Mark Your Calendar: IMAX Set to Report Earnings on February 23rd

By Danny

Theater company IMAX Corporation (NYSE: IMAX) is scheduled to report its fourth quarter and year-end results for 2016 on Thursday, February 23rd. Before the company's quarterly check-in, here's a look at several areas for investors to watch.

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IMAX theater. Image source: Pixabay.

Tough comps at the box office

Comps will be challenging for IMAX this quarter and for the full year. Earlier this year, 2015 box office hits such as Avengers: Age of Ultron,Jurassic World,andFurious 7 weighed on 2016 comparisons and we may see more of the same this quarter. This December saw the release of Disney's (NYSE: DIS) Rogue One: A Star Wars Story. The movie was an unqualified success and has currently amassed over $1 billion in worldwide box office. The prior year quarter, however, boasted the release of Star War: The Force Awakens, which brought in over $2 billion in worldwide box office and became the third highest grossing film of all time.In 2016, Disney became the first studio to achieve $7 billion in box office receipts in a single year, andmany of its blockbusters were shown on IMAX screens.

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Finally, there is evidence that movie-going in China has slowed. If this is true, it will have a negative impact on global results. Global gross box office results hit $288.4 million in the year-ago quarter, a number that's going to be tough to live up to this year.

Image source: Pixabay.

Theater signings, backlog, installations and network

The theater segment is the lifeblood of IMAX's business and accounts for over 60% of the company's revenue. Tracking the progress of new theaters from the signing of the contract to completion is something that IMAX reports on each quarter and analysts follow closely. This provides insight not only into current activity, but is an indicator of future business. Theater operators such as AMC Entertainment Holdings (NYSE: AMC) will sign agreements for IMAX branded theaters, which will join the list of those waiting to be built -- called the backlog. Once completed, those theaters are reported in the financial results as installations and are included as part of the network of IMAX theaters going forward.

The company has little control over the timing of agreement signings or backlog. For the current quarter, IMAX expected to install 63 theaters versus 62 the previous year. Quarter-over-quarter results in the signings and backlog categories will also make for difficult comparisons. Last quarter, IMAX signed a massive deal with Wanda Cinema Line Corp, to build 150 IMAX theaters in China over six years. This was the largest such deal in the company's history and resulted in a record 162 theater signings for the quarter and the largest backlog in company history.

There is still potential for an upside surprise regarding additional theater signings in the recently completed quarter. Prior to year-end, IMAX longtime partner AMC was expected to complete its $1.2 billion acquisition of Carmike Cinemas in the US, and its $1.2 billion acquisition of Odeon and UCI Cinemas in the UK, making it the world's largest movie exhibitor. With a long history between AMC and IMAX, I expect to see additional theater signings in the near future as a result of these acquisitions.

Bonus categories: exercise and virtual reality markets

IMAX has several ongoing pilot programs that will determine the feasibility of entering into additional markets. Early in 2016, it announced its immersive indoor cycling studio concept, called IMAXShift, essentially "spinning" sessions integrated with IMAX. A November 10, 2016, article in The New York Times reported that approximately 4,000 riders had paid $34 each for a 45-minute class. We may get an update on this initiative.

During its third quarter financial release, IMAX reported that it would open pilot virtual-reality facilities in Los Angeles and in Manchester, England (via Odeon) in late 2016. IMAX indicated that this would be location based, provide immersive content, and multiple pods that would allow groups of friends to participate. It would likely follow the joint venture system, similar to what it users in some theater agreements.

While these are not expected to contribute meaningfully to revenue or earnings in the near term, management may offer some insight into these tests which may have an impact on future results.

Foolish final thoughts

Analysts are expecting IMAX to report total revenue of $101.65 million for the quarter, a 15% decrease from the $119.3 million it earned in last year's fourth quarter, and earnings per share of $0.14 compared to $0.39 in the previous year. It's clear the Street is expecting a rough report, but those expectations aren't nearly as startling when you take the time to understand the core business results playing into the year-over-year comparisons.

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Danny Venaloves the movies and owns shares of AMC Entertainment Holdings, IMAX, and Walt Disney. Danny Vena has the following options: long January 2018 $80 calls on Walt Disney and short April 2017 $105 calls on Walt Disney. The Motley Fool owns shares of and recommends IMAX and Walt Disney. The Motley Fool has a disclosure policy.