IMAX Corporation (NYSE:IMAX) Q1 2024 Earnings Call Transcript

IMAX Corporation (NYSE:IMAX) Q1 2024 Earnings Call Transcript April 25, 2024

IMAX Corporation beats earnings expectations. Reported EPS is $0.15, expectations were $0.1. IMAX Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 IMAX Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker Jennifer Horsley, Head of Investor Relations. Please go ahead.

Jennifer Horsley: Good afternoon, and thank you for joining us for IMAX’s first quarter 2024 earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; and Natasha Fernandes, our Chief Financial Officer. Rob Lister, Chief Legal Officer is also joining us today. Today’s conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our earnings press release and the slide presentation have been posted on the Investor Relations section of our site. Our historical Excel model is posted to the website as well. I would like to remind you of the following information regarding forward-looking statements.

Today’s call as well as the accompanying slide deck may include statements that are forward-looking and that pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause our actual future results to not occur or occurrences to differ. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today. And we undertake no obligation to update these statements as a result of new information future events or otherwise. During today’s call references may be made to certain non-GAAP financial measures. Discussion of management’s use of these measures and the definition of these measures as well as a reconciliation to non-GAAP financial measures are contained in this morning’s press release and our earnings materials, which are available on the Investor Relations page of our website at imax.com.

With that, let me now turn the call over to Mr. Richard Gelfond. Rich?

Rich Gelfond: Thanks, Jennifer, and thanks everyone for joining us today. IMAX powers awe-inspiring experiences for audiences around the world. We partner end-to-end with the greatest filmmakers and creators working today to help them realize their visions to the fullest. Deployed at scale globally, we deliver Hollywood and international blockbusters, original documentaries, and immersive events across about 90 countries and territories worldwide. Our technology, our deep relationships with filmmakers, our global footprint, all of it combines to make IMAX a wholly differentiated platform, which is why we are a consistent winner in the media and global entertainment landscape. The company delivered solid results in the first quarter, thanks to a record breaking surge in March that bodes well for another strong year ahead.

Year-to-date, we delivered another 17 signings globally, including agreements in growth markets like India, Thailand and Turkey that further diversify our footprint. Our first quarter global box office of $261 million marks our third highest grossing Q1 ever, capped off by our best March ever, despite limited content owing to the strikes last year. Domestically, we delivered a remarkable 5.9% of the overall box office, our highest quarterly market share ever in North America, despite accounting for only 1% of the screens. I’m going to repeat that again. Almost 6% of the domestic box office on only 1% of the screens, it’s an incredible number. And we drove strong profitability, including gross profit margin of 59% and total adjusted EBITDA margin of 40%.

Our Q1 results are consistent with the full year guidance we issued earlier this year. From the beginning, we’ve said that 2024 will be better at the box office than many pundits predicted. In the wake of Dune 2 and Godzilla Kong, the world is coming around to our point of view. And as we said before, we expect 2025 to be a strong growth year. Our momentum is fueled by a virtuous cycle in our business. Global moviegoing is shifting rapidly to IMAX as a result of global box office market share and indexing are all at near time highs, and this is fueling sales activity, particularly in the rest of the world, high PSA markets where we’re prioritizing our network growth. Studios and filmmakers see this and lean into IMAX, filming with IMAX cameras, leading with IMAX exclusive events and partnerships, and making the IMAX platform a centerpiece of their marketing.

This was evident at the recent CinemaCon Movie Conference, where IMAX was heavily featured in studio presentations, trailers, and filmmaker remarks. As Marvel Chief, Kevin Feige said from the stage at the Disney presentation, what IMAX does to get people out of their homes and into your theaters is second to none. Creators, content owners and brands beyond Hollywood and across the spectrum see this and want to work with IMAX, yielding opportunities to open our content aperture across music, gaming, sports, live events and more. Local language films and music experiences have been a strong contributor to our results year-to-date, and this diversifying content portfolio across awe-inspiring experiences from gaming franchises to sports leagues to live global events further strengthens our differentiated offering for consumers.

The wheel continues to turn and accelerate, which is why we’re very confident in our ability to drive future growth for the company. Today, I’d like to offer updates on number one, our global network and number two, our content slate. I’ll then hand it over to Natasha to go through our financial results before taking your questions. First, 2023 was a strong year for IMAX network growth in which we levered off our box office momentum to achieve significant gains in sales activity and network growth. We also further diversified our footprint of the 128 system installs we completed in ’23 and IMAX records 61 were in international markets outside of North America and China. The rest of the world opportunity for IMAX is very strong. The IMAX network is only 33% penetrated in these markets.

Despite a slower start for the global box office this year, we’ve kept up the momentum delivering a flurry of system signings in key markets year-to-date. We completed agreements for new systems in a diverse collection of markets, including India, Thailand, Turkey and China this year. And we have further significant agreements in the immediate horizon. With the slate strengthening in the second half of ’24 and an extremely promising outlook in ’25 and ’26, we expect sales activity and installations to accelerate. Turning to the outlook for our content portfolio, it is indeed very promising. Dune Part 2 and Godzilla Kong, both film for IMAX titles, provided a jolt to the global box office and demonstrated also 2 very positive trends. First, demand for movie going in the marketplace is strong and the ’24 slate holds more promise than many have predicted.

And second, quite simply, consumers recognize that IMAX is a superior experience. The stories people want to see and hear are in IMAX, and we are fast becoming appointment viewing for the biggest cinematic events. Oppenheimer, a film Christopher Nolan conceived and film very specifically for IMAX, won 8 Academy Awards and crossed $190 million in IMAX box office, entering our top five releases of all time. Dune Part 2 is now a top 10 release of all time with more than $143 million in global box office to date. We generated a stunning 21% of the film’s total gross. In the wake of Oppenheimer, we released a limited number of 70 millimeter prints of Dune Part 2 which earned sellouts for weeks on end. IMAX 70 millimeter film, the absolute gold standard of cinema with up to 18K resolution is surging in popularity, and we will continue to capitalize on this, next with film prints for the highly anticipated Joker sequel coming out this October.

Godzilla Kong has also performed very well for IMAX. We delivered 11% of the film’s domestic opening, even though our entire film network, including top tier locations in New York and Los Angeles, continued to play and perform very well with Dune, which we’re still playing that weekend. Film for IMAX releases offer the best possible cinematic experience, and as a result, Film for IMAX is a coveted point of distinction for filmmakers and a significant driver of box office and indexing. More than ever, the IMAX experience is as much about content creation as it is about content delivery. We currently have more films in production shooting with IMAX cameras than at any point in our history. Next year, we have an unprecedented run in which every IMAX release from May through September will be filmed with IMAX cameras.

That includes Mission Impossible 8, 2 Marvel films, the forthcoming Formula 1 film starring Brad Pitt from Top Gun: Maverick director, Joe Kosinski, Superman from DC, How to Train Your Dragon and many more. And earlier in ’25, we’ll have the new project from Michael B. Jordan and Black Panther Director Ryan Coogler, which is shooting with IMAX film cameras, as well as the J. J. Abrams produced IMAX shot Flowervale Street. As I’ve said, our slate is significantly committed for most of the year in 2025. And 2026 looks perhaps even stronger with carryover from Avatar 3, as well as new installments of Avengers, Star Wars, Batman, Super Mario Brothers, Toy Story, and Wicked, along with our expanding portfolio of local language, documentaries, and events experiences.

Even for releases not filmed with IMAX cameras, we are seeing filmmakers and studios lean more heavily into the IMAX platform. For instance, Disney has made IMAX a centerpiece of its promotional campaign for Kingdom of the Planet of the Apes, a promising title coming out shortly, including prominent IMAX placement and advertising during major events like the NCAA tournament. And we’ll see a similar focus in Warner Brother’s campaign for Furiosa as it rolls out. Our success continues to yield opportunities to open our content aperture and expand further beyond Hollywood blockbusters. On May 17th, we released the first new IMAX original documentary under our revamped strategy, The Blue Angels, produced in partnership with J.J. Abrams and Glen Powell.

This film very much represents our aspiration to create blockbusters. It was shot by the same team behind Top Gun: Maverick, and its aerial footage rivals anything in that mega hit. And it will roll out in a new extremely advantageous model for us with a one week exclusive engagement across our commercial network domestically and in select international markets. Availability thereafter on Amazon Prime Video to which we sold the streaming rights and later in ’24 or early ’25, a 45 minute version of the film will release in our institutional theaters. We have several more original blockbusters in our pipeline, including the upcoming Stormbound with producer Adam McKay. We also partnered with Amazon to make the launch platform for Jonathan Nolan’s new series, Fallout, with a 7 city IMAX exclusive premier screening event.

Fallout is topping the streaming charts and has emerged as one of the Amazon Prime Video’s best performing series of all time. We’ll have an IMAX exclusive run and live concert event for the forthcoming Disney Plus release, The Beach Boys, a documentary from legendary filmmaker Frank Marshall. The release will continue to build our recent momentum in music with Q1’s Queen Rock Montreal and Andre 3000 experiences. Queen alone grossed more than $5.5 million in IMAX and was subsequently licensed by Disney plus as an IMAX Enhanced exclusive in the home. And IMAX was the exclusive premier partner for this month’s concert event for BTS’s SUGA, which earned $2 million in IMAX box office for 2 showtimes in select theaters. To close, IMAX continued to drive positive momentum in the first quarter, setting the table for a very promising period, which will continue.

Let’s be clear, the only premium entertainment platform with our filmmaker relationships, global scale, and patented technology is IMAX. We continue to drive global network growth with an eye towards expansion into underpenetrated markets where moviegoing is strong and increasing. Our diversified content strategy with Hollywood and local language blockbusters, IMAX documentaries, and new events and experiences is delivering great results. Q1 was among our best of all-time at the global box office. Audience demand for IMAX is feeding box office growth, which in turn is yielding network growth. We are in a great position to use our increased market power to accelerate growth and margin expansion with a remarkably good slate in ’25 and ’26. We look forward to continuing to deliver results in our business and for our shareholders.

Thank you again. And with that, I’ll turn it to you, Natasha.

Natasha Fernandes : Thanks, Rich, and good morning, everyone. IMAX’s first quarter delivered a solid financial and operating performance and reflects a strong start to 2024. We exceeded market expectations on revenues, earnings per share and total adjusted EBITDA. This includes a gross profit margin of 59% and total adjusted EBITDA margin of 40.5%. And our results are consistent with our full year guidance. These are high quality earnings that reflect the strength of our operating model, our cost discipline and our ability to deliver consistent financial results. We are confident that our momentum will continue to build throughout the year and beyond. We ended the quarter with our highest ever grossing March box office and achieved a record monthly global market share of 6.6% on less than 1% of screens worldwide.

IMAX’s Dune Part 2 box office dramatically demonstrated the benefits of filming with IMAX cameras, roughly 1 out of 5 tickets or over 20% of the box office on the planet for Dune 2 came from IMAX, and we currently have more film for IMAX releases in production than ever before. We continue to grow the IMAX global network and we are unmatched in our scale and reach, and we continue to strategically grow and diversify our content portfolio across local language, documentaries, and alternative content to drive utilization. Increasing capacity utilization is an opportunity for our business. Just a 1 percentage point improvement in utilization of our global network could drive anywhere from $75 million to $100 million in annual box office depending on geographic mix and other factors, all of which result in high incremental profit.

We believe there is significant runway to increase utilization as we continue to open our aperture to bring in more content in off peak time periods, partner with filmmakers and studios to create a stronger IMAX connection resulting in a higher market share, and use data to refine our programming strategy. Overall, we believe, we can drive accelerating growth for years to come given our continuing network expansion, increasing amount of IMAX DNA in films and growing consumer demand for IMAX. Turning now to our first quarter financial results. We are pleased with Q1 revenue of $79 million driven by very strong end of quarter momentum. Content solutions revenue grew 6% year-over-year driven by incremental revenues from alternative content, including the Queen Rock Montreal concert film, coupled with strong box office from Dune and Godzilla Kong.

Technology product and services revenues declined 16%, driven by a lower level of system renewals as the prior year had a larger one time renewal and a lower mix of sales type installations this year. However, this is purely a mix dynamic as overall system installations grew 67% year-over-year. Gross margin was 59%, up 200 basis points year-over-year, reflecting improvement in the content solutions margin, driven by the mix of titles, including more alternative content and lower film marketing expenses. SG&A excluding stock-based compensation was $27 million and improved $2 million year-over-year, reflecting timing and marketing spend and benefits from our cost actions taken in the prior year. R&D expense was $2 million in the quarter, reflecting our continued investments in both the core business and streaming and consumer technology.

Total consolidated adjusted EBITDA of $32 million was comparable to the prior year propelled by the strong margin performance. From a profitability perspective, total adjusted EBITDA margin was 40.5%, which was up from 37% in the prior year and is above our full year guidance of high 30%. Adjusted EPS in Q1 was $0.15, which compares to the adjusted EPS of $0.16 in the year ago period. EPS continues to be impacted by a tax valuation allowance of approximately $0.02. We expect the tax rate to normalize over the full year. Turning to our global network. System installations and signings remain key drivers of our long-term growth. In Q1 2024, we completed 15 system installations, up 67% over Q1 2023. Of the installations, 80% were in new locations and were weighted to markets with higher per screen averages with 8 of our installations coming in rest of world areas including France, England, Indonesia, Saudi Arabia and 3 in North America.

Signings activity is also ramping up. Since the beginning of the year, we have signed deals for 17 systems with 8 coming in the first quarter and the rest around CinemaCon. Our fast start on installations and signings to date, along with our significant backlog of 442 systems at the end of Q1, gives us confidence in our network growth trajectory. Turning to cash flow and the balance sheet. Operating cash flow in Q1 was a use of $11 million compared to a source of $21 million in the prior year. The lower year-over-year operating cash flow reflects the timing of box office receipts this year as box office strength came in March with Q4, January and February weaker due to strike impacts versus the prior year when Q1 box office strength came in January, driven by Avatar: The Way of Water, whose box office straddle the end of 2022 and beginning of 2023.

We expect the trends in cash flow to improve throughout the year driven by seasonality, the improving box office slate and the related timing of collections. Our capital position remains very strong as we ended the quarter with $81 million in cash, and $302 million in debt, excluding deferred financing costs. As a reminder, $230 million of our debt comes from our convertible senior notes due in 2026 that bear an interest rate of 0.5% per annum with a capped call leading to a $37 per share conversion price. Our current available liquidity is approximately $367 million which includes $286 million in available borrowing capacity under the company’s various revolving facilities. From a capital allocation perspective, we opportunistically purchased $16 million of shares in early Q1 at an average price of $13.99 at a time when the share price was impacted by the strike overhang.

We have $151 million available under our share repurchase authorization. To conclude, momentum is building from the growing demand for IMAX among consumers, filmmakers, studios and exhibitors. And as we continue to grow our network and expand our content aperture, we expect our asset light highly incremental business model to deliver accelerating growth, increasing cash flows and margin expansion. With that, I will turn the call over to the operator for Q&A.

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Q&A Session

Operator: [Operator Instructions] And one moment for our first question. It will come from Eric Wold of B. Riley Securities.

Eric Wold: A couple of questions. I guess first off, Rich, you talked obviously a lot about the benefits of shooting with IMAX cameras and having the greatest number of films in production with IMAX DNA that you’ve ever had. I guess, what would be the maximum do you think you could do in your or that could be done through your network, for film to shallow dynamic cameras? Does this become norm for studios looking to lock up IMAX windows either by their choice to drive movie boarder man and a higher share, or could this potentially become a requirement of yours that you need to shoot with IMAX cameras in order to reserve specific, IMAX windows?

Rich Gelfond: So Eric, there are 2 ways to shoot with IMAX cameras. One is with film cameras, which was what Chris Nolan did at Oppenheimer and the other way is with digital cameras, which is what Denis Villeneuve did with Dune. So with digital cameras, there really is no limit to the number of cameras or the ability to make them available. Basically, we built a set of attachments that work with a variety of digital cameras and all the major ones. So there’s as much a supply as filmmakers would need. On the film side, there’s a limited number of film cameras. However, later this year, we’re going to release some more and we’ve been building some more of them. So this is just a guess, but probably depending on how big the production is or whatever, you could probably only do 3 or 4 film projects a year along with unlimited number of digital projects.

The other constraint would just be your release schedule. So if you shoot with IMAX cameras, you get a 2-week guaranteed release window. So you have to go through a period of time like, let’s say, the summer, which is very popular. There are a limited number of slots that you could guarantee, to filmmakers. But that was kind of your general question. I know I didn’t directly answer it because there is no, like, you know, 15. There’s no answer like that. It depends on the circumstances. The other thing I would say is that we don’t want every film filmed with IMAX cameras. So not to pick on it, but a film like Sideways, which Paul Giamatti did, which is 2 people drinking wine at a wine bar for a lot of the movie. That’s not the kind of thing that’s consistent with the IMAX brand.

So the overlying factor is, is it the right filmmaker and is it the right subject matter where the camera is really going to enhance the look of it. And we turned down many filmmakers who want to film it with IMAX cameras, both because the content we don’t think will benefit and also because we don’t think it’s worthy of an extended release. I hope that’s close to answering your question without giving you a number.

Eric Wold: That’s short, Rich. And I guess my last question, can you update us on where you are with SSIMWAVE and kind of in that operating segment? When do you think we start seeing an inflection point in terms of that business’s overall contribution to revenues and profitability? Is that something we could see in the back half of this year or is that more a ’25, ’26 story?

Rich Gelfond: So just this past weekend, Eric, NAB was in Las Vegas. And what was formerly known as SSIMWAVE, now renamed IMAX Consumer Streaming Technology, had a prominent place. We had about 250 meetings. We were on several panels in the main ballroom, including, with Disney plus on the panel to talk about our experiences. We had a number of extremely positive meetings, and we have a kind of a backlog of things that we think will happen within this year. With that said, and we remain very optimistic about the business, I should add one thing is we added a product to it, which we, I think, briefly touched on. But originally, we talked about saving money for streaming services. We’ve developed it more where we could now develop people streaming to the streaming services and the broadcasters.

So think mostly of sports content where we can save, for example, the NBA a lot of money and what they’re streaming to TNT or whatever their outlets are. So there’s a lot of demand. There’s more product. We remain positive, but I can’t predict when the other side is going to sign. So I’m sure that frustrates you and our investors, and it frustrates me. But I think the business is going to be very good, but I just can’t predict the time.

Operator: And our next question will come from Omar Mejias of Wells Fargo.

Omar Mejias: Rich, maybe first, IMAX delivered almost 6% of share from the total domestic box office in Q1 and the highest ever in North America. We’ve also talked about currently having the highest number of films in production with IMAX cameras. Just in general, can you describe what this post pandemic shift to the demand for more premium experiences and the blockbusterization of cinema being for IMAX? And how does this impact your market share potential in the runway you still have ahead just given, all the trends that are sort of lining up in your favor?

Rich Gelfond: So the blockbusterization of cinema started well before the pandemic. And if you look at the statistics, blockbusters became a much bigger part of the boss office years ago and you can analyze it and see it going up. And that probably had to do with things like streaming and other factors that people want to go to the theater for big kinds of movies. And obviously, that’s been a tailwind for IMAX for a while. The premiumization trend has been more since the pandemic ended. And I think what’s behind that is that people leave their homes, they want something that’s more special and probably that was influenced by bigger television screens and a variety of home choices. But that’s unmistakable. And I mean, you look at what the studio say, but also you look at what they do and leaning into IMAX and using our cameras in our DNA is clearly supports their belief that people will pay more and will come out in greater numbers for a premium experience.

And I just have to add that when you look at the numbers for Dune versus the TLS, which I call kind of copycat IMAX theaters, IMAX had a larger share of what you call premium, but I divide into premium and fake premium. So I think all of those trends you talk about, blockbusterization, premiumization, IMAX creating the software, the films as well as the hardware, I think that’s all the wind in our backs that you’re seeing manifest itself in signings and financial results.

Omar Mejias: And maybe shifting to just the outperformance, on content solutions margins, which came in well ahead of expectations. You guys highlighted alternative content and lower marketing spend. Can you maybe unpack some of the key drivers and some of the levers you’re seeing from the increased demand for IMAX? And if you can talk about sort of the economics of alternative content and describe the opportunity for margin expansion there as you drive that vertical?

Natasha Fernandes: Hi, Omar. It’s Natasha. I think we had a great start to the year with alternative content. We did the Queen Rock event, then we did an event with Andre 3000. We’ve also signed a slate deal with a ’24 to do one Wednesday a month and bring out an iconic film from their library. And in all of that, we are, all of them run under different deal types. So, obviously, we negotiate each one individually, all with the opportunity to maximize, box office in that period. So when you think about it, we’re putting the content on a day of the week where we get higher utilization and that’s where you’re getting your bigger returns because that becomes the incrementality in your model when you start to think about how can we increase box office on days when, there’s room because weekends are sold out.

You can look at June and I think it was for June, we were at 80% utilization on that opening weekend. So you start to look at the mid-weekdays and say what’s the opportunity there, and that’s where you can see incrementality fall through, and which is what you saw in Q1 coming through on the margins. And then, of course, the lower marketing spend with respect to Q1. I mean, Dune came out in March, and so we put some marketing behind there. But you had last year as a comparator, you had Avatar playing for a good 6 weeks plus in Q1. And so you had a lot of marketing steps come through last year. So I think that there’s opportunities in all of that. And Rich has talked about before on some of our prior calls about leverage in the system and where we have opportunities.

And what you’re seeing is a lot of opportunities for, studios to partner with IMAX with respect to marketing so that, all of the spend is not on us necessarily, but we work together towards a joint effort to promote IMAX in the right way, especially when it comes down to using our film cameras and digital cameras.

Operator: And our next question will come from Eric Handler of ROTH MRM.

Eric Handler: Richard and Natasha, when I look at the expense line for content solutions or mostly DMR costs, you’ve really done a great job of keeping that line flat over the last several years and even it’s pretty much in line with where you were back in 2018. This is despite having a lot more movies that you’re putting into the system every year, and seemingly no inflation. How sustainable is this?

Natasha Fernandes: Hi, Eric. We think about we’ve talked about this before too is the leverage in our model is significant. We actually are using technology to remaster our films and to work through that process. And so, I think we mentioned it a while ago, but we created this in the cloud process as well that allows us to do especially local language titles and foreign titles, at a much more cost effective manner and as well quicker. And so through all of those sort of improvements as well as incorporating AI, which we have in some of our processes as well for remastering, we are getting the opportunity to realize sustainable cost and actually reducing our cost per film as time goes on. And then it goes back to my comments that I was just mentioning on the prior answer was, our ability to reduce our marketing costs as well and use better distribution.

So using digital channels as opposed to print, which historically print was the predominant mode of marketing. And now you’re getting lots more opportunities to use digital to push marketing as opposed to print. And so that’s where you can get some cost savings as well.

Eric Handler: Great. And then as you look to do more sporting events, it’s not unusual for various leagues to want to extract a greater pound of flesh when they put out their rights fees. Are you able to keep your economic model the same like a movie with sporting events?

Rich Gelfond: The answer, Eric, is that, first of all, we haven’t really committed to doing a lot of sporting event things. We’re testing a number of things, including the Olympics, as you know, which we now recently, we’ve done some tests with the NHL. We’ve done some soccer tests. We’re flirting around now some things with basketball, by the way, not just in the U.S., but in international territories. So it’s too soon to say really what the margin profile will look like there. But I think it goes back to a really important point that Natasha made, which is about capacity utilization. So IMAX is like the church that was built for Easter Sunday, it’s packed. But during the weekdays, it’s not as packed and at different times a year.

So when you’re putting content through our network at a time where it’s really empty or very slow, at those times, it’s extremely high margin because you had no revenues. But how it affects our margin mix, we’re a long way from assessing that.

Operator: Our next question will be coming from Chad Beynon of Macquarie.

Chad Beynon: Good to see the diversification of global box office, but I wanted to focus on China. We’re just hearing and seeing a lot of softness in the market just taking a little longer for the consumer to recover and there are certain restrictions for corporations and just from a consumer standpoint. Can you talk about the outlook for the rest of the year in that market? Are you starting to see good demand when either local product or just kind of product that hits well with the consumer? Is there or is this something that could continue with the consumer?

Rich Gelfond: So I think you have to separate the question into 2 parts. One is the macro issues in China and the other is the release schedule. So in 2023, China, even though it had just opened up from the pandemic, had in the film side, had a very good year despite the fact that the economy was quite challenged there. And one of the few bright spots in the Chinese economy was the film sector. And as a matter of fact, IMAX had a pretty good year in ’23, as you know, and it was not far off our best years actually in ’23. So I have no question that the audience will be there and there’s appetite for film, and I’m less worried that I think people are in other sectors of the economy like real estate, for example. In terms of 2024, the issue is a little bit more film driven.

And I would say, in the first quarter, our Chinese New Year was fine, but the year before was a record and that had much less to do with the economy than to do with the film selection that was available. And much more of U.S. films are now getting into China than got in, in the last couple of years. So for most of the films in our foreseeable future, they’ve already been submitted and accepted. And then there’s which of the local films and what are they going to be? Will we extend we don’t have we have a lot of visibility into the industry, which is positive. We don’t have as much visibility into the specific films and how they’ll play. So I again, I’d rather say the answer is ex dollars. But I think it depends on how the films perform, but I don’t see any particular impediments in China that would prevent it from behaving in the way as the rest of the world does.

Chad Beynon: And then on the capital allocation, $40 million spent on buybacks at good prices. So certainly great to see that being done. Rich, what are you seeing in just the overall M&A market when you talk to different tech partners, when you go to some of these conferences that you talked about with SSIMWAVE? Are there still tuck in opportunities or from a capital allocation, should we just kind of focus on, you know, the convert cap call and, incremental buybacks?

Rich Gelfond: So I don’t think part of our strategy at this time is really to do a significant acquisition of any sort. And we’re not really looking at that. And I think the biggest reason is we have what we think is a really strong model and that showed in ’23. It showed in the first quarter. And I think, you know, as I talked about in my prepared remarks, ’25 and ’26 are going to be awesome. And at the same time, you know, we’re expanding our aperture for content. We play whether it’s documentaries or alternative content and using our platform in more ways. So we have obviously a lot more signings, so the theater network will grow. So we have a lot of faith in the ability of our company to generate improved cash flow and improved earnings.

So I don’t think you’ll see us veering off. The only caveat I would give you is maybe we would do something that fills in a small way. So if we found something that could help SSIMWAVE or we found something that could help some of our core strategies, that’s something we would think about. But I think otherwise, it will be continue to invest in our joint venture arrangements, which have extremely good IRR profile, as you know, and when we’ll be opportunistic about buying in stock.

Operator: And our next question will be coming from Stephen Laszczyk of Goldman Sachs.

Stephen Laszczyk: Rich, on local language, I think local language hit $55 million in box in the first quarter. Can you maybe update us on how you’re expecting local language scale over the course of the year, just given how the release slate stands today? And then any notable updates on maybe the slate looking ahead into ’25 and beyond?

Rich Gelfond: Yes. So I think we feel pretty good about our local language initiative. I would hope it will be better, the box office, than it was. Last year, to give you like kind of a snapshot in time, Stephen, I think it was last week, we were playing 5 local language films. We had one from Indonesia, 2 in India, 1 in Korea and 1 or 2 in Japan, and maybe we had something in China, I’m not even sure. So it’s just a regular part of our business. But we kind of look at it a little bit differently than the Hollywood business because the Hollywood business is more a blockbuster driven. So if you ask me what are the big titles in ’25 or ’26, I can tell you what they are and maybe even to be able to do a close forecast. But for local language films, it’s more of a portfolio approach for us, which is, as Natasha and I were both talking about, increasing utilization of the theater network and just being that additive to the slate other than obviously like Chinese films in China or Japanese films in Japan.