cameras in 2020. Notably, Comcast’s Universal Pictures is one of the producers of the film.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.56% due to these changes.

VGM Scores

Currently, Imax has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Imax has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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