Summer is a pivotal time for the movie industry, and big-screen theater specialist IMAX (NYSE: IMAX) often sees its fortunes rise and fall depending on the health of Hollywood. Although domestic box office figures still play a major role in IMAX's results, those who follow the stock have increasingly seen the influence that foreign markets have had on the growth trajectory for the theater operator. Even as conventional theater operators have struggled with competition from home-viewing options, IMAX has sought to set itself apart by offering more immersive theater experiences.
Coming into Thursday' third-quarter financial report, IMAX investors expected that what they saw as a slow summer would be evident in the company's numbers. Yet IMAX reported its best third-quarter global box office figures in its history, defying the slump in the U.S. and getting and big boost from its international presence. Let's take a closer look at IMAX's latest results and what they say about its future.
Continue Reading Below
IMAX heats up for summer
IMAX's third-quarter results blew expectations out of the water. Revenue soared 14% to $98.8 million, crushing the consensus forecast among investors for just $85.9 million. Extraordinary items like exit costs and restructuring-related charges sent IMAX to a net loss for the quarter, but even though adjusted net income was down 7% to $9.2 million, adjusted earnings attributable to shareholders of $0.08 per share dramatically exceeded the $0.01 that most of those following the stock were resigned to seeing.
The big news from IMAX was its record box office performance. Global box office jumped 17% to $219 million, marking the highest-ever third-quarter figure for the company. Domestic box office figures were up 18% even though IMAX said that overall total results throughout the movie industry saw North American box office receipts down 14% from the previous summer. Overseas, box office performance in China was relatively slow at 8%, but the other international segment saw box office receipts soar by a quarter. Per-screen box office figures weren't quite as favorable, falling by about $3,600 to $181,100 per screen, but strength in the domestic and other international segments helped offset substantial per-screen declines in China.
IMAX also continued to build out its global network of theater locations. The company installed 51 theaters during the quarter, 49 of which were new and two of which were upgrades of existing locations. That pulled the total network size above the 1,300 mark. New signings slowed considerably, with contracts covering just 17 new theaters. Yet a quarter of the backlog of 545 locations that IMAX has coming on line in the near future are outside the U.S. and China, making clear the emphasis that the company has put on building up a truly worldwide presence.
Performance from IMAX's business segments was fairly consistent across the board, reflecting the box office success. Digital remastering revenue jumped by more than a fifth, and lower costs helped complement higher box-office receipts to send segment gross margin up by more than 11 percentage points to 69.7%. Joint revenue-sharing arrangements brought in about 10% more money than they did in the year-ago period. The theater business posted a small revenue gain.
What's next for IMAX?
CEO Richard Gelfond was ecstatic about the results. "The IMAX consumer value proposition was on full display last quarter," Gelfond said. "Despite overall cinema industry challenges, it was our strongest third quarter ever, underpinned by our outperformance on blockbuster titles such as Dunkirk." The CEO also noted that IMAX's international business outside of China now exceeds its U.S. business, and he sees global performance playing an increasingly important role ahead.
IMAX is also optimistic about its efforts to spur greater revenue while cutting back on costs. The company hasn't fully implemented its initiatives in those areas, but the progress that it has seen so far has executives confident about the future trajectory for the theater specialist.
IMAX shareholders were pleased with the results, and the stock climbed 6% in pre-market trading following the announcement. Long-term investors hope that the news will help the stock regain even more of its losses from earlier in 2017, and if fundamental performance remains this strong, IMAX should keep boosting its importance in the movie theater industry in the years to come.
10 stocks we like better than IMAXWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and IMAX wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of October 9, 2017