IMAX Posts Record Theater Openings With Virtual Reality Just Ahead

By Markets Fool.com


Image source: IMAX.

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If you've ever been to an IMAX (NYSE: IMAX) theater, it shouldn't surprise you that the company is always a big winner when Hollywood delivers good content for its screens. With plenty of blockbuster franchises consistently bringing successful releases to theaters across the world, IMAX is seeking to expand its reach as far as it can.

Coming into Thursday's third-quarter financial report, IMAX investors weren't sure how well the company would do in fending off anticipated year-over-year declines in sales and net income, but IMAX did a good job of producing revenue growth and better earnings than most had expected.

Let's take a closer look at the latest from IMAX and what lies ahead for the theater company.

How IMAX set a new record

IMAX's third-quarter results didn't necessarily look all that stunning on their face, but they were a far cry from what many had looked to see. Revenue inched upward by 2% to $86.55 million, but that was well above the consensus forecast for just $73 million in sales. Similarly, GAAP net income was down by 70% to $2.53 million, but after accounting for some extraordinary items, adjusted earnings of $0.12 per share were $0.04 higher than most investors had expected.

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A closer look at IMAX's numbers shows why the news from the theater giant was encouraging. The company signed a record 162 new theater systems during the quarter, which was well above the 138 that the company signed during the entire 2015 year. Similarly, installations of 48 new IMAX theaters were more than the company had done in any previous third quarter, and even a sizable acceleration sequentially from the 38 installations completed during the second quarter of 2016. As a result of all the signings, IMAX's backlog grew to 547 theaters, up by nearly a quarter compared to where the backlog was as of June 30.

IMAX's segments had mixed performance. Revenue from sales and sales-type leases of theaters fell by nearly a fifth compared to the year-ago quarter, but revenue from joint revenue-sharing arrangements was roughly flat. Helping IMAX was better performance in the production and DMR arena, where sales climbed around 3% year over year.

Yet the performance of the movies that IMAX showed couldn't live up to last year's lineup of films. Gross box office figures fell around 2% to $186.3 million, and the average global box office per-screen average for the quarter was $184,700. That's a big decline from the second quarter, although seasonal cyclicality is a fact of life in the theater industry and something that IMAX is used to seeing.

IMAX CEO Richard Gelfond was happy about the company's overall results. "The third quarter was strategic on serveral fronts that we believe will support the continued long-term growth and health of our business," Gelfond said, "including record signings and installation activity." The CEO also pointed to the stock repurchase of 500,000 shares as an important strategic step for the company.

Can IMAX roar ahead?

Arguably the most interesting element of IMAX's future is in a new potential experience for audiences. The company said that it has reached some key milestones toward the future launch of its location-based virtual reality offering. IMAX expects to open two facilities, one in Los Angeles and the other in Manchester, England. Those openings should happen before the end of 2016, and if the early pilot programs go well, then virtual reality could represent another reason for customers to come into IMAX locations in the years to come.

Also encouraging was the fact that IMAX once again boosted its installation guidance for the year. The company now expects installations of between 155 to 160 theaters, which could be as much as five theaters ahead of its previous guidance. If signings continue at their recent pace, then IMAX will have to work hard in order to boost the pace of its installations to keep up with demand.

IMAX shareholders were quite happy with the news, sending the stock up by more than 4% for the day following the announcement. With plenty of interesting new movie offerings expected for the fourth quarter, investors hope that IMAX can finish the year on a high note and do even better in 2017.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends IMAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.