IMAX(IMAX) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited financial statements for the nine months ended September 30, 2023, show significant performance improvement, with total assets at $850.9 million and net income of $29.8 million Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $850,946 | $821,154 | | Cash and cash equivalents | $109,603 | $97,401 | | Total Liabilities | $493,535 | $491,386 | | Convertible notes and other borrowings, net | $228,449 | $226,912 | | Total Shareholders' Equity | $356,750 | $329,046 | Condensed Consolidated Statements of Operations Highlights (in thousands USD) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Revenues | $288,821 | $202,759 | | Gross Margin | $170,653 | $107,508 | | Income (Loss) from Operations | $47,659 | $(12,371) | | Net Income (Loss) | $29,755 | $(23,958) | | Net Income (Loss) Attributable to Common Shareholders | $22,795 | $(25,413) | | Diluted EPS | $0.41 | $(0.44) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands USD) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,608 | $481 | | Net cash used in investing activities | $(18,664) | $(40,407) | | Net cash used in financing activities | $(24,349) | $(64,595) | | Increase (decrease) in cash and cash equivalents | $12,202 | $(102,560) | Notes to Condensed Consolidated Financial Statements Notes detail basis of presentation, segment revisions, receivables, lease arrangements, borrowings, and share-based compensation - In the first quarter of 2023, the Company revised its reportable segments into two main categories: (i) Content Solutions and (ii) Technology Products and Services. Prior period comparatives have been updated to reflect this change[24][189][200] - The company successfully resolved its pre-petition claims with Cineworld following its Chapter 11 reorganization, with all amounts owed expected to be paid[43] - Operations in Russia and Belarus were suspended in March 2022, with provisions for credit losses recorded against Russian receivables, while operations in Ukraine resumed in Q2 2023[41] Borrowings Breakdown (in thousands USD) | Borrowing Type | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Revolving Credit Facility Borrowings, Net | $23,903 | $36,111 | | Wells Fargo Credit Facility | $20,000 | $25,000 | | HSBC China Facility | $5,108 | $12,496 | | Convertible Notes and Other Borrowings, Net | $228,449 | $226,912 | | Convertible Notes, net | $226,258 | $225,130 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes strong Q3 and nine-month performance to robust global box office results, driving significant revenue and gross margin increases - The company's proposal to acquire the outstanding shares of its subsidiary IMAX China did not proceed after failing to receive the required 90% approval from disinterested shareholders at the October 9, 2023 meeting[245] Q3 2023 vs Q3 2022 Performance (in thousands USD) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $103,896 | $68,755 | 51% | | Gross Margin | $62,715 | $31,701 | 98% | | Net Income (Loss) Attributable to Common Shareholders | $11,990 | $(8,953) | N/A | Nine Months 2023 vs 2022 Performance (in thousands USD) | Metric | Nine Months 2023 | Nine Months 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $288,821 | $202,759 | 42% | | Gross Margin | $170,653 | $107,508 | 59% | | Net Income (Loss) Attributable to Common Shareholders | $22,795 | $(25,413) | N/A | - Global box office from IMAX films reached $347.1 million in Q3 2023, a 96% increase from Q3 2022, driven by strong titles like 'Oppenheimer', which alone generated over $180.4 million[325] Overview IMAX operates as a global entertainment technology platform, expanding its network to 1,731 systems and strategically acquiring SSIMWAVE for streaming solutions - As of September 30, 2023, the IMAX network consisted of 1,731 systems across 87 countries and territories, up from 1,703 systems a year prior[252] - The acquisition of SSIMWAVE in September 2022 is a key part of the company's strategy to expand into streaming and consumer technology, aiming to deliver high-quality images on any screen and generate new recurring revenue[257] Sources of Revenue Revenue is generated from Content Solutions (film remastering and distribution) and Technology Products and Services (system sales, leases, and maintenance) - The company's two reportable segments are Content Solutions (film remastering and distribution) and Technology Products and Services (system sales, leases, and maintenance)[262] Film Releases by Type | Film Type | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Hollywood film releases | 11 | 26 | | Total local language film releases | 23 | 41 | | Total film releases | 34 | 67 | IMAX Network and Backlog The IMAX network expanded to 1,731 systems, with a backlog of 486 units, primarily new systems, and significant growth potential internationally IMAX Network by Region | Region | Systems as of Sep 30, 2023 | Systems as of Sep 30, 2022 | | :--- | :--- | :--- | | United States | 389 | 393 | | Canada | 48 | 48 | | Greater China | 799 | 790 | | Rest of World | 495 | 472 | | Total | 1,731 | 1,703 | System Backlog | Arrangement Type | Systems in Backlog (Sep 30, 2023) | Systems in Backlog (Sep 30, 2022) | | :--- | :--- | :--- | | Sale and sales-type lease | 192 | 170 | | Hybrid JRSA | 107 | 127 | | Traditional JRSA | 187 | 192 | | Total | 486 | 489 | Results of Operations Q3 2023 revenues rose 51% to $103.9 million, with gross margin up 98%, driven by strong box office and system installations across segments Segment Performance - Q3 2023 vs Q3 2022 (in thousands USD) | Segment | Revenue Q3 2023 | Revenue Q3 2022 | Gross Margin Q3 2023 | Gross Margin Q3 2022 | | :--- | :--- | :--- | :--- | :--- | | Content Solutions | $44,214 | $21,967 | $26,407 | $9,140 | | Technology Products and Services | $56,169 | $45,542 | $33,761 | $21,752 | | Total | $103,896 | $68,755 | $62,715 | $31,701 | Segment Performance - Nine Months 2023 vs 2022 (in thousands USD) | Segment | Revenue 9M 2023 | Revenue 9M 2022 | Gross Margin 9M 2023 | Gross Margin 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Content Solutions | $107,605 | $72,499 | $64,397 | $39,121 | | Technology Products and Services | $171,813 | $126,262 | $100,066 | $65,875 | | Total | $288,821 | $202,759 | $170,653 | $107,508 | Cash Flows Net cash provided by operating activities significantly improved to $54.6 million for the nine months ended September 30, 2023, driven by revenue growth Cash Flow Summary - Nine Months Ended Sep 30 (in thousands USD) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,608 | $481 | | Net cash used in investing activities | $(18,664) | $(40,407) | | Net cash used in financing activities | $(24,349) | $(64,595) | Liquidity and Capital Resources The company maintains strong liquidity with $109.6 million in cash and significant borrowing capacity, sufficient to fund operations for the next twelve months - As of September 30, 2023, the company held $109.6 million in cash and cash equivalents. Total available borrowing capacity under its main credit facility was $150.0 million after accounting for borrowings and a temporary letter of credit[382][99] Contractual Obligations Summary (in thousands USD) | Obligation Type | Total Obligation | Due in Less Than 1 Year | | :--- | :--- | :--- | | Convertible Notes | $233,450 | $1,150 | | Purchase obligations | $30,458 | $28,400 | | Wells Fargo Facility | $20,000 | $0 | | Pension obligations | $20,298 | $0 | | Operating lease obligations | $14,989 | $3,219 | | Total (including others) | $331,022 | $39,048 | Quantitative and Qualitative Disclosures about Market Risk The company faces market risks primarily from foreign currency exchange rates (USD, CAD, RMB) and interest rate changes on variable-rate borrowings - The company's primary market risks are foreign exchange rate fluctuations (USD, CAD, RMB) and interest rate changes on its variable-rate debt[410] - As of September 30, 2023, the company held foreign currency forward contracts with a notional value of $41.6 million to hedge against currency volatility[417] - A hypothetical 10% adverse change in foreign currency exchange rates would result in a potential change of $15.7 million in the fair value of foreign currency-denominated financing receivables and working capital items[419] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (September 30, 2023)[424] - No material changes were made to the company's internal control over financial reporting during the third quarter of 2023[426] PART II. OTHER INFORMATION Legal Proceedings The company continues to pursue enforcement of a $26.0 million arbitration award against E-City Entertainment, with other proceedings not materially impacting financials - The company is actively seeking to enforce a 2008 arbitration award against E-City Entertainment, which, with interest, is calculated to be $26.0 million as of September 30, 2023. The matter is pending in the Bombay High Court[124] Risk Factors The company updates risk factors, emphasizing dependence on film success, potential disruptions from strikes, and significant risks associated with the Greater China market - The company's success is highly dependent on the box office performance of films from third-party studios. The recent WGA and ongoing SAG-AFTRA strikes have disrupted film production and may postpone releases, creating uncertainty for future results[432] - Greater China is the company's largest market, representing a significant portion of revenue, network systems, and backlog. The company faces risks related to Chinese regulations, economic conditions, and worsening U.S.-China political tensions[437][438] Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a share repurchase program of up to $400.0 million, with $191.2 million remaining available as of September 30, 2023 - The company's share repurchase program has been extended to June 30, 2026, with $191.2 million available for repurchases as of September 30, 2023[441] Share Repurchases - Q3 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | — | $— | | August 2023 | — | $— | | September 2023 | 13,981 | $18.00 | | Total | 13,981 | $18.00 | Other Information The company extended the employment agreement for its Chief Legal Officer, Robert D. Lister, to December 31, 2026 - The employment agreement for Chief Legal Officer Robert D. Lister was extended to December 31, 2026[448] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - Exhibits filed include Sarbanes-Oxley Act certifications from the CEO and CFO, and Inline XBRL documents[451][452][453]