Morningstar | Imax Reports Strong 2Q; Imax Box Office Growing Faster than Overall U.S. Box Office
Imax posted another strong quarter as the firm met consensus projections for the top line and beat the Street expectations for adjusted EBITDA. The firm reported strong Imax box office grosses of $343 million in the second quarter, the fifth straight quarter of growth and the first quarter with over $100 million in grosses in each of the firm's three regions: U.S., China, and rest of the world. The company benefited from the global strength of both Pixar's Incredibles 2 and Marvel's Avengers Infinity War which is now the firm's highest grossing film of all time in China. Imax signed agreements covering 40 new theaters, along with 98 upgrade signings during the quarter and ended the quarter with a backlog of 635 new theaters. 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 second quarter came in at $98 million, up 12% versus the same quarter last year. Performance was driven by continued growth of Imax box office (up 27% year over year) with strong demand in many markets. The U.S. led all regions with 53% box office growth, but China continued to bounce back with 14% box office growth in the quarter. 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 34% in the first half of the year versus 10% for overall box office in U.S. We believe that the faster growth in Imax grosses can be partially attributed to the firm's changes in slate programming implemented last year which included day-parting theaters and a quicker hook for underperforming films. Adjusted EBITDA margin for the quarter improved by 560 basis points to 43.5%, as the increased revenue and improved cost controls more than offset increased marketing spend and ongoing losses associated with the investments in the VR centers.
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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