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Why Is Imax (IMAX) Down 33.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Imax (IMAX - Free Report) . Shares have lost about 33.3% 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 catalysts.

IMAX's Q4 Earnings & Revenues Surpass Estimates

IMAX Corporation reported fourth-quarter 2019 adjusted earnings of 35 cents per share that beat the Zacks Consensus Estimate by 16.7% and increased 34.6% year over year.

Total revenues of $1.24 billion beat the Zacks Consensus Estimate by 5.1% and increased 14.1% from the year-ago quarter.

The year-over-year revenue growth was driven by an upside in the theater and network business segment.

Category-wise, equipment & product sales and services revenues were up 32.8% and 1.9% year over year to $61.6 million and $43.6 million, respectively.

However, rental revenues and financial income decreased 2.3% and 10% from the year-ago quarter to $16.3 million and $2.8 million, respectively.

Segment Details

Network Business

IMAX network business revenues were $43 million, up 3.3% year over year due to an increase in IMAX DMR revenues.

Within the segment, IMAX DMR revenues were up 6.5% to $26.9 million. Gross box office from IMAX DMR films increased 1.9% year over year to $241.1 million in the reported quarter driven by international gross box office and domestic gross box office, which came in at $96.2 million and $91.5 million, respectively.

The company reported Greater China box office revenues of $53.4 million for the fourth quarter 2019. Notably, Greater China is currently the company’s largest market, measured by revenues, with around 31% of overall revenues generated from the company’s China operations in 2019.

Joint revenue sharing arrangements-contingent rent was $16.3 million, down 1.4% year over year.

Theater Business

IMAX theater business generated revenues of $77.6 million, which increased 25.3% year over year.

Within this segment, IMAX systems revenues increased 38.9% from the year-ago quarter to $57.1 million. Theater system maintenance revenues were $13.3 million, up 9.1%.

However, Joint revenue sharing arrangements-fixed fees were $4.5 million, down 23.7% year over year. Other theater revenues declined 1% to $2.6 million in the reported quarter.

New Business & Others

New Business generated revenues of $0.84 million and other revenues were $2.8 million in fourth-quarter 2019.

Network Growth Statistics

As of Dec 31, 2019, 73% of IMAX theater systems in operation were located within international markets (defined as all countries other than the United States and Canada), up from 70.1% as of Dec 31, 2018.

There were 1,624 theater systems (1,529 commercial multiplex, 14 commercial destination, 81 institutional) operating in 81 countries and territories as of Dec 31, 2019.

There were 531 theaters in backlog as of Dec 31, 2019 compared with 564 in the corresponding period of 2019.

The company installed 58 new IMAX systems in the fourth quarter of 2019.

Operating Details

Gross margin expanded 10 basis points (bps) on a year-over-year basis to 50.2% in the reported quarter.

Network business gross margin contracted 240 bps on a year-over-year basis to 56.8%, primarily driven by increased contractual marketing expense.

Theater gross margin expanded 410 bps on a year-over-year basis to 51.2% in fourth-quarter 2019 due to more systems installed in the quarter.

Adjusted EBITDA was $46.9 million in the reported quarter compared with $36.3 million in the year-ago period. Adjusted EBITDA margin expanded 440 basis points to 37.8%.

Selling, general & administrative (SG&A) expenses increased 13.3% year over year to $31.5 million.

Research & development (R&D) expenses decreased 32% on a year-over-year basis to $1.5 million primarily due to decreased spending on the company’s updated laser-based digital projection system compared with the year-ago quarter.

Operating income margin expanded to 20% in the reported quarter compared with 3.4% in the year-ago period.

Balance Sheet & Cash Flow

As of Dec 31, 2019, IMAX had cash and cash equivalents were $109.5 million compared with $102.5 million in the prior quarter.

Cash flow from operating activities was $90.4 million compared with $67.3 million in the prior quarter.

Free cash flow was $10.77 million compared with $7.77 million in the prior quarter.

2020 Guidance

IMAX stated that films including Wonder Woman 1984, No Time To Die (newest instalment in the James Bond franchise), Chris Nolan’s latest sci-fi epic, TENET, Paramount’s Top Gun: Maverick and Detective Chinatown 3, Marvel’s Black Widow and Eternals to Fast 9 among others will use IMAX cameras in 2020.

Notably, Comcast’s Universal Pictures is one of the producers of the film.

Management expects four of the postponed titles from the Chinese New Year slate to arrive in theaters in 2020. However, slump in IMAX China box office revenues is anticipated due to the coronavirus outbreak.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -335.71% due to these changes.

VGM Scores

At this time, Imax has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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. It's no surprise Imax has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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