UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 26, 2017
Date of report (Date of earliest event reported)
IMAX Corporation
(Exact Name of Registrant as Specified in Its Charter)
| Canada | 1-35066 | 98-0140269 | ||
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) | ||
| 2525 Speakman Drive Mississauga, Ontario, Canada L5K 1B1 (905) 403-6500 |
902 Broadway, Floor 20 New York, New York, USA 10010 (212) 821-0100 | |||
(Address of principal executive offices, zip code, telephone numbers)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter):
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On October 26, 2017, IMAX Corporation (the “Company”) posted a press release to its website announcing the Company’s financial and operating results for the quarter ended September 30, 2017, a copy of which is attached as Exhibit 99.1. The press release can also be viewed at http://investors.imax.com.
The information in this current report on Form 8-K, including the Exhibit attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits
| (d) | Exhibits |
| Exhibit No. |
Description | |
| 99.1 | Press Release dated October 26, 2017. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| IMAX Corporation (Registrant) | ||||||
| Date: October 26, 2017 | By: | /s/ Richard L. Gelfond | ||||
| Name: | Richard L. Gelfond | |||||
| Title: | Chief Executive Officer & Director | |||||
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IMAX CORPORATION
Exhibit 99.1
IMAX CORPORATION
2525 Speakman Drive
Mississauga, Ontario, Canada L5K 1B1
Tel: (905) 403-6500 Fax: (905) 403-6450
www.imax.com
IMAX CORPORATION REPORTS THIRD-QUARTER 2017 RESULTS
HIGHLIGHTS
| • | Company achieves record third quarter box office, up 17% over the prior-year |
| • | IMAX domestic box office increased 18% year-over-year, compared to the overall industry box office decline of 14% |
| • | Reduced SG&A, excluding stock-based compensation by 11% compared to the prior year period, largely the result of the Company’s recently announced cost-reduction exercise |
| • | Network Business margin of 67% up 500 basis points compared to prior third quarter |
| • | Company’s network expansion continues with 49 new theatre system installations in the third quarter, commercial network count reaches 1,203 screens |
| • | 151 signings over first nine months, 88% of which come from existing partners; backlog at 545 systems |
NEW YORK – Oct. 26, 2017 – IMAX Corporation (NYSE:IMAX) today reported third-quarter 2017 revenue of $98.8 million and a net loss attributable to common shareholders of $0.9 million, or $0.01 per diluted share. Adjusted net income attributable to common shareholders for the third quarter was $0.08 per diluted share, which excludes charges and impairments associated with the Company’s cost-reduction initiative and stock based compensation. For reconciliations of reported results to non-GAAP financial results, and for the definition and reconciliation of Adjusted EBITDA as calculated in accordance with the Company’s credit facility, please see the end of this press release.
“Our third-quarter global box office marked IMAX’s highest-grossing third quarter ever, growing 17% to $219 million. In addition to our box office growing 18% in the domestic market, despite the overall North America box office decline of roughly 14%, we also saw exceptional performance from our international, ex-China box office. This segment, which represents 27% of our theater network, accounted for over 34% of our total box office last quarter – underpinning the significance of our growing presence in key markets such as Japan, India and Europe,” said Richard L. Gelfond, IMAX Corporation CEO. “Last quarter we laid out several initiatives aimed at increasing the revenue generation of our network and reducing our cost structure. While we are still in the early stages of fully implementing these initiatives, we were pleased with the tangible progress we made in the third quarter—facilitating heightened box office and notable margin expansion across our core business.”
Third-Quarter 2017 Results
Network Update
During the quarter, the Company installed 51 theaters, of which 49 were for new theater locations and two were upgrades. The total IMAX theater network consisted of 1,302 systems as of Sept. 30, 2017, of which 1,203 were in commercial multiplexes. There were 545 theaters in backlog as of Sept. 30, 2017, up 9% from the 547 in backlog as of Sept. 30, 2016.
Continuing to build upon the Company’s record signings momentum from 2016, IMAX signed contracts for 17 new theaters in the third quarter of 2017. Through the first nine months of 2017, the Company signed contracts for 147 new theater systems and four upgrades across 28 countries, including the US, China, India, Japan, Germany and The
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Netherlands. For a breakdown of theater system signings, installations, network and backlog by type for the third quarter of 2017, please see the end of this press release.
“The IMAX consumer value proposition was on full display last quarter. Despite overall cinema industry challenges, it was our strongest third quarter ever, underpinned by our outperformance on blockbuster-titles such as Dunkirk. Internationally, box office from our international, ex-China network, now exceeds that of our domestic business. In fact, we grew box office in this segment by 25% year-over-year. And given 25% of our backlog is slated for markets outside of North America and China, we anticipate this piece of our business to become even more meaningful over time.” Gelfond concluded, “As a Company, our priority remains profitably growing our network. We achieved healthy operating leverage in our core business last quarter, benefiting from the incremental nature of our theatre installations and the attractive returns IMAX screens continue to generate, especially under a more modest cost structure.”
Box Office Update
Gross box office from IMAX DMR® increased by 17.4% to $218.8 million in the third quarter of 2017 from $186.3 million in the third quarter of 2016, resulting in higher DMR revenues. Gross box office per-screen for the third quarter of 2017 averaged $181,122, in comparison to $184,700 in the third quarter of 2016 as the increase in gross box office did not increase at the same growth rate as the IMAX theater network. In the third quarter of 2017, gross box office was generated primarily by the exhibition of 24 films (17 new and 7 carryovers), as compared to 29 films (21 new and 8 carryovers) exhibited in the third quarter of 2016. Our third quarter 2017 results include box office attributable to the theatrical release of “Marvel’s Inhumans”, which underperformed our expectations.
Please reference the chart below for a breakout of box office and per-screen averages on a regional basis:
| Box Office (M’s) | Per Screen Average (000’s) | |||||||||||||||
| Q3 2017 | Q3 2016 | Q3 2017 | Q3 2016 | |||||||||||||
| Global |
$ | 218.8 | $ | 186.3 | $ | 181.1 | $ | 184.7 | ||||||||
| Domestic |
80.1 | 68.1 | 197.9 | 174.2 | ||||||||||||
| Greater China |
59.6 | 55.2 | 134.1 | 170.9 | ||||||||||||
| Other Intl. |
79.1 | 63.0 | 220.4 | 213.8 | ||||||||||||
Third-Quarter Segment Results
Network Business
| • | Network business revenue was $42.6 million in the quarter, compared with $36.5 million in the prior-year period. Margins for the network business were 67.0% in the most recent quarter, compared to 61.8% in the prior-year period. |
| • | IMAX DMR revenues were $26.0 million in the third quarter of 2017, compared to $21.5 million in the third quarter of 2016. Gross margin for the IMAX DMR segment was 69.7%, up over 1,100 basis points compared to 57.8% in the prior-year comparative period. The margin increase was primarily a result of stronger box office and a reduction in DMR expenses year-over-year. |
| • | Revenue from joint revenue-sharing arrangements was $15.6 million in the quarter, compared with $14.2 million in the prior-year comparative period. Gross margin for joint revenue-sharing arrangements was 60.1%, compared to 65.8% in the prior-year comparative period. |
Theater Business
| • | Theater business segment revenue was $43.5 million in the quarter, compared with $43.2 million in the prior-year comparative period. |
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| • | The Company’s gross margin on full, new sales and sales-type leases were 68.2% compared with 68.8% in the year-ago period, primarily a result of the regional mix of installations. |
| • | The Company now expects to install approximately 160 to 165 new IMAX theater systems in 2017, versus its previous outlook of 160 installations. |
Consolidated Results
The gross margin across all segments in the third quarter of 2017 was $39.9 million, or 40.4% of total revenue, compared to $44.9 million, or 51.9% of total revenue in the third quarter of 2016. Our total gross margin reflects investment in new business initiatives in the amount of $11.1 million in the quarter. This figure was largely a result of the Company’s investment in the new television series “Marvel’s Inhumans”. Operating expenses (which include SG&A and R&D, and exclude stock-based compensation) were $25.0 million in the quarter, down 9% compared to $27.4 million in the third quarter of 2016.
Supplemental Materials
For more information about the Company’s results, please refer to the IMAX Investor Relations website located at investors.imax.com.
Investor Relations Website and Social Media
On a weekly basis, the Company posts quarter-to-date box office results on the IMAX Investor Relations website located at www.imax.com/content/investor-relations. The Company expects to provide such updates on Friday of each week, although the Company may change this timing without notice. Results will be displayed with a one-week lag. In addition, the Company maintains a Twitter account: @IMAX_Investors. The Company intends to use Twitter to disclose the box office information, as well as other information that may be of interest to the Company’s investor community.
The information posted on the Company’s website and/or via its Twitter account may be deemed material to investors. Accordingly, investors, media and others interested in the Company should monitor the Company’s website and its Twitter account in addition to the Company’s press releases, SEC filings and public conference calls and webcasts.
Conference Call
The Company will host a conference call today at 8:30AM ET to discuss its third-quarter 2017 financial results. This call is being webcast by Nasdaq and can be accessed at investors.imax.com. To access the call via telephone, interested parties in the US and Canada should dial (800) 274-0251 approximately 5 to 10 minutes before the call begins. Other international callers should dial (416) 640-5944. The conference ID for the call is 5695574. A replay of the call will be available via webcast at investors.imax.com or via telephone by dialing (888) 203-1112 (US and Canada), or (647) 436-0148 (international). The Conference ID for the telephone replay is 5695574.
About IMAX Corporation
IMAX, an innovator in entertainment technology, combines proprietary software, architecture and equipment to create experiences that take you beyond the edge of your seat to a world you’ve never imagined. Top filmmakers and studios are utilizing IMAX theaters to connect with audiences in extraordinary ways, and, as such, IMAX’s network is among the most important and successful theatrical distribution platforms for major event films around the globe.
IMAX is headquartered in New York, Toronto and Los Angeles, with additional offices in London, Dublin, Tokyo, and Shanghai. As of September 30, 2017, there were 1,302 IMAX theater systems (1,203 commercial multiplexes, 13 commercial destinations, 86 institutional) operating in 75 countries. On Oct. 8, 2015, shares of IMAX China, a subsidiary of IMAX Corp., began trading on the Hong Kong Stock Exchange under the stock code “HK.1970.”
IMAX®, IMAX® 3D, IMAX DMR®, Experience It In IMAX®, An IMAX 3D Experience®, The IMAX Experience®, IMAX Is Believing® and IMAX nXos® are trademarks of IMAX Corporation. More information about the Company can be found at www.imax.com. You may also connect with IMAX on Facebook (www.facebook.com/imax), Twitter (www.twitter.com/imax) and YouTube (www.youtube.com/imaxmovies).
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This press release contains forward looking statements that are based on IMAX management’s assumptions and existing information and involve certain risks and uncertainties which could cause actual results to differ materially from future results expressed or implied by such forward looking statements. Important factors that could affect these statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its consolidated subsidiaries (the “Company”) and expectations regarding the Company’s future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada; risks related to the Company’s growth and operations in China; the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; risks related to currency fluctuations; the performance of IMAX DMR films; the potential impact of increased competition in the markets within which the Company operates; competitive actions by other companies; the failure to respond to change and advancements in digital technology; the Company’s largest customer accounting for a significant portion of the Company’s revenue and backlog; risks related to new business initiatives; conditions in the in-home and out-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security; risks related to the Company’s inability to protect its intellectual property; risks related to the Company’s implementation of a new enterprise resource planning system; general economic, market or business conditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; the failure to fully realize the projected cost savings and benefits from the Company’s restructuring initiative; and other factors, many of which are beyond the control of the Company. These factors, other risks and uncertainties and financial details are discussed in IMAX’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
For additional information please contact:
|
Investors: Michael K. Mougias 212-821-0187 mmougias@imax.com |
Media: IMAX Corporation, New York Ann Sommerlath 212-821-0155 asommerlath@imax.com | |
| Business Media: Sloane & Company, New York Whit Clay 212-446-1864 wclay@sloanepr.com |
Entertainment Media: Principal Communications Group, Los Angeles Melissa Zuckerman/Paul Pflug 323-658-1555 melissa@pcommgroup.com paul@pcommgroup.com
| |
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Additional Information
Signings and Installations
September 30, 2017
| Three Months Ended September 30, |
||||||||
| Theater System Signings: | 2017 | 2016 | ||||||
| Full new sales and sales-type lease arrangements |
17 | 5 | ||||||
| New traditional joint revenue sharing arrangements |
- | 155 | ||||||
| New hybrid joint revenue sharing arrangements |
- | 1 | ||||||
|
|
|
|
|
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| Total new theaters |
17 | 161 | ||||||
| Upgrades of IMAX theater systems |
- | 1 | ||||||
|
|
|
|
|
|||||
| Total Theater Signings |
17 | 162 | ||||||
|
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|
|
|||||
| Three Months Ended September 30, |
||||||||
| Theater System Installations: | 2017 | 2016 | ||||||
| Full new sales and sales-type lease arrangements |
19 | 15 | ||||||
| New traditional joint revenue sharing arrangements |
25 | 24 | ||||||
| New hybrid joint revenue sharing arrangements |
5 | 9 | ||||||
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|
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| Total new theaters |
49 | 48 | ||||||
| Upgrades of IMAX theater systems |
2 | (1) | 2 | (1) | ||||
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|
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| Total Theater Installations |
51 | 50 | ||||||
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|
|||||
| September 30, | September 30, | |||||||
| Theater Backlog: | 2017 | 2016 | ||||||
| New sales and sales-type lease arrangements |
170 | 158 | ||||||
| New joint revenue sharing arrangements |
||||||||
| Hybrid arrangements |
130 | 103 | ||||||
| Traditional arrangements |
245 | 286 | ||||||
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|
|
|
|||||
| Total Theater Backlog |
545 | (2) | 547 | (3) | ||||
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| September 30, | September 30, | |||||||
| Theater Network: | 2017 | 2016 | ||||||
| Commercial Multiplex Theaters: |
||||||||
| Sales and sales-type lease arrangements |
501 | 445 | ||||||
| Traditional joint revenue sharing arrangements |
575 | 487 | ||||||
| Hybrid joint revenue sharing arrangements |
127 | 105 | ||||||
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|
|
|
|||||
| Total Commercial Multiplex Theaters |
1,203 | 1,037 | ||||||
| Commercial Destination Theaters |
13 | 16 | ||||||
| Institutional Theaters |
86 | 92 | ||||||
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|
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|
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| Total Theater Network |
1,302 | 1,145 | ||||||
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|
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| (1) | Includes one installation of an upgrade to a laser-based digital system under a traditional joint revenue sharing arrangement and one under a sales arrangement (2016 – two laser-based digital systems under sales and sales-type lease arrangements). |
| (2) | Includes 25 laser-based digital theater system configurations, including three upgrades. The Company continues to develop and roll out its laser-based digital projection system |
| (3) | Includes 20 laser-based digital theater system configurations, including five upgrades. |
5
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues |
||||||||||||||||
| Equipment and product sales |
$ | 30,714 | $ | 30,835 | $ | 63,593 | $ | 81,064 | ||||||||
| Services |
49,817 | 37,195 | 133,264 | 122,853 | ||||||||||||
| Rentals |
15,849 | 16,007 | 51,143 | 58,538 | ||||||||||||
| Finance income |
2,420 | 2,288 | 7,214 | 6,991 | ||||||||||||
| Other |
- | 225 | - | 975 | ||||||||||||
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|||||||||
| 98,800 | 86,550 | 255,214 | 270,421 | |||||||||||||
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|||||||||
| Costs and expenses applicable to revenues |
||||||||||||||||
| Equipment and product sales |
14,270 | 15,690 | 32,352 | 49,075 | ||||||||||||
| Services |
37,763 | 20,393 | 79,678 | 58,517 | ||||||||||||
| Rentals |
6,899 | 5,504 | 18,086 | 15,367 | ||||||||||||
| Other |
- | 64 | - | 110 | ||||||||||||
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|||||||||
| 58,932 | 41,651 | 130,116 | 123,069 | |||||||||||||
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| Gross margin |
39,868 | 44,899 | 125,098 | 147,352 | ||||||||||||
| Selling, general and administrative expenses |
25,540 | 30,686 | 85,071 | 92,706 | ||||||||||||
| (including share-based compensation expense of $5.2 million and $16.2 million for the three and nine months ended September 30, 2017, respectively (2016 — $7.7 million and $22.5 million, respectively)) |
||||||||||||||||
| Research and development |
4,626 | 4,460 | 14,638 | 11,603 | ||||||||||||
| Asset impairments |
- | 1,223 | 1,225 | 1,223 | ||||||||||||
| Amortization of intangibles |
802 | 531 | 2,182 | 1,537 | ||||||||||||
| Receivable provisions, net of recoveries |
963 | 275 | 2,088 | 631 | ||||||||||||
| Impairment of investments |
- | - | - | 194 | ||||||||||||
| Exit costs, restructuring charges and associated impairments | 3,437 | - | 13,695 | - | ||||||||||||
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| Income from operations |
4,500 | 7,724 | 6,199 | 39,458 | ||||||||||||
| Interest income |
253 | 370 | 761 | 1,217 | ||||||||||||
| Interest expense |
(528) | (469) | (1,418) | (1,325) | ||||||||||||
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| Income from operations before income taxes |
4,225 | 7,625 | 5,542 | 39,350 | ||||||||||||
| Provision for income taxes |
(1,009) | (2,551) | (885) | (9,635) | ||||||||||||
| Loss from equity-accounted investments, net of tax |
(318) | (690) | (837) | (2,471) | ||||||||||||
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| Net income |
2,898 | 4,384 | 3,820 | 27,244 | ||||||||||||
| Less: net income attributable to non-controlling interests |
(3,748) | (1,859) | (6,307) | (7,401) | ||||||||||||
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| Net (loss) income attributable to common shareholders |
$ | (850) | $ | 2,525 | $ | (2,487) | $ | 19,843 | ||||||||
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| Net (loss) income per share attributable to common shareholders - basic and diluted: |
||||||||||||||||
| Net (loss) income per share – basic |
$ | (0.01) | $ | 0.04 | $ | (0.04) | $ | 0.29 | ||||||||
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| Net (loss) income per share – diluted |
$ | (0.01) | $ | 0.04 | $ | (0.04) | $ | 0.29 | ||||||||
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| Weighted average number of shares outstanding (000’s): |
||||||||||||||||
| Basic |
64,736 | 67,090 | 65,624 | 68,053 | ||||||||||||
| Fully Diluted |
64,803 | 67,746 | 65,834 | 68,721 | ||||||||||||
| Additional Disclosure: |
||||||||||||||||
| Depreciation and amortization(1) |
$ | 14,413 | $ | 12,115 | $ | 39,767 | $ | 34,179 | ||||||||
(1) Includes $0.2 million and $0.4 million of amortization of deferred financing costs charged to interest expense for the three and nine months ended September 30, 2017, respectively (2016—$0.1 million and $0.4 million, respectively).
6
IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
(Unaudited)
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 157,708 | $ | 204,759 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $1,356 (December 31, 2016 — $1,250) |
102,514 | 96,349 | ||||||
| Financing receivables |
123,510 | 122,125 | ||||||
| Inventories |
37,371 | 42,121 | ||||||
| Prepaid expenses |
10,217 | 6,626 | ||||||
| Film assets |
19,048 | 16,522 | ||||||
| Property, plant and equipment |
269,815 | 245,415 | ||||||
| Other assets |
22,957 | 33,195 | ||||||
| Deferred income taxes |
33,369 | 20,779 | ||||||
| Other intangible assets |
31,127 | 30,416 | ||||||
| Goodwill |
39,027 | 39,027 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 846,663 | $ | 857,334 | ||||
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|
|||||
| Liabilities |
||||||||
| Bank indebtedness |
$ | 25,846 | $ | 27,316 | ||||
| Accounts payable |
18,178 | 19,990 | ||||||
| Accrued and other liabilities |
89,781 | 93,208 | ||||||
| Deferred revenue |
120,770 | 90,266 | ||||||
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|
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|
|||||
| Total liabilities |
254,575 | 230,780 | ||||||
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|||||
| Commitments and contingencies |
||||||||
| Non-controlling interests |
2,340 | 4,980 | ||||||
|
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|
|||||
| Shareholders’ equity |
||||||||
| Capital stock common shares — no par value. Authorized — unlimited number. 64,892,201 issued and 64,754,961 outstanding (December 31, 2016 — 66,224,467 issued and 66,159,902 outstanding) |
445,466 | 439,213 | ||||||
| Less: Treasury stock, 137,240 shares at cost (December 31, 2016 — 64,565) |
(4,386) | (1,939) | ||||||
| Other equity |
173,524 | 177,304 | ||||||
| Accumulated deficit |
(92,423) | (47,366) | ||||||
| Accumulated other comprehensive loss |
(1,846) | (5,200) | ||||||
|
|
|
|
|
|||||
| Total shareholders’ equity attributable to common shareholders |
520,335 | 562,012 | ||||||
| Non-controlling interests |
69,413 | 59,562 | ||||||
|
|
|
|
|
|||||
| Total shareholders’ equity |
589,748 | 621,574 | ||||||
|
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|
|
|
|||||
| Total liabilities and shareholders’ equity |
$ | 846,663 | $ | 857,334 | ||||
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|
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7
IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash provided by (used in): |
||||||||
| Operating Activities |
||||||||
| Net income |
$ | 3,820 | $ | 27,244 | ||||
| Adjustments to reconcile net income to cash from operations: |
||||||||
| Depreciation and amortization |
39,767 | 34,179 | ||||||
| Write-downs, net of recoveries |
25,620 | 2,903 | ||||||
| Change in deferred income taxes |
(5,145) | (517) | ||||||
| Stock and other non-cash compensation |
18,916 | 22,896 | ||||||
| Unrealized foreign currency exchange gain |
(863) | (206) | ||||||
| Loss from equity-accounted investments |
539 | 2,769 | ||||||
| Loss (gain) on non-cash contribution to equity-accounted investees |
298 | (298) | ||||||
| Investment in film assets |
(30,686) | (14,162) | ||||||
| Changes in other non-cash operating assets and liabilities |
11,153 | (29,504) | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
63,419 | 45,304 | ||||||
|
|
|
|
|
|||||
| Investing Activities |
||||||||
| Purchase of property, plant and equipment |
(16,356) | (10,033) | ||||||
| Investment in joint revenue sharing equipment |
(35,538) | (25,524) | ||||||
| Investment in new business ventures |
(1,500) | - | ||||||
| Acquisition of other intangible assets |
(3,939) | (2,931) | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(57,333) | (38,488) | ||||||
|
|
|
|
|
|||||
| Financing Activities |
||||||||
| Repayment of bank indebtedness |
(1,500) | (1,500) | ||||||
| Settlement of restricted share units and options |
(15,366) | (8,376) | ||||||
| Common shares issued—stock options exercised |
14,419 | 7,196 | ||||||
| Treasury stock purchased for future settlement of restricted share units |
(4,386) | (6) | ||||||
| Taxes withheld and paid on employee stock awards vested |
(218) | (230) | ||||||
| Repurchase of common shares |
(46,138) | (100,378) | ||||||
| Taxes paid on secondary sale and repatriation dividend |
- | (2,991) | ||||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(53,189) | (106,285) | ||||||
|
|
|
|
|
|||||
| Effects of exchange rate changes on cash |
52 | 124 | ||||||
|
|
|
|
|
|||||
| Decrease in cash and cash equivalents during period |
(47,051) | (99,345) | ||||||
| Cash and cash equivalents, beginning of period |
204,759 | 317,449 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 157,708 | $ | 218,104 | ||||
|
|
|
|
|
|||||
8
IMAX CORPORATION
SELECTED FINANCIAL DATA
In accordance with United States Generally Accepted Accounting Principles
(in thousands of U.S. dollars)
The Company has four primary reporting groups identified by nature of product sold or service provided: (1) Network Business, representing variable revenue generated by box-office results and which includes the reportable segments of IMAX DMR and contingent rent from the JRSAs and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments, and also includes fixed hybrid revenues and upfront installation costs from the JRSA segment; (3) New Business, which includes content licensing and distribution fees associated with our original content investments, virtual reality initiatives, IMAX Home Entertainment, and other business initiatives that are in the development and/or start-up phase, and (4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items.
| Three Months | Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue |
||||||||||||||||
| Network Business |
||||||||||||||||
| IMAX DMR |
$ | 25,971 | $ | 21,549 | $ | 77,136 | $ | 78,767 | ||||||||
| Joint revenue sharing arrangements – contingent rent |
15,572 | 14,181 | 49,702 | 54,994 | ||||||||||||
| IMAX systems – contingent rent |
1,094 | 779 | 2,573 | 3,178 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 42,637 | 36,509 | 129,411 | 136,939 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Theater Business |
||||||||||||||||
| IMAX system |
||||||||||||||||
| Sales and sales-type leases |
25,111 | 21,804 | 48,178 | 58,522 | ||||||||||||
| Ongoing fees and finance income |
2,646 | 3,104 | 7,844 | 8,808 | ||||||||||||
| Joint revenue sharing arrangements – fixed fees |
2,658 | 5,517 | 4,536 | 11,946 | ||||||||||||
| Theater system maintenance |
11,511 | 10,293 | 33,459 | 30,031 | ||||||||||||
| Other theater |
1,586 | 2,445 | 5,449 | 7,789 | ||||||||||||
| 43,512 | 43,163 | 99,466 | 117,096 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| New Business |
8,917 | 515 | 11,508 | 601 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Other |
||||||||||||||||
| Film distribution and post-production |
2,698 | 4,419 | 11,369 | 9,781 | ||||||||||||
| Other |
1,036 | 1,944 | 3,460 | 6,004 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 3,734 | 6,363 | 14,829 | 15,785 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 98,800 | $ | 86,550 | $ | 255,214 | $ | 270,421 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross margin |
||||||||||||||||
| Network Business |
||||||||||||||||
| IMAX DMR(1) |
$ | 18,114 | $ | 12,448 | $ | 52,578 | $ | 52,398 | ||||||||
| Joint revenue sharing arrangements – contingent rent(1) |
9,351 | 9,340 | 33,271 | 41,620 | ||||||||||||
| IMAX systems – contingent rent |
1,094 | 779 | 2,573 | 3,178 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 28,559 | 22,567 | 88,422 | 97,196 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Theater Business |
||||||||||||||||
| IMAX system |
||||||||||||||||
| Sales and sales-type leases |
15,246 | 12,936 | 28,190 | 26,795 | ||||||||||||
| Ongoing fees and finance income |
2,522 | 3,028 | 7,582 | 8,279 | ||||||||||||
| Joint revenue sharing arrangements – fixed fees(1) |
624 | 1,640 | 887 | 3,096 | ||||||||||||
| Theater system maintenance |
4,624 | 3,398 | 13,306 | 10,207 | ||||||||||||
| Other theater |
247 | 314 | 1,082 | 993 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 23,263 | 21,316 | 51,047 | 49,370 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| New Business |
(11,912) | (284) | (13,432) | (861) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Other |
||||||||||||||||
| Film distribution and post-production(1) |
402 | 1,261 | (262) | 2,030 | ||||||||||||
| Other |
(444) | 39 | (677) | (383) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (42) | 1,300 | (939) | 1,647 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 39,868 | $ | 44,899 | $ | 125,098 | $ | 147,352 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
9
| (1) | IMAX DMR segment margins include marketing costs of $2.5 million and $9.8 million for the three and nine months ended September 30, 2017, respectively (2016 - $4.2 million and $11.7 million, respectively). Joint revenue sharing arrangements segment margins include advertising, marketing and commission costs of $1.3 million and $2.5 million for the three and nine months ended September 30, 2017, respectively (2016 - $0.9 million and $1.9 million, respectively). IMAX system sales and sales-type lease segment margins include marketing and commission costs of $1.1 million and $2.2 million for the three and nine months ended September 30, 2017, respectively (2016 - $1.3 million and $3.0 million, respectively). Film distribution and post production segment margins include marketing expense of less than $0.1 million and recovery of $0.7 million for the three and nine months ended September 30, 2017, respectively (2016 - expense of $0.6 million and $2.1 million, respectively). |
IMAX CORPORATION
OTHER INFORMATION
(in thousands of U.S. dollars)
Non-GAAP Financial Measures:
In this release, the Company presents adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share, EBITDA and adjusted EBITDA as supplemental measures of performance of the Company, which are not recognized under U.S. GAAP. The Company presents adjusted net income and adjusted net income per diluted share because it believes that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) and non-recurring charges on net income. In addition, the Company presents adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results and could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable to non-controlling interests, its stock-based compensation (net of any related tax impact) and non-recurring charges in determining net income attributable to common shareholders. Management uses these measures to review operating performance on a comparable basis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share should be considered in addition to, and not as a substitute for, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP.
The Company is required to maintain a minimum level of “EBITDA”, as such term is defined in the Company’s credit agreement (and which is referred to herein as “Adjusted EBITDA”, as the credit agreement includes additional adjustments beyond interest, taxes, depreciation and amortization). EBITDA and Adjusted EBITDA (each as defined below) should not be construed as substitutes for net income or as better measures of liquidity as determined in accordance with U.S. GAAP. The Company believes that EBITDA and Adjusted EBITDA are relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry.
| For the | For the | |||||||
| 3 months ended | 12 months ended | |||||||
| September 30, 2017 | September 30, 2017(1) | |||||||
| (In thousands of U.S. Dollars) | ||||||||
| Net income |
$ | 2,898 | $ | 15,896 | ||||
| Add (subtract): |
||||||||
| Provision for income taxes |
1,009 | 7,462 | ||||||
| Interest expense, net of interest income |
275 | 864 | ||||||
| Depreciation and amortization, including film asset amortization |
14,252 | 51,521 | ||||||
|
|
|
|
|
|||||
| EBITDA |
$ | 18,434 | $ | 75,743 | ||||
| Exit costs, restructuring charges and associated impairments |
3,437 | 13,695 | ||||||
| Stock and other non-cash compensation |
6,419 | 27,606 | ||||||
| Write-downs, net of recoveries including asset impairments and receivable provisions |
12,465 | 23,104 | ||||||
| Loss from equity accounted investments |
318 | 687 | ||||||
|
|
|
|
|
|||||
| Adjusted EBITDA before non-controlling interests(2) |
41,073 | 140,835 | ||||||
| Adjusted EBITDA attributable to non-controlling interests |
(6,511 | ) | (21,624 | ) | ||||
|
|
|
|
|
|||||
| Adjusted EBITDA attributable to common shareholders |
$ | 34,562 | $ | 119,211 | ||||
|
|
|
|
|
|||||
| Adjusted revenues attributable to common shareholders(3) |
$ | 87,180 | $ | 323,478 | ||||
|
|
|
|
|
|||||
| Adjusted EBITDA margin |
39.6 | % | 36.9 | % | ||||
|
|
|
|
|
|||||
10
| (1) | Ratio of funded debt calculated using twelve months ended Adjusted EBITDA. |
| (2) | The Adjusted EBITDA calculation specified for purpose of the minimum Adjusted EBITDA covenant excludes the reduction in Adjusted EBITDA from the Company’s non-controlling interests. |
| (3) | 3 months ended September 30, 2017 | 12 months ended September 30, 2017 | ||||||||||||||||
| Total revenues | $ | 98,800 | $ | 362,128 | ||||||||||||||
| Greater China revenues | $ | 36,563 | $ | 121,870 | ||||||||||||||
| Non-controlling interest ownership percentage(4) | 31.78% | 31.71% | ||||||||||||||||
|
|
|
|
|
|||||||||||||||
| Deduction for non-controlling interest share of revenues | (11,620) | (38,650) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||
| Adjusted revenues attributable to common shareholders | $ | 87,180 | $ | 323,478 | ||||||||||||||
|
|
|
|
|
|||||||||||||||
| (4) | Weighted average ownership percentage for change in non-controlling interest share |
IMAX CORPORATION
OTHER INFORMATION
(in thousands of U.S. dollars)
Adjusted Net Income and Adjusted Diluted Per Share Calculations – Quarter Ended September 30, 2017 vs. 2016:
The Company reported net income of $2.9 million, or $0.04 per basic and diluted share, for the third quarter of 2017 as compared to net income of $4.4 million, or $0.07 per basic and diluted share for the third quarter of 2016. Net income for the third quarter of 2017 includes a $5.7 million charge, or $0.09 per diluted share (2016 — $7.7 million or $0.11 per diluted share), for stock-based compensation and a $3.4 million charge, or $0.05 per diluted share, for exit costs, restructuring charges and associated impairments. Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments and the related tax impact, was $9.2 million, or $0.14 per diluted share, for the third quarter of 2017 as compared to adjusted net income of $9.9 million, or $0.15 per diluted share, for the third quarter of 2016. The Company reported a net loss attributable to common shareholders of $0.9 million, or a $0.01 loss per basic and diluted share for the third quarter of 2017 (2016 — $2.5 million net income or $0.04 per basic and diluted share). Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments and the related tax impact, was $5.2 million, or $0.08 per diluted share, for the third quarter of 2017 as compared to adjusted net income attributable to common shareholders of $7.9 million, or $0.12 per diluted share, for the third quarter of 2016. A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below:
| (In thousands of U.S. dollars, except per share amounts) | Quarter Ended September 30, | |||||||||||||||
| 2017 | 2016 | |||||||||||||||
| Net Income | Diluted EPS | Net Income | Diluted EPS | |||||||||||||
| Reported net income |
$ | 2,898 | $ | 0.04 | $ | 4,384 | $ | 0.07 | ||||||||
| Adjustments: |
||||||||||||||||
| Stock-based compensation |
5,739 | 0.09 | 7,742 | 0.11 | ||||||||||||
| Exit costs, restructuring charges and associated impairments |
3,437 | 0.05 | - | - | ||||||||||||
| Tax impact on items listed above |
(2,855) | (0.04) | (2,210) | (0.03) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted net income |
9,219 | 0.14 | 9,916 | 0.15 | ||||||||||||
| Net income attributable to non-controlling interests |
(3,748) | (0.06) | (1,859) | (0.03) | ||||||||||||
| Stock-based compensation (net of tax of $0.1 million and less than $0.1 million, respectively) |
(263) | - | (128) | - | ||||||||||||
| Exit costs, restructuring charges and associated impairments (net of tax of less than $0.1 million) |
(11) | - | - | - | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted net income attributable to common shareholders |
$ | 5,197 | $ | 0.08 | $ | 7,929 | $ | 0.12 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted average diluted shares outstanding |
64,803 | 67,746 | ||||||||||||||
|
|
|
|
|
|||||||||||||
11
Adjusted Net Income and Adjusted Diluted Per Share Calculations – Nine Months Ended September 30, 2017 vs. 2016
The Company reported net income of $3.8 million, or $0.06 per basic and diluted share, for the nine months ended September 30, 2017 as compared to net income of $27.2 million, or $0.40 per basic and diluted share for the nine months ended September 30, 2016. Net income for the nine months ended September 30, 2017 includes a $17.8 million charge, or $0.27 per diluted share (2016 — $22.5 million or $0.32 per diluted share), for stock-based compensation and a $13.7 million charge, or $0.20 per diluted share for exit costs, restructuring charges and associated impairments. Adjusted net income, which consists of net income excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments and the related tax impact, was $25.7 million, or $0.38 per diluted share, for the nine months ended September 30, 2017 as compared to adjusted net income of $43.3 million, or $0.63 per diluted share, for the nine months ended September 30, 2016. The Company reported a net loss attributable to common shareholders of $2.5 million, or a loss of $0.04 per basic and diluted share for the nine months ended September 30, 2017 (2016 — net income of $19.8 million, or $0.29 per basic and diluted share). Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation, exit costs, restructuring charges and associated impairments and the related tax impact, was $18.7 million, or $0.28 per diluted share, for the nine months ended September 30, 2017 as compared to adjusted net income attributable to common shareholders of $35.5 million, or $0.52 per diluted share, for the nine months ended September 30, 2016. A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below:
| (In thousands of U.S. dollars, except per share amounts) | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | |||||||||||||||
| Net Income | Diluted EPS | Net Income | Diluted EPS | |||||||||||||
| Reported net income |
$ | 3,820 | $ | 0.06 | $ | 27,244 | $ | 0.40 | ||||||||
| Adjustments: |
||||||||||||||||
| Stock-based compensation |
17,796 | 0.27 | 22,485 | 0.32 | ||||||||||||
| Exit costs, restructuring charges and associated impairments |
13,695 | 0.20 | - | - | ||||||||||||
| Tax impact on items listed above |
(9,578) | (0.15) | (6,394) | (0.09) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted net income |
25,733 | 0.38 | 43,335 | 0.63 | ||||||||||||
| Net income attributable to non-controlling interests |
(6,307) | (0.10) | (7,401) | (0.11) | ||||||||||||
| Stock-based compensation (net of tax of $0.2 million and $0.1 million, respectively) |
(544) | - | (421) | - | ||||||||||||
| Exit costs, restructuring charges and associated impairments (net of tax of less than $0.1 million) |
(179) | - | - | - | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted net income attributable to common shareholders |
$ | 18,703 | $ | 0.28 | $ | 35,513 | $ | 0.52 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted average diluted shares outstanding |
65,834 | 68,721 | ||||||||||||||
|
|
|
|
|
|||||||||||||
12
Free Cash Flow:
Free cash flow is defined as cash provided by operating activities minus cash used in investing activities (from the consolidated statements of cash flows). Cash provided by operating activities consist of net income, plus depreciation and amortization, plus the change in deferred income taxes, plus other non-cash items, plus changes in working capital, less investment in film assets, plus other changes in operating assets and liabilities. Cash used in investing activities includes capital expenditures, acquisitions and other cash used in investing activities. Management views free cash flow, a non-GAAP measure, as a measure of the Company’s after-tax cash flow available to reduce debt, add to cash balances, and fund other financing activities. Free cash flow does not represent residual cash flow available for discretionary expenditures. A reconciliation of cash provided by operating activities to free cash flow is presented in the table below:
| For the | For the | |||||||
| Three months ended | Nine months ended | |||||||
| September 30, 2017 | September 30, 2017 | |||||||
| (In thousands of U.S. Dollars) | ||||||||
| Net cash used in operating activities |
$ | 26,199 | $ | 63,419 | ||||
| Net cash used in investing activities |
(25,888) | (57,333) | ||||||
|
|
|
|
|
|||||
| Net cash flow |
$ | 311 | $ | 6,086 | ||||
|
|
|
|
|
|||||
13