Morningstar | Imax Posts Another Strong Quarter; China Continues to Rebound
Imax reported a strong third quarter as the firm beat consensus projections for the top line and met Street expectations for adjusted EBITDA. The firm reported IMAX box office grosses of $207 million in the third quarter, down 6% year over year on a tough comp. Despite the overall decline, the China market continues to expand with box grosses up 29% in the quarter. Imax signed agreements covering 25 new theaters, along with 12 upgrade signings during the quarter and ended the quarter with a backlog of 635 new theaters versus 545 a year ago. There is no change to our narrow moat rating or to our $30 fair value estimate. With shares trading in 4-star territory, the stock may offer an attractive entry point to investors.Total revenue for the third quarter came in at $82 million, down 17% versus the same quarter last year. The third quarter of 2017 benefited from Dunkirk, Spiderman: Homecoming, and It, all of which played strongly on Imax screens. China continued to bounce back with 29% box office growth in the quarter and is now up 18% year to date versus 2017. We note that the growth in U.S. box office for the firm continues to outpace the total box office growth as Imax box office improved 14% in the first nine months of the year versus 9% for overall box office in U.S. We believe that the faster growth in Imax grosses can be partially attributed to the changes in slate programming implemented last year that included day-parting theaters and a quicker hook for underperforming films. Adjusted EBITDA margin for the quarter fell by 360 basis points to 31.4%, as the decreased revenue more than offset improved cost controls.
While MoviePass received a tremendous amount of publicity for bringing the one price for all you watch model for the movie business, the firm has largely flamed out. However, reduced versions of the model have been introduced by specific movie theater chains including AMC Entertainment. The AMC version, Stubs A-List, lets subscribers watch up to 3 movies a week for $19.95 per month. While the price is double the old MoviePass price, subscribers can watch movies on premium large-format screens including Imax. AMC has already signed up over 400,000 movie goers with many taking advantage of the ability to watch Imax films. Management believes that the percentage of A-List users that attend Imax screening is up to three times higher than the standard AMC customer. While the product is in the early stages, we believe that A-List and products from competitors could drive increased attendance at the movies. However, the revenue split between the studio, exhibitors, and Imax for these products could become contentious in the future if the subscribers start to compose a large percentage of viewers.
IMAX is an entertainment technology company. Co.'s businesses are: the design and manufacture of theater systems and the sale or contribution of those systems to customers under theater system arrangements; and the Digital Re-Mastering of films into the IMAX format and the exhibition of those films in the IMAX theater network. Co. is also engaged in the production and distribution of original large-format films, the provision of services in support of the IMAX theater network, the provision of post-production services for large-format films, the operation of three IMAX theaters and, from time-to-time the conversion of two-dimensional and three-dimensional Hollywood feature films.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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