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IMAX Corporation (IMAX)

Q2 2012 Earnings Call

July 26, 2012; 08:30 am ET


Rich Gelfond - Chief Executive Officer

Joe Sparacio - Chief Financial Officer

Rob Lister - Chief Legal Officer

Greg Foster - Chairman & President of Filmed Entertainment

Heather Anthony - Vice President of Investor Relations


Townsend Buckles - JP Morgan

Rich Ingrassia - Roth Capital Partners

James Marsh - Piper Jaffray

Ben Mogil - Stifel Nicolaus

Eric Handler - MKM Partners

Aravinda Galappatthige - Canaccord Genuity

Steve Frankel - Dougherty & Company

Jim Goss - Barrington Research

Unidentified Participant - Susquehanna Financial Group

Marla Backer - Hudson Square Research

Martin Pyykkonen - Wedge Partners



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Good day and welcome to the IMAX Corporation, second quarter 2012 earnings conference call. All participants are currently in a listen-only mode. (Operator Instructions).

At this time, I would now like to turn the conference over to Ms. Heather Anthony, Vice President of Investor Relations. Please go ahead.

Heather Anthony

Good morning and thanks for joining us on todays second quarter 2012 conference call. Joining me today is our CEO, Rich Gelfond; our CFO, Joe Sparacio; and Rob Lister, our Chief Legal Officer. Also here today is Greg Foster, our Chairman & President of Filmed Entertainment. We’ve uploaded a PowerPoint presentation in PDF format onto the IR section of our website this morning to help illustrate some points included in today’s discussion.

I would also like to remind you the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking and that they pertain to future results or outcomes.

Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes.

During today’s call, references may be made to certain non-GAAP financial measures as defined by Regulation-G of the Securities and Exchange Commission. A discussion of management’s use of these measures and the definition of these measures, as well as reconciliations to adjusted EPS and adjusted EBITDA are defined by our credit facility and are contained in this morning’s press release.

The full text of our second quarter release, along with supporting financial tables is available on Today’s conference call is being webcast in its entirety on our website.

Before I turn the call over to Rich, I wanted to mention that I’m taking on a new roll at IMAX. After four terrific years of heading up Investor Relations, it was time for a new challenge and Rich and Joe were gracious enough to accommodate me. I will be reporting to Joe as the new Vice President of Budgeting and Financial Analysis.

Joining us on the call today is Terry Loxam (ph), our new Vice President of Investor Relations. Terry joins us from Bristol Myers Squibb, where she has worked for 11 years in various roles in strategy finance and most recently investor relations. We look forward to introducing Terry to you in the weeks and months ahead.

And with that, let me now turn the call over to Rich Gelfond.

Rich Gelfond

Thanks Heather and good morning everyone. While our second quarter financial results are why we are here today, I’d be remiss if I didn’t take a moment to acknowledge our company’s collective sorrow, over the tragedy in Aurora, Colorado last Friday morning. We continue to send our thoughts and prayers to the victims, their families, the Aurora community and our partners throughout the filmed entertainment industry.

We had a great quarter at virtually every level. Now, onto our specific results, which reflected the impact of the global scale of our growing theatre network and resulted in healthy box office results that translated into strong second quarter earnings. This quarter much like the first quarter demonstrates how the network effect drives operating leverage and recurring revenues in our business model.

In addition to our substantial earnings growth and our expanding network, during the quarter we signed deals for 40 IMAX theatre systems. Our backlog rose sequentially and our pipeline for future theatre deals continues to be robust. Simply put, the fundamentals of our business are doing what they should, driving our earnings growth. I’ll discuss these subjects, as well as update you on some of our strategic initiatives, but first, let me review our second quarter financial highlights.

In the second quarter we drove significant revenue and margin expansion across virtually every major business segment. Revenue increased 23% to $70.2 million from $57.2 million in the second quarter of 2011. This resulted in a 200% increase in adjusted earnings per share to $0.21 for the second quarter versus $0.07 last year.

Second quarter EBITDA increased 80% to $29 million, trailing 12 month EBITDA increased 29% to $87.9 million and cash flow from operations increased by roughly $30 million year-over-year.

As many of you know, we hosted our Analyst Day back in June. We began that day discussing the significant positive impact; network growth could have on financial results over a five-year period. We believe the first six months of 2012 reflect the leverage illustrated during that discussion. We also spoke about achieving critical mass and the positive effect this can have on our earnings potential.

Box office milestones are becoming much easier to achieve as their network grows, which is important, because our model is all about operating leverage as our costs are relatively fixed. For example, five of our DMR titles, gross over $20 million a piece in IMAX in all of 2011. Through this past weekend however, nine DMR titles have already crossed this milestone so far this year.

Speaking of network growth, we are pleased to report that over the last two and a half years we have signed theater deals for 500 IMAX digital theatre systems. Driving most of our signings momentum is our existing client base. IMAX is in business with the biggest theatre operators in the world and we are very proud that approximately 85% of our theatre deals are with existing customers.

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