PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Presented below is Management's Discussion and Analysis of Financial Condition and Results of Operations (or "MD&A") for IMAX Corporation and its consolidated subsidiaries (“IMAX” or the “Company”) for the three months ended March 31, 2021 and 2020. MD&A should be read in conjunction with Note 14, "Segment Reporting" in the accompanying Condensed Consolidated Financial Statements in Item 1.
As of March 31, 2021, the Company indirectly owns 69.83% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China is a consolidated subsidiary of the Company.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included in this quarterly report may constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, references to business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, future capital expenditures (including the amount and nature thereof), plans and references to the future success of the Company and expectations regarding its future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, risks related to the adverse impact of the COVID-19 pandemic; risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada; risks related to the Company’s growth and operations in China; the performance of IMAX DMR® films; the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; risks related to currency fluctuations; the potential impact of increased competition in the markets within which the Company operates, including competitive actions by other companies; the failure to respond to change and advancements in digital technology; risks relating to recent consolidation among commercial exhibitors and studios; risks related to new business initiatives; conditions in the in-home and out-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security and data privacy; risks related to the Company’s inability to protect its intellectual property; risks related to the Company’s indebtedness and compliance with its debt agreement; general economic, market or business conditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; the failure to fully realize the projected cost savings and benefits from any of the Company’s restructuring initiatives; any statements of belief and any statements of assumptions underlying any of the foregoing; other factors and risks outlined in the Company’s periodic filings with the Securities and Exchange Commission; and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this quarterly report are qualified by these cautionary statements, and actual results or anticipated developments by the Company may not be realized, and even if substantially realized, may not have the expected consequences to, or effects on, the Company. The forward-looking statements herein are made only as of the date hereof and the Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, as soon as reasonably practicable after such filings have been made with the United States Securities and Exchange Commission (the “SEC”). Reports may be obtained free of charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations Department at 212-821-0100. No information included on the Company's website shall be deemed included or otherwise incorporated into this filing, except where expressly indicated.
The information posted on the Company’s corporate and Investor Relations websites may be deemed material to investors. Accordingly, investors, media and others interested in the Company should monitor the Company’s websites in addition to the Company’s press releases, SEC filings and public conference calls and webcasts.
IMAX®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It In IMAX®, The IMAX Experience®, An IMAX Experience®, An IMAX 3D Experience®, IMAX DMR®, DMR®, IMAX nXos® and Films to the Fullest®, are trademarks and trade names of the Company or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions.
44
OVERVIEW
IMAX is one of the world’s leading entertainment technology companies, specializing in technological innovations powering the presentation of some of today’s most immersive entertainment experiences. Through its proprietary software, theater architecture, patented intellectual property and specialized equipment, IMAX offers a unique end-to-end cinematic solution to create the highest-quality, most immersive motion picture and other entertainment event experiences for which the IMAX® brand has become known globally. Top filmmakers and movie studios utilize the cutting-edge visual and sound technology of IMAX to connect with audiences in innovative ways, and, as a result, the IMAX network is among the most important and successful distribution platforms for major films and other events around the world.
The Company leverages its proprietary technology and engineering in all aspects of its core business, which principally consists of the digital remastering of films and other presentations into the IMAX format (“IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX Theater Systems”).
IMAX Theater Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s 53-year history. The Company’s customers are theater exhibitors that operate commercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites. The Company generally does not own the theaters in the IMAX network, but sells or leases the IMAX Theater System along with a license to use its trademarks.
As of March 31, 2021, there were 1,652 IMAX Theater Systems operating in 84 countries and territories, including 1,567 commercial multiplexes, 12 commercial destinations and 73 institutional locations. This compares to 1,616 IMAX Theater Systems operating in 81 countries and territories as of March 31, 2020 including 1,526 commercial multiplexes, 14 commercial destinations and 76 institutional locations. (See the table below under “IMAX Network and Backlog” for additional information on the composition of the IMAX network.)
The IMAX Theater System provides the Company’s exhibitor customers with a combination of the following benefits:
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•
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the ability to exhibit content that has undergone the IMAX DMR® conversion process, which results in higher image and sound fidelity than conventional cinema experiences;
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•
|
advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems;
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•
|
large screens and proprietary theater geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images;
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•
|
advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an IMAX theater;
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•
|
specialized theater acoustics, which result in a four-fold reduction in background noise; and
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•
|
a license to the globally recognized IMAX brand.
|
In addition, certain movies shown in IMAX theaters are filmed using proprietary IMAX film and IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and a film aspect ratio that delivers up to 26% more image onto a movie screen.
Together these components cause audiences in IMAX theaters to feel as if they are a part of the on-screen action, creating a more intense, immersive and exciting experience than a traditional theater.
45
As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience®, the Company’s exhibitor customers typically charge a premium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associated with IMAX DMR films, generates incremental box office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAX network. The incremental box office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform for Hollywood blockbuster films and foreign local language movie studios.
As one of the world’s leaders in entertainment technology, the Company strives to remain at the forefront of advancements in cinema technology. In 2018, the Company introduced IMAX with Laser, a laser projection system designed for IMAX theaters in commercial multiplexes, which represents a further evolution of IMAX’s proprietary technology. The Company believes that IMAX with Laser delivers increased resolution, sharper and brighter images, deeper contrast and the widest range of colors available to filmmakers today. The Company further believes that IMAX with Laser is helping facilitate the next major lease renewal and upgrade cycle for the global IMAX network.
The Company is also experimenting with new technologies and new content as a way to deepen consumer engagement and brand loyalty, which includes curating unique, differentiated alternative content to be exhibited in IMAX theaters, particularly during those periods when Hollywood blockbuster film content is not available.
RECENT DEVELOPMENTS
On April 24, 2021, Patrick McClymont, the Company’s Chief Financial Officer, notified the Company that he would be resigning his position effective May 14, 2021, to pursue other career and personal interests. Joseph Sparacio, Mr. McClymont’s immediate predecessor as Chief Financial Officer, has agreed to serve as the Company’s interim Chief Financial Officer, reporting to Richard L. Gelfond, the Company’s CEO, beginning on June 1, 2021, until the sooner of December 31, 2021 or when a permanent replacement is named. The terms of Mr. Sparacio’s compensation have not yet been finalized.
IMPACT OF COVID-19 PANDEMIC
In late January 2020, in response to the public health risks associated with the novel coronavirus and the disease that it causes (“COVID-19”), the Chinese government directed exhibitors in China to temporarily close more than 70,000 movie theaters, including all of the approximately 700 IMAX theaters in mainland China. On March 11, 2020, due to the worsening public health crisis associated with the novel coronavirus, COVID-19 was characterized as a pandemic by the World Health Organization, and in the following weeks, local, state and national governments instituted stay-at-home orders and restrictions on large public gatherings, which caused movie theaters in countries around the world to temporarily close, including substantially all of the IMAX theaters in those countries. As a result of the theater closures, movie studios postponed the theatrical release of most films originally scheduled for release in 2020 and early 2021, including many scheduled to be shown in IMAX theaters, while several other films were released directly or concurrently to streaming platforms. More recently, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network gradually reopened in the third quarter of 2020 with reduced capacities, physical distancing requirements, and other safety measures. As of March 31, 2021, 77% of the theaters in the global IMAX commercial multiplex network were open, spanning 41 countries. This included 66% of the theaters in Domestic (i.e., United States and Canada) locations, 97% of the theaters in Greater China and 52% of the theaters in Rest of World markets. In many parts of Asia, audiences have returned to theaters, particularly IMAX theaters, in numbers approximating pre-pandemic attendance levels despite the continued delay of Hollywood theatrical releases, which typically account for 70% of box office ticket sales in those regions. Management believes this indicates that moviegoers are eager to return to cinemas where and when theaters are open and they feel safe. However, ticket sales have been significantly lower than normal levels in theaters outside of Asia due in significant part to continued delays in the Hollywood theatrical release schedule. As a result, during the first quarter of 2021, certain theater chains have remained closed or operated with capacity restrictions and reduced operating hours.
46
The impact of the COVID-19 global pandemic has resulted in significantly lower levels of revenues, earnings and operating cash flows during 2020 and through the end of the first quarter of 2021, when compared to periods prior to the onset of the pandemic, as gross box office (“GBO”) results from the Company’s theater customers declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally suspended for theaters that were closed. Even as the pandemic has receded in many markets around the world, there continues to be few new films released by Hollywood movie studios and a significant number of theaters in the IMAX network remain either closed or operating with capacity restrictions. The Company continues to experience a significant decline in earnings and operating cash flows as it is generating lower than normal levels of GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have been, and may continue to be delayed. However, with approximately 77% of the Company’s global theater network open as of March 31, 2021 (including substantially all of the theaters in Greater China), GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased in the current quarter, leading to improvement in the Company’s segment results, when compared to the prior year period.
In addition, as a result of the financial difficulties faced by certain of the Company’s exhibition customers as a result of theater closures during the pandemic, the Company has experienced and may continue to experience delays in collecting payments due under existing theater sale or lease arrangements. In response, the Company has provided temporary relief to exhibitor customers by waiving or reducing maintenance fees during periods when theaters are closed or operating with reduced capacities and, in certain situations, by providing extended payment terms on annual minimum payment obligations in exchange for a corresponding or longer extension of the term of the underlying sale or lease arrangement.
Management is encouraged by recent box office results in markets like China, Japan and South Korea where the virus is better controlled and audiences have demonstrated a willingness to return to cinema. In addition, vaccine distribution is accelerating in the United States and the pipeline of Hollywood movies scheduled for the second half of 2021 appears strong. However, the Company may continue to be significantly impacted by the COVID-19 global pandemic even after theaters reopen and resume normal operations. The global economic impact of COVID-19 has led to record levels of unemployment in certain countries, which has led to, and may continue to result in lower consumer spending. The timing and extent of a recovery of consumer behavior and willingness to spend discretionary income on movie-going may delay the Company’s ability to generate significant GBO-based revenue until consumer behavior normalizes and consumer spending recovers.
In response to uncertainties associated with the COVID-19 global pandemic, in the first quarter of 2021, the Company continued to take significant steps to preserve cash by eliminating non-essential costs, keeping certain employees on a temporary furlough, reducing the working hours of other employees and reducing all non-essential capital expenditures to minimum levels. The Company has also implemented an active cash management process, which, among other things, requires senior management approval of all outgoing payments.
In the first quarter of 2021, the Company issued $230.0 million of Convertible Notes. The net proceeds from the issuance of the Convertible Notes were approximately $223.7 million, after deducting the initial purchasers’ discounts and commissions, which were used in part to repay a portion of outstanding borrowings under the Credit Facility provided by the Company’s Credit Agreement with Wells Fargo. In addition, during the first quarter of 2021, the Company entered into the Second Amendment to the Credit Agreement which, among other things, suspends the Senior Secured Net Leverage Ratio financial covenant in the Credit Agreement through the first quarter of 2022 and, once re-established, permits the Company to use EBITDA from the third and fourth quarters of 2019 in lieu of EBITDA for the corresponding quarters of 2021. As of March 31, 2021, the Company was in compliance with all of its requirements under the Credit Agreement, as amended. (Each defined term used, but not defined in this paragraph is defined in “Liquidity and Capital Resources”.) (See “Liquidity and Capital Resources” and Note 7 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1.)
The Company has applied for and received $8.6 million to date in wage subsidies, tax credits and other financial support under COVID-19 relief legislation that has been enacted in the countries in which it operates. During the three months ended March 31, 2021, the Company recognized $1.5 million under the Canada Emergency Wage Subsidy (“CEWS”) program as reductions to Selling, General and Administrative Expenses ($1.2 million) and Costs and Expenses Applicable to Revenues ($0.3 million) in the Condensed Consolidated Statements of Operations. The CEWS program has been extended to September 2021. The Company will continue to review for the availability of additional subsidies and credits for the remaining terms of these programs, where applicable, although there are no guarantees that the Company will ultimately apply for or receive any such additional benefits. (See “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part II, Item 1A in this report.)
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SOURCES OF REVENUE
For the presentation of MD&A, the Company has organized its reportable segments into the following four categories: (i) IMAX Technology Network; (ii) IMAX Technology Sales and Maintenance; (iii) New Business Initiatives; and (iv) Film Distribution and Post-Production. Within these four categories are the Company’s following reportable segments: (i) IMAX DMR; (ii) Joint Revenue Sharing Arrangements; (iii) IMAX Systems; (iv) IMAX Maintenance; (v) Other Theater Business; (vi) New Business Initiatives; (vii) Film Distribution; and (viii) Film Post-Production. For additional details regarding the Company’s sources of revenue, refer to its Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
IMAX Technology Network
The IMAX Technology Network category earns revenue based on contingent box office receipts. Included in the IMAX Technology Network category are the IMAX DMR segment and contingent rent from the Joint Revenue Sharing Arrangement (“JRSA”) segment, each as described in more detail below.
IMAX DMR
The Company has developed IMAX DMR, a proprietary technology that digitally remasters films into IMAX formats. In a typical IMAX DMR film arrangement, the Company receives a percentage of the box office receipts from a movie studio in exchange for converting a commercial film into IMAX DMR format and distributing it through the IMAX network. In recent years, the percentage of gross box office receipts earned in IMAX DMR arrangements has averaged approximately 12.5%, except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films.
IMAX DMR digitally enhances the image resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited in IMAX theaters is remastered for IMAX digital sound systems in connection with the IMAX DMR release of the film. Unlike the soundtracks played in conventional theaters, IMAX remastered soundtracks are uncompressed and full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in an optimal listening position.
IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company refers to these enhancements as “IMAX DNA”. Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting films with IMAX cameras to increase the audience’s immersion in the film and to take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio that delivers up to 26% more image onto a movie screen. Detective Chinatown 3 and A Writer’s Odyssey, which were released in China in the first quarter of 2021, were filmed with IMAX cameras.
Management believes that growth in international box office remains an important driver of growth for the Company. To support continued growth in international markets, the Company has sought to bolster its international film strategy, supplementing the Company’s film slate of Hollywood DMR titles with appealing local IMAX DMR releases in select markets, particularly in China. During 2020, 17 local language IMAX DMR films were released to the IMAX network, including ten in China, three in Russia, three in Japan, and one in South Korea. During the three months ended March 31, 2021, six local language IMAX DMR films were released to the IMAX network, including four in China and two in Japan. The Company expects to announce additional local language IMAX DMR films to be released to the IMAX network in the remainder of 2021.
The Company remains in active negotiations with all major Hollywood studios for additional films to fill out its short and long-term film slate for the IMAX network. However, as a result of the theater closures associated with the COVID-19 global pandemic, Hollywood movie studios have postponed the theatrical release of most films originally scheduled for release in early 2021, including many scheduled to be shown in IMAX theaters, while several other films have been released directly or concurrently to streaming platforms. Accordingly, as of the filing of this report, there remains uncertainty around the release dates of certain major films.
48
Joint Revenue Sharing Arrangements – Contingent Rent
The JRSA segment provides IMAX Theater Systems to exhibitors through joint revenue sharing arrangements. Under the traditional form of these arrangements, IMAX provides the IMAX projection and sound system under a long-term lease in which the Company assumes the majority of the equipment and installation costs. In exchange for its upfront investment, the Company earns rent based on a percentage of contingent box office receipts and, in some cases, concession revenues, rather than requiring the customer to pay a fixed upfront fee or annual minimum payments. Rental payments from the customer are required throughout the term of the arrangement and are due either monthly or quarterly. The Company retains title to the IMAX Theater System equipment components throughout the lease term, and the equipment is returned to the Company at the conclusion of the arrangement.
Under certain other joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX Theater System in an amount that is typically half of what the Company would receive from a typical sale transaction. As with a traditional joint revenue sharing arrangement, the customer also pays the Company a percentage of contingent box office receipts over the term of the arrangement, although this percentage is typically half that of a traditional joint revenue sharing arrangement. For hybrid joint revenue sharing arrangements that take the form of a lease, the contingent rent is reported within the IMAX Technology Network, while the fixed upfront payment is recorded as revenue within IMAX Technology Sales and Maintenance, as discussed below. For hybrid joint revenue sharing arrangements that take the form of a sale, see the discussion below under IMAX Technology Sales and Maintenance.
Under most joint revenue sharing arrangements (both traditional and hybrid), the initial non-cancellable term is 10 years or longer and is renewable by the customer for one to two additional terms of between three to five years. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails to perform its obligations.
The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter-to-quarter and year-to-year based on a number of factors including film performance, the mix of theater system configurations, the timing of installation of IMAX Theater Systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.
Joint revenue sharing arrangements also require IMAX to provide maintenance and extended warranty services to the customer over the term of the lease in exchange for a separate fixed annual fee. These fees are reported within IMAX Technology Sales and Maintenance, as discussed below.
The introduction of joint revenue sharing arrangements has been an important factor in the expansion of the Company’s commercial theater network. Joint revenue sharing arrangements allow commercial theater exhibitors to install IMAX Theater Systems without the significant initial capital investment required in a sale or sales-type lease arrangement. Joint revenue sharing arrangements drive recurring cash flows and earnings for the Company, as customers under these arrangements pay the Company a portion of their ongoing box office receipts. The Company funds its joint revenue sharing arrangements through cash flows from operations. As of March 31, 2021, the Company had 896 theaters in operation under joint revenue sharing arrangements, a 3.3% increase as compared to the 867 theaters in operation under joint revenue sharing arrangements as of March 31, 2020. The Company also had contracts in backlog for 332 theaters under joint revenue sharing arrangements as of March 31, 2021, including 84 upgrades to existing theater locations and 248 new theater locations.
IMAX Technology Sales and Maintenance
The IMAX Technology Sales and Maintenance category earns revenue principally from the sale or sales-type lease of IMAX Theater Systems, as well as from the maintenance of IMAX Theater Systems. To the lesser extent, the IMAX Technology Sales and Maintenance category earns revenue from certain ancillary theater business activities and revenues from hybrid joint revenue sharing arrangements. These activities are described in more detail below under each of their respective segments.
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IMAX Systems
The IMAX Systems segment provides IMAX Theater Systems to exhibitors through sale arrangements or long-term lease arrangements that for accounting purposes are classified as sales-type leases. Under these arrangements, in exchange for providing the IMAX Theater System, the Company earns initial fees and ongoing consideration (which can include fixed annual minimum payments and contingent fees in excess of the minimum payments), as well as maintenance and extended warranty fees (see “IMAX Maintenance” below). The initial fees vary depending on the system configuration and location of the theater. Initial fees are paid to the Company in installments between the time of signing the arrangement and the time of system installation, which is when the total of these fees, in addition to the present value of future annual minimum payments, are recognized as revenue. Finance income is recognized over the term of a financed sale or sales-type lease arrangement. In addition, in sale arrangements, an estimate of the contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded is recorded as revenue in the period when the sale is recognized and is adjusted in future periods based on actual results and changes in estimates. Such variable consideration is only recognized on sales transactions to the extent the Company believes there is not a risk of significant revenue reversal.
In sale arrangements, title to the IMAX Theater System equipment generally transfers to the customer. However, in certain instances, the Company retains title or a security interest in the equipment until the customer has made all payments required by the agreement or until certain shipment events for the equipment have occurred. In a sales-type lease arrangement, title to the IMAX Theater System equipment remains with the Company. The Company has the right to remove the equipment for non-payment or other defaults by the customer.
The revenue earned from customers under the Company’s theater system sales or lease agreements varies from quarter-to-quarter and year-to-year based on a number of factors, including the number and mix of theater system configurations sold or leased, the timing of installation of the IMAX Theater Systems, the nature of the arrangement and other factors specific to individual contracts.
Joint Revenue Sharing Arrangements – Fixed Fees
Under certain joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX Theater System in an amount that is typically half of what the Company would receive from a typical sale transaction. For hybrid joint revenue sharing arrangements that take the form of a lease, the contingent rent is reported within the IMAX Technology Network, as discussed above, while the fixed upfront payment is reported within IMAX Technology Sales and Maintenance.
IMAX Maintenance
For all IMAX theaters, theater owners or operators are also responsible for paying the Company an annual maintenance and extended warranty fee. Under these arrangements, the Company provides proactive and emergency maintenance services to every theater in its network to ensure that each presentation is up to the highest IMAX quality standard. Annual maintenance fees are paid throughout the duration of the term of the theater agreements.
Other Theater Business
The Other Theater Business segment principally includes after-market sales of IMAX projection system parts and 3D glasses.
New Business Initiatives and Other
The New Business Initiatives segment includes activities related to the exploration of new lines of business and new initiatives outside of the Company’s core business, which seek to leverage its proprietary, innovative technologies, its leadership position in the entertainment technology space and its unique relationship with content creators.
In addition, through its Connected Theaters initiative, the Company is currently exploring new technologies and forms of content as a way to deepen consumer engagement and brand loyalty, including new technologies to further connect the IMAX network and to facilitate bringing more unique content, including live events, to IMAX theater audiences. The Company believes such additional connectivity can provide more innovative content to the IMAX network and in turn permit the Company to engage audiences in new ways.
The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content, especially during periods between peak and off-peak seasons, known as "shoulder periods".
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Film Distribution and Post-Production
Through the Film Distribution segment, the Company licenses film content and distributes large-format films, primarily for its institutional theater partners. The Company receives as its distribution fee either a fixed amount or fixed percentage of the theater box office receipts and, following the Company’s recoupment of its costs, is typically entitled to receive an additional percentage of gross revenues as participation revenues.
The Film Post-Production segment provides film post-production and quality control services for large-format films (whether produced by IMAX or third parties), and digital post-production services.
IMAX NETWORK AND BACKLOG
IMAX Network
The following table provides detailed information about the IMAX network by type and geographic location as of March 31, 2021 and 2020:
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|
March 31, 2021
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|
March 31, 2020
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|
|
|
Commercial
Multiplex
|
|
|
Commercial
Destination
|
|
|
Institutional
|
|
|
Total
|
|
|
Commercial
Multiplex
|
|
|
Commercial
Destination
|
|
|
Institutional
|
|
|
Total
|
|
United States
|
|
|
365
|
|
|
|
4
|
|
|
|
27
|
|
|
|
396
|
|
|
|
371
|
|
|
|
4
|
|
|
|
30
|
|
|
|
405
|
|
Canada
|
|
|
39
|
|
|
|
1
|
|
|
|
7
|
|
|
|
47
|
|
|
|
39
|
|
|
|
2
|
|
|
|
7
|
|
|
|
48
|
|
Greater China(1)
|
|
|
734
|
|
|
|
—
|
|
|
|
16
|
|
|
|
750
|
|
|
|
699
|
|
|
|
—
|
|
|
|
15
|
|
|
|
714
|
|
Western Europe
|
|
|
116
|
|
|
|
4
|
|
|
|
8
|
|
|
|
128
|
|
|
|
114
|
|
|
|
4
|
|
|
|
8
|
|
|
|
126
|
|
Asia (excluding Greater China)
|
|
|
123
|
|
|
|
2
|
|
|
|
2
|
|
|
|
127
|
|
|
|
120
|
|
|
|
2
|
|
|
|
2
|
|
|
|
124
|
|
Russia & the CIS
|
|
|
68
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
68
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
Latin America(2)
|
|
|
51
|
|
|
|
1
|
|
|
|
11
|
|
|
|
63
|
|
|
|
50
|
|
|
|
1
|
|
|
|
12
|
|
|
|
63
|
|
Rest of the World
|
|
|
71
|
|
|
|
—
|
|
|
|
2
|
|
|
|
73
|
|
|
|
65
|
|
|
|
1
|
|
|
|
2
|
|
|
|
68
|
|
Total(3)
|
|
|
1,567
|
|
|
|
12
|
|
|
|
73
|
|
|
|
1,652
|
|
|
|
1,526
|
|
|
|
14
|
|
|
|
76
|
|
|
|
1,616
|
|
(1)
|
Greater China includes China, Hong Kong, Taiwan and Macau.
|
(2)
|
Latin America includes South America, Central America and Mexico.
|
(3)
|
Period-to-period changes in the tables above are reported net of the effect of permanently closed theaters.
|
The Company currently believes that over time its commercial multiplex network could grow to approximately 3,318 IMAX theaters worldwide from the 1,567 operating as of March 31, 2021. The Company believes that the majority of its future growth will come from international markets. As of March 31, 2021, 73.2% of IMAX Theater Systems in operation were located within international markets (defined as all countries other than the United States and Canada), compared to 72.0% as of March 31, 2020. Revenues and gross box office derived from international markets continue to exceed revenues and gross box office from the United States and Canada. Risks associated with the Company’s international business are outlined in “Risk Factors – The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growth prospects” in Part I, Item 1A of the Company’s 2020 Form 10-K.
Greater China is the Company’s largest market, measured by revenues, with approximately 38% and 31% of overall revenues generated from its Greater China operations in the years ended December 31, 2020 and 2019, respectively. For the three months ended March 31, 2021, this percentage increased to 66% as the pace and extent of the reopening of IMAX theaters in Greater China has exceeded that of theaters in Domestic and Rest of World markets. As of March 31, 2021, the Company had 750 theaters operating in Greater China with an additional 248 theaters in backlog that are scheduled to be installed by 2028. The Company’s backlog in Greater China represents 47.6% of its total current backlog, including upgrades in system type. The Company’s largest single international partnership is in China with Wanda Film (“Wanda”). Wanda’s total commitment to the Company is for 361 IMAX Theater Systems in Greater China (of which 355 IMAX Theater Systems are under the parties’ joint revenue sharing arrangement).
51
(See “Risk Factors – The Company faces risks in connection with its significant presence in China and the continues expansion of its business there” and “Risk Factors – General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Theater Systems and the demand for new IMAX Theater Systems” in Part I, Item 1A of the Company’s 2020 Form 10-K.)
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part II, Item 1A of this report.)
The following tables provide detailed information about the Commercial Multiplex theaters in operation within the IMAX network by arrangement type and geographic location as of March 31, 2021 and 2020:
|
|
March 31, 2021
|
|
|
|
Commercial Multiplex Theaters in IMAX Network
|
|
|
|
Traditional
JRSA
|
|
|
Hybrid
JRSA
|
|
|
Sale / Sales-
type Lease
|
|
|
Total
|
|
Domestic Total (United States & Canada)
|
|
|
275
|
|
|
|
5
|
|
|
|
124
|
|
|
|
404
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China
|
|
|
380
|
|
|
|
108
|
|
|
|
246
|
|
|
|
734
|
|
Asia (excluding Greater China)
|
|
|
33
|
|
|
|
2
|
|
|
|
88
|
|
|
|
123
|
|
Western Europe
|
|
|
48
|
|
|
|
28
|
|
|
|
40
|
|
|
|
116
|
|
Russia & the CIS
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
68
|
|
Latin America
|
|
|
1
|
|
|
|
—
|
|
|
|
50
|
|
|
|
51
|
|
Rest of the World
|
|
|
16
|
|
|
|
—
|
|
|
|
55
|
|
|
|
71
|
|
International Total
|
|
|
478
|
|
|
|
138
|
|
|
|
547
|
|
|
|
1,163
|
|
Worldwide Total(1)
|
|
|
753
|
|
|
|
143
|
|
|
|
671
|
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
Commercial Multiplex Theaters in IMAX Network
|
|
|
|
Traditional
JRSA
|
|
|
Hybrid
JRSA
|
|
|
Sale / Sales-
type Lease
|
|
|
Total
|
|
Domestic Total (United States & Canada)
|
|
|
278
|
|
|
|
5
|
|
|
|
127
|
|
|
|
410
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China
|
|
|
358
|
|
|
|
102
|
|
|
|
239
|
|
|
|
699
|
|
Asia (excluding Greater China)
|
|
|
33
|
|
|
|
2
|
|
|
|
85
|
|
|
|
120
|
|
Western Europe
|
|
|
45
|
|
|
|
27
|
|
|
|
42
|
|
|
|
114
|
|
Russia & the CIS
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
68
|
|
Latin America
|
|
|
2
|
|
|
|
—
|
|
|
|
48
|
|
|
|
50
|
|
Rest of the World
|
|
|
15
|
|
|
|
—
|
|
|
|
50
|
|
|
|
65
|
|
International Total
|
|
|
453
|
|
|
|
131
|
|
|
|
532
|
|
|
|
1,116
|
|
Worldwide Total(1)
|
|
|
731
|
|
|
|
136
|
|
|
|
659
|
|
|
|
1,526
|
|
(1)
|
Period-to-period changes in the tables above are reported net of the effect of permanently closed theaters.
|
52
Backlog
The following table provides detailed information about the Company’s backlog as of March 31, 2021 and 2020:
|
|
March 31, 2021
|
|
|
|
March 31, 2020
|
|
|
|
|
Number of
|
|
|
|
Dollar Value
|
|
|
|
Number of
|
|
|
|
Dollar Value
|
|
|
|
|
Systems
|
|
|
|
(in thousands)
|
|
|
|
Systems
|
|
|
|
(in thousands)
|
|
|
|
|
New
|
|
|
|
Upgrade
|
|
|
|
New
|
|
|
|
Upgrade
|
|
|
|
New
|
|
|
|
Upgrade
|
|
|
|
New
|
|
|
|
Upgrade
|
|
|
Sales and sales-type lease arrangements
|
|
|
179
|
|
|
|
|
10
|
|
|
|
$
|
206,238
|
|
|
|
$
|
13,135
|
|
|
|
|
169
|
|
|
|
|
11
|
|
|
|
$
|
206,317
|
|
|
|
$
|
14,518
|
|
|
Hybrid joint revenue sharing arrangements
|
|
|
138
|
|
|
|
|
6
|
|
|
|
|
98,423
|
|
|
|
|
4,785
|
|
|
|
|
131
|
|
|
|
|
7
|
|
|
|
|
96,650
|
|
|
|
|
5,560
|
|
|
Traditional joint revenue sharing arrangements
|
|
|
110
|
|
(1)
|
|
|
78
|
|
(1)
|
|
|
200
|
|
(2)
|
|
|
5,500
|
|
(2)
|
|
|
133
|
|
(1)
|
|
|
82
|
|
(1)
|
|
|
300
|
|
(2)
|
|
|
5,500
|
|
(2)
|
|
|
|
427
|
|
|
|
|
94
|
|
|
|
$
|
304,861
|
|
|
|
$
|
23,420
|
|
|
|
|
433
|
|
|
|
|
100
|
|
|
|
$
|
303,267
|
|
|
|
$
|
25,578
|
|
|
(1)
|
Includes 44 IMAX Theater Systems (2020 — 46) where the customer has the option to convert from a joint revenue sharing arrangement to a sales arrangement.
|
(2)
|
Reflects contractual upfront payments. Future contingent payments are not reflected as these are based on negotiated shares of box office results.
|
The number of IMAX Theater Systems in the backlog reflects the minimum number of commitments under signed contracts. The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog and the installation and acceptance of IMAX Theater Systems and the settlement of contracts, both of which reduce backlog. Backlog typically represents the fixed contracted revenue under signed IMAX Theater System sale and lease agreements that the Company believes will be recognized as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements, however it excludes amounts allocated to maintenance and extended warranty revenues. The value of backlog does not include revenue from theaters in which the Company has an equity interest, operating leases and long-term conditional theater commitments. Theaters under joint revenue sharing arrangements do not usually have dollar value in backlog, although certain IMAX Theater Systems under joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value based on those payments. The Company believes that the contractual obligations for IMAX Theater System installations that are listed in backlog are valid and binding commitments.
From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with an IMAX Theater System installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer are released from all their future obligations under the agreement, all or a portion of the initial rents or fees that the customer previously made to the Company are recognized as revenue.
Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing but before installation. Current backlog information reflects all known elections.
53
The following tables provide detailed information about the Company’s backlog by arrangement type and geographic location as of March 31, 2021 and 2020:
|
|
March 31, 2021
|
|
|
|
|
IMAX Theater System Backlog
|
|
|
|
|
Traditional
JRSA
|
|
|
Hybrid
JRSA
|
|
|
Sale / Lease
|
|
|
Total
|
|
|
Domestic Total (United States & Canada)
|
|
|
120
|
|
|
|
3
|
|
|
|
8
|
|
|
|
131
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China
|
|
|
46
|
|
|
|
112
|
|
|
|
90
|
|
|
|
248
|
|
|
Asia (excluding Greater China)
|
|
|
5
|
|
|
|
15
|
|
|
|
30
|
|
|
|
50
|
|
|
Western Europe
|
|
|
11
|
|
|
|
12
|
|
|
|
5
|
|
|
|
28
|
|
|
Russia & the CIS
|
|
|
—
|
|
|
|
1
|
|
|
|
16
|
|
|
|
17
|
|
|
Latin America
|
|
|
3
|
|
|
|
—
|
|
|
|
8
|
|
|
|
11
|
|
|
Rest of the World
|
|
|
3
|
|
|
|
1
|
|
|
|
32
|
|
|
|
36
|
|
|
International Total
|
|
|
68
|
|
|
|
141
|
|
|
|
181
|
|
|
|
390
|
|
|
Worldwide Total
|
|
|
188
|
|
|
|
144
|
|
|
|
189
|
|
|
|
521
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
IMAX Theater System Backlog
|
|
|
|
|
Traditional
JRSA
|
|
|
Hybrid
JRSA
|
|
|
Sale / Lease
|
|
|
Total
|
|
|
Domestic Total (United States & Canada)
|
|
|
124
|
|
|
|
3
|
|
|
|
11
|
|
|
|
138
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China
|
|
|
67
|
|
|
|
122
|
|
|
|
71
|
|
|
|
260
|
|
|
Asia (excluding Greater China)
|
|
|
5
|
|
|
|
—
|
|
|
|
34
|
|
|
|
39
|
|
|
Western Europe
|
|
|
12
|
|
|
|
13
|
|
|
|
7
|
|
|
|
32
|
|
|
Russia & the CIS
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
15
|
|
|
Latin America
|
|
|
3
|
|
|
|
—
|
|
|
|
10
|
|
|
|
13
|
|
|
Rest of the World
|
|
|
4
|
|
|
|
—
|
|
|
|
32
|
|
|
|
36
|
|
|
International Total
|
|
|
91
|
|
|
|
135
|
|
|
|
169
|
|
|
|
395
|
|
|
Worldwide Total
|
|
|
215
|
|
|
|
138
|
|
|
|
180
|
|
|
|
533
|
|
(2)
|
(1)
|
Includes 149 new IMAX with Laser projection system configurations and 92 upgrades of existing locations to IMAX with Laser projection system configurations.
|
(2)
|
Includes 147 new IMAX with Laser projection system configurations and 94 upgrades of existing locations to IMAX with Laser projection system configurations.
|
Approximately 74.9% of IMAX Theater System arrangements in backlog as of March 31, 2021 are scheduled to be installed in international markets (2020 — 74.1%).
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part II, Item 1A of this report.)
54
Signings and Installations
The following tables provide detailed information about IMAX Theater System signings and installations for the three months ended March 31, 2021 and 2020:
|
For the Three Months Ended
|
|
|
March 31,
|
|
|
2021
|
|
|
2020
|
|
Theater System Signings:
|
|
|
|
|
|
|
|
|
|
New IMAX Theater Systems
|
|
|
|
|
|
|
|
|
|
Sales and sales-type lease arrangements
|
|
|
6
|
|
|
|
|
2
|
|
Hybrid joint revenue sharing lease arrangements
|
|
|
—
|
|
|
|
|
—
|
|
Traditional joint revenue sharing arrangements
|
|
|
—
|
|
|
|
|
2
|
|
Total new IMAX Theater Systems
|
|
|
6
|
|
|
|
|
4
|
|
Upgrades of IMAX Theater Systems
|
|
|
—
|
|
|
|
|
11
|
|
Total IMAX Theater System signings
|
|
|
6
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
|
|
|
2021
|
|
|
2020
|
|
Theater System Installations:
|
|
|
|
|
|
|
|
|
|
New IMAX Theater Systems
|
|
|
|
|
|
|
|
|
|
Sales and sales-type lease arrangements
|
|
|
2
|
|
|
|
|
2
|
|
Hybrid joint revenue sharing lease arrangements
|
|
|
2
|
|
|
|
|
1
|
|
Traditional joint revenue sharing arrangements
|
|
|
5
|
|
|
|
|
2
|
|
Total new IMAX Theater Systems
|
|
|
9
|
|
|
|
|
5
|
|
Upgrades of IMAX Theater Systems
|
|
|
3
|
|
|
|
|
7
|
|
Total IMAX Theater System installations
|
|
|
12
|
|
|
|
|
12
|
|
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part II, Item 1A of this report.)
IMAX AI JOINT VENTURE
In March 2021, the Company and Maximus Technologies Limited (“Maximus”), a next-generation visual effects company, established a joint venture, IMAX AI, to deliver A.I.-based solutions for Ultra High Definition (UHD) 4K enhancement across smart devices, new and library content, and real-time enhancement of live entertainment and sports. IMAX and Maximus each own 50% of IMAX AI. In connection with the formation of the joint venture, IMAX and Maximus are each contributing $250,000 in cash, as well as certain intellectual property assets. The intellectual property assets contributed by the Company had a nominal carrying value. The Company is using the equity method to account this investment as IMAX AI is jointly controlled.
Included in the intellectual property assets contributed by IMAX is IMAX Enhanced, a home entertainment licensing and certification program. IMAX Enhanced was launched in September 2018, along with audio leader DTS (an Xperi subsidiary) to capitalize on the companies’ decades of combined expertise in image and sound science. IMAX Enhanced brings IMAX digitally re-mastered 4K high dynamic range (HDR) content and DTS audio technologies to premier streaming platforms and best-in-class consumer electronics devices worldwide, offering consumers high-fidelity sight and sound experiences for the home.
To be certified, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, subwoofers and soundbars must meet a carefully prescribed set of audio and video performance standards, set by a certification committee of IMAX and DTS engineers and some of Hollywood’s leading technical specialists.
55
IMAX Enhanced global device partners include Sony Electronics, Hisense, TCL, Phillips, Xiaomi, and Sound United, among others. IMAX Enhanced has an estimated six million certified devices in-market. IMAX Enhanced content is now available on six streaming platforms worldwide, with partners that include Sony Pictures Entertainment, Paramount Pictures, Huayi Brothers, Bona Film Group, Tencent Video, iQIYI and FandangoNOW, with more on the way.
RESULTS OF OPERATIONS
The Company’s business and future prospects are evaluated by Richard L. Gelfond, its Chief Executive Officer (“CEO”), using a variety of factors and financial and operational metrics including: (i) the signing, installation and financial performance of theater system arrangements, particularly joint revenue sharing arrangements and those involving laser-based projection systems; (ii) film performance and the securing of new film projects, particularly IMAX DMR films; (iii) the continuing ability to invest in and improve the Company’s technology to enhance the differentiation of The IMAX Experience versus other cinematic experiences; (iv) revenues and gross margins earned by the Company’s segments, as discussed below; (v) consolidated earnings from operations, as adjusted for unusual items; (vi) the overall execution, reliability and consumer acceptance of The IMAX Experience; (vii) the success of new business initiatives; and (viii) short- and long-term cash flow projections.
The CEO is the Company’s Chief Operating Decision Maker (“CODM”), as such term is defined under United States Generally Accepted Accounting Principles (“U.S. GAAP”). The CODM, along with other members of management, assess segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, the amortization of intangible assets, provisions for (recoveries of) current expected credit losses, certain write-downs, interest income, interest expense and income tax (expense) benefit are not allocated to the Company’s segments.
The Company’s reportable segments are organized into the following four categories: (i) IMAX Technology Network; (ii) IMAX Technology Sales and Maintenance; (iii) New Business Initiatives; and (iv) Film Distribution and Post-Production. Within these categories are the Company’s following reportable segments: (i) IMAX DMR; (ii) Joint Revenue Sharing Arrangements; (iii) IMAX Systems, (iv) IMAX Maintenance; (v) Other Theater Business; (vi) New Business Initiatives; (vii) Film Distribution; and (viii) Film Post-Production, each of which are described above under “Sources of Revenue.” This categorization is consistent with how the CODM reviews the financial performance of the Company and makes strategic decisions regarding resource allocation and investments to meet long-term business goals. Management believes that a discussion and analysis based on the four categories listed above is significantly more relevant and useful to readers, as the Company’s Condensed Consolidated Statements of Operations captions combine results from several segments.
56
Results of Operations for the Three Months Ended March 31, 2021 and March 31, 2020
For the three months ended March 31, 2021, the Company reported a net loss attributable to common shareholders of $(14.8) million, or $(0.25) per diluted share, as compared to net loss attributable to common shareholders of $(49.4) million, or $(0.82) per diluted share, for the same period in 2020. For the three months ended March 31, 2021, the Company reported an adjusted net loss attributable to common shareholders* of $(14.8) million, or $(0.25) per basic and diluted share*, as compared to adjusted net loss attributable to common shareholders* of $(28.7) million, or $(0.48) per diluted share*, for the same period in 2020.
The following table presents the Company’s revenue and gross margin (margin loss) by category and reportable segment for the three months ended March 31, 2021 and 2020:
|
|
Revenue
|
|
|
Gross Margin (Margin Loss)
|
|
(In thousands of U.S. Dollars)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
IMAX Technology Network
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX DMR
|
|
$
|
11,944
|
|
|
$
|
10,629
|
|
|
$
|
8,251
|
|
|
$
|
4,443
|
|
Joint revenue sharing arrangements, contingent rent
|
|
|
8,359
|
|
|
|
5,971
|
|
|
|
1,883
|
|
|
|
(1,618
|
)
|
|
|
|
20,303
|
|
|
|
16,600
|
|
|
|
10,134
|
|
|
|
2,825
|
|
IMAX Technology Sales and Maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX Systems (1)
|
|
|
5,899
|
|
|
|
5,688
|
|
|
|
3,012
|
|
|
|
3,176
|
|
Joint revenue sharing arrangements, fixed fees
|
|
|
1,738
|
|
|
|
770
|
|
|
|
156
|
|
|
|
179
|
|
IMAX Maintenance
|
|
|
8,906
|
|
|
|
7,370
|
|
|
|
3,823
|
|
|
|
759
|
|
Other Theater Business (2)
|
|
|
437
|
|
|
|
1,263
|
|
|
|
63
|
|
|
|
610
|
|
|
|
|
16,980
|
|
|
|
15,091
|
|
|
|
7,054
|
|
|
|
4,724
|
|
New Business Initiatives
|
|
|
668
|
|
|
|
478
|
|
|
|
458
|
|
|
|
361
|
|
Film Distribution and Post-Production
|
|
|
813
|
|
|
|
2,494
|
|
|
|
(25
|
)
|
|
|
(1,935
|
)
|
Sub-total
|
|
|
38,764
|
|
|
|
34,663
|
|
|
|
17,621
|
|
|
|
5,975
|
|
Other
|
|
|
(10
|
)
|
|
|
239
|
|
|
|
(340
|
)
|
|
|
(889
|
)
|
Total
|
|
$
|
38,754
|
|
|
$
|
34,902
|
|
|
$
|
17,281
|
|
|
$
|
5,086
|
|
(1)
|
Includes initial upfront payments and the present value of fixed minimum payments from sale and sales-type lease arrangements of IMAX Theater Systems, and the present value of estimated variable consideration from sales of IMAX Theater Systems. To a lesser extent, this line item also includes finance income associated with these revenue streams.
|
(2)
|
Principally includes after-market sales of IMAX projection system parts and 3D glasses.
|
*
|
See "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.
|
57
Revenues and Gross Margin
In the first quarter of 2020, due to the outbreak of the COVID-19 global pandemic, substantially all of the theaters in the IMAX network were closed for some period of the time, with the theaters in Greater China closing in late-January 2020 and the remainder of the Company’s theaters closing in mid-to-late March 2020. Since that time, stay-at-home orders have been lifted in many countries and movie theaters throughout the IMAX network have gradually reopened with reduced capacities, physical distancing requirements, and other safety measures. As of March 31, 2021, 77% of the theaters in the global IMAX commercial multiplex network were open, including substantially all of the theaters in Greater China. As a result, GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased during the current quarter, leading to improvement in the Company’s segment results, when compared to the prior year. See the captioned sections below for a discussion of the Company’s segment results.
IMAX Technology Network
IMAX Technology Network results are influenced by the level of commercial success and box office performance of the films released to the network, as well as other factors including the timing of the films released, the length of the theatrical distribution window, the take rates under the Company’s DMR and joint revenue sharing arrangements and the level of marketing spend associated with the films released in the year. Other factors impacting IMAX Technology Network results include fluctuations in the value of foreign currencies versus the U.S. Dollar.
For the three months ended March 31, 2021, IMAX Technology Network revenues and gross margin increased by $3.7 million (22%) and $7.3 million (259%), respectively, when compared to the same period in 2020. See below for separate discussions of IMAX DMR and JRSA contingent rent results for the period.
IMAX DMR
For the three months ended March 31, 2021, IMAX DMR revenues and gross margin increased by $1.3 million (12%) and $3.8 million (86%), respectively, when compared to the same period in 2020. These increases are primarily due to a $15.0 million (16%) increase in GBO receipts generated by IMAX DMR films in the first quarter of 2021, from $95.2 million to $110.2 million. In the first quarter of 2021, GBO was generated by the exhibition of 18 films (12 new and 6 carryovers), including four local language films in China, and the re-release of classic titles. In the first quarter of 2020, GBO was generated by the exhibition of 13 films (9 new and 4 carryovers).
In addition to the level of revenues, IMAX DMR gross margin is also influenced by the costs associated with the films exhibited in the period, and can vary from period-to-period, particularly with respect to marketing expenses. For the three months ended March 31, 2021, marketing expenses were $1.1 million, as compared to $2.4 million during the same period of 2020. The lower level of marketing expenses and other cost of sales in the current period is a reflection of the number and mix of films exhibited in the first quarter of 2021 relative to the same period in the prior year.
Joint Revenue Sharing Arrangements – Contingent Rent
For the three months ended March 31, 2021, JRSA contingent rent revenue and gross margin increased by $2.4 million (40%) and $3.5 million (216%), respectively, when compared to the same period in 2020. These increases are largely due to a $21.2 million (48%) increase in GBO generated by theaters under joint revenue sharing arrangements in the first quarter of 2021 when compared to the same period in the prior year, from $44.6 million to $65.8 million. As of March 31, 2021, 896 theaters were operating under joint revenue sharing arrangements, as compared to 867 theaters as of March 31, 2020, an increase of 3%.
In addition to the level of revenues, JRSA contingent rent margin is also influenced by the level of costs associated with such arrangements, such as depreciation expense related to the underlying theater systems and costs incurred to upgrade theater systems from digital xenon to IMAX with Laser, as well as advertising, marketing and commission costs primarily for the launch of new theaters. The level of depreciation expense in a period relative to the prior year is a function of the growth of the theater network and the mix of theater system configurations in the network. For the three months ended March 31, 2021, JRSA gross margin included depreciation expense of $5.7 million, which represents a $1.2 million decrease as compared to $6.9 million recorded in the same period of the prior year. The lower level of depreciation expense in the current period is due, in part, to the effect of lease term extensions entered into with exhibitor customers as a result of the COVID-19 global pandemic, partially offset by the 3% increase in the number of theaters operating under joint revenue sharing arrangements. For the three months ended March 31, 2021, JRSA gross margin includes advertising, marketing and commission costs of $0.8 million, as compared to $0.5 million in the same period of the prior year.
58
IMAX Technology Sales and Maintenance
The primary drivers of IMAX Technology Sales and Maintenance results are the number of IMAX Theater Systems installed in a year, and the level of gross margin percentage earned on each installation, as well as the associated maintenance contracts that accompany each theater installation. The installation of IMAX Theater Systems in newly built theaters or multiplexes, which make up a large portion of the Company’s theater system backlog, depends primarily on the timing of the construction of those projects, which is not under the Company’s control.
For the three months ended March 31, 2021, IMAX Technology Sales and Maintenance revenue and gross margin increased by $1.9 million (13%) and $2.3 million (49%), respectively, when compared to the same period in the prior year. IMAX Maintenance segment revenues and gross margin increased by $1.5 million (21%) and $3.1 million (404%), respectively, when compared to the same period in the prior year, due to the continued reopening of the IMAX network. Maintenance margins vary depending on the mix of theater system configurations in the theater network, volume-pricing related to larger relationships and the timing and the date(s) of installation and/or service.
The following table provides detailed information about the mix of IMAX Theater System installed and recognized during the three months ended March 31, 2021 and 2020:
|
|
For the Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
(In thousands of U.S. Dollars, except number of systems)
|
|
Number of
Systems
|
|
|
Revenue
|
|
|
Number of
Systems
|
|
|
Revenue
|
|
New IMAX Theater Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and sales-types lease arrangements(1)
|
|
|
2
|
|
|
$
|
2,979
|
|
|
|
2
|
|
|
$
|
2,000
|
|
Joint revenue sharing arrangements — hybrid
|
|
|
2
|
|
|
|
1,504
|
|
|
|
1
|
|
|
|
770
|
|
Total new IMAX Theater Systems
|
|
|
4
|
|
|
|
4,483
|
|
|
|
3
|
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMAX theater system upgrades
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint revenue sharing arrangements — hybrid
|
|
|
1
|
|
|
|
775
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
5
|
|
|
$
|
5,258
|
|
|
|
3
|
|
|
$
|
2,770
|
|
(1)
|
The arrangement for the sale of an IMAX Theater System includes fixed upfront and ongoing consideration, including indexed annual minimum payment increases over the term of the arrangement, as well as an estimate of the contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded.
|
The average revenue per IMAX Theater System under sales and sales-type lease arrangements varies depending upon the number of IMAX Theater System commitments with a single respective exhibitor, an exhibitor’s location and various other factors. The average revenue per full (i.e., not hybrid), new IMAX Theater System under sales and sales-type lease arrangements was $1.5 million for the three months ended March 31, 2021, as compared to $1.0 million during the same period of the prior year.
Film Distribution and Post-Production
For the three months ended March 31, 2021, Film Distribution and Post-Production revenue and margin loss decreased by $1.7 million (67%) and $1.9 million, respectively, when compared to the same period in the prior year. The comparison to the prior year period is significantly influenced by $2.3 million of impairment losses recorded in the first quarter of 2020 principally to write-down the carrying value of certain documentary and alternative content film assets due to a decrease in projected box office totals and related revenues. No such impairment losses were recorded in the first quarter of 2021.
59
Selling, General and Administrative Expenses
For the three months ended March 31, 2021, total Selling, General and Administrative Expenses decreased by $3.4 million (12%), when compared to the same period in 2020. For the three months ended March 31, 2021, Selling, General and Administrative Expenses, excluding the impact of share-based compensation of $4.9 million, were $20.3 million, as compared to $24.9 million in the same period in the prior year, excluding share-based compensation expense of $3.7 million, representing a decrease of $4.6 million (18%). A portion of share-based compensation expense is recognized within Cost and Expenses Applicable to Revenue and Research and Development. (See Note 12 of Notes to Condensed Consolidated Financial Statements.)
The comparison to the prior year is influenced by COVID-19 government relief that the Company became entitled to receive during the period under the CEWS, of which $1.2 million was recognized as a reduction to Selling, General and Administrative Expenses. There were no comparable amounts recognized in the prior year. Also impacting the comparison to the prior year are management’s cost control efforts and lower business activity amidst the COVID-19 global pandemic resulting in lower staff costs, travel, facilities and marketing related expenses, among others. These factors are partially offset by a $4.0 million (35%) decrease in labor and other costs capitalized to inventory, film assets, and joint venture theater equipment or allocated to costs applicable to revenues, due to the lower level of production during the COVID-19 global pandemic.
In response to uncertainties associated with the COVID-19 global pandemic, in the first quarter of 2021, the Company continued to take significant steps to preserve cash by eliminating non-essential costs, keeping certain employees on a temporary furlough, reducing the working hours of other employees and deferring all non-essential capital expenditures to minimum levels.
Research and Development
A significant portion of the Company’s research and development efforts over the past several years have been focused on IMAX with Laser, the Company’s laser-based projection system, which the Company believes delivers increased resolution, sharper and brighter images, deeper contrast as well as the widest range of colors available to filmmakers today.
For the three months ended March 31, 2021, Research and Development expenses decreased by $0.7 million (33%), when compared to the prior year.
The Company intends to continue research and development in other areas considered important to the Company’s continued commercial success, including further improving the reliability of its projectors, certifying more IMAX cameras, enhancing the Company’s image quality, expanding the applicability of the Company’s digital technology in both theater and home entertainment and improvements to the DMR process.
In addition, in the first quarter of 2021, the Company used time and resources to work on leveraging and developing technologies and systems to help bring additional interactivity to its theater network, better manage certain of the Company’s internal workflows and better organize and codify certain of the Company’s data.
Credit Loss Expense
For the three months ended March 31, 2021, the Company recorded a provision for current expected credit losses of $0.3 million, as compared to $10.2 million in the same period of the prior year. The credit losses recorded in the first quarter of 2020 reflect the judgments made by management at the onset of the COVID-19 global pandemic regarding the credit quality of Company’s theater and studio related receivable balances. Management’s judgments regarding expected credit losses are based on the facts available to management at the time that the Condensed Consolidated Financial Statements are prepared and involve estimates about the future. Due to the unprecedented nature of the COVID-19 pandemic, its effect on the Company’s customers and their ability to meet their financial obligations to the Company is difficult to predict. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect. (See Notes 1 and 4 of Notes to Condensed Consolidated Financial Statements.)
Asset Impairments
For the three months ended March 31, 2020, the Company recorded asset impairments of $1.2 million principally related to the write-down of content-related assets which became impaired in the period. There were no such impairments recorded during the three months ended March 31, 2021.
60
Realized and Unrealized Investment Gains (Losses)
In the first quarter of 2019, IMAX China (Hong Kong), Limited, a wholly-owned subsidiary of IMAX China, entered into a cornerstone investment agreement with Maoyan Entertainment (“Maoyan”) and purchased equity securities for $15.2 million. In February 2021, IMAX China (Hong Kong), Limited sold all of its 7,949,000 shares of Maoyan for gross proceeds of $17.8 million, which represents a $2.6 million gain relative to the Company’s acquisition cost and a $5.2 million gain compared to the fair value of the investment as of December 31, 2020. Prior to this sale, the Company accounted for its investment in Maoyan at fair value with any changes in fair value recorded to the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2020, the fair value of the Company’s investment in Maoyan experienced an unrealized loss of $4.5 million.
Interest Expense
For the three months ended March 31, 2021, interest expense was $2.3 million, as compared to $0.6 million during the same period of the prior year. The increase in interest expense versus the prior year is due to a higher level of revolving credit facility borrowings coupled with a higher interest rate applicable during the designated amendment period. (See Note 7 of Notes to Condensed Consolidated Financial Statements.)
Income Taxes
For the three months ended March 31, 2021, the Company recorded income tax expense of $3.1 million (2020 — $15.5 million). The Company’s effective tax rate for the three months ended March 31, 2021 of (41.1)% differs from the Canadian statutory tax rate of 26.2% primarily due to the fact that the Company recorded an additional $7.0 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, primarily due to the uncertainties around the long-term impact of the COVID-19 global pandemic. Accordingly, the tax benefit associated with the current period losses in these jurisdictions is not ultimately reflected in the Company’s Condensed Consolidated Statements of Operations. Also impacting the Company’s effective tax rate for the three months ended March 31, 2021 are jurisdictional tax rate differences, including a difference related to the gain on the sale of the Maoyan investment (see “Realized and Unrealized Investment Gains (Losses)” above), as well as changes in estimated contingent liabilities related to the resolution of various tax examinations.
In the first quarter of 2020, management completed a reassessment of its strategy with respect to the most efficient means of deploying the Company’s capital resources globally. Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested. As a result, in the first quarter of 2020, the Company recognized a deferred tax liability of $19.7 million for the estimated applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.
As of March 31, 2021, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $18.3 million, net of a valuation allowance of $38.3 million (December 31, 2020 — $18.0 million, net of a valuation allowance of $28.8 million). The $9.5 million valuation allowance recorded in the current period is reflected within Income Tax Expense in the Company’s Condensed Consolidated Statements of Operations ($7.0 million) and within Shareholder’s Equity on the Company’s Condensed Consolidated Balance Sheets ($2.5 million). The valuation allowance recorded against the Company’s deferred tax assets is primarily the result of uncertainties related to the long-term impact of the COVID-19 global pandemic. The utilization of the Company’s deferred tax assets is dependent on having a sufficient level of future tax liabilities, such as taxable income, in the jurisdictions where the deferred tax assets relate. Accordingly, the net amount recorded on the Condensed Consolidated Balance Sheets relies on management’s projections of future taxable income. The valuation allowance is expected to reverse at the point in time when management determines it is more likely than not that the Company will incur sufficient tax liabilities to allow it to utilize the deferred tax assets against which the valuation allowance is recorded. However, as discussed in Note 1 of Notes to Condensed Consolidated Financial Statements, should actual results differ from management’s projections of future taxable income, an increased valuation allowance may be required. Despite the valuation allowance recorded against its deferred tax assets, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied to them.
Non-Controlling Interests
The Company’s Condensed Consolidated Financial Statements primarily include the non-controlling interest in the net income (loss) of IMAX China, as well as the impact of non-controlling interests in the activity of its Original Film Fund subsidiary. For the three months ended March 31, 2021, the net income attributable to non-controlling interests of the Company’s subsidiaries was $4.3 million (2020 ─ net loss of $(10.1) million ).
61
CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
Operating Activities
The net cash used in or provided by the Company’s operating activities is affected by a number of factors, including: (i) the level of cash collections from customers in respect of existing IMAX Theater System sale and lease agreements, (ii) the amount of upfront payments collected in respect of IMAX Theater System sale and lease agreements in backlog, (iii) the box-office performance of films distributed by the Company and/or released to IMAX theaters, (iv) the level of inventory purchases and (v) the level of the Company’s operating expenses, including expenses for research and development and new business initiatives.
For the three months ended March 31, 2021, net cash used in the Company’s operating activities totaled $11.0 million, as compared to net cash provided by operating activities of $6.0 million in the same period of the prior year. For the three months ended March 31, 2021, the net cash used in the Company’s operating activities is principally due to an increase in Accounts Receivable of $13.7 million as a result of theaters reopening amidst the early stages of recovery from the COVID-19 global pandemic, partially offset by cash collected in respect of IMAX Theater System sale and lease agreements in backlog and cash collected in advance of providing maintenance services.
For the three months ended March 31, 2020, net cash provided by operating activities was primarily driven by a decrease in Accounts Receivable of $28.2 million, which reflects cash receipts reduced by amounts billed, partially offset by an increase in inventories of $18.3 million resulting from a slowdown in manufacturing, shipments and installation of IMAX Theater Systems at customer sites due to government restrictions in various countries limiting public gatherings as a result of the outbreak of the COVID-19 global pandemic.
Investing Activities
For the three months ended March 31, 2021, net cash provided by investing activities totaled $14.3 million, as compared to net cash used in investing activities of $2.7 million in the same period of the prior year. For the three months ended March 31, 2021, the net cash provided by investing activities is primarily driven by $17.8 million in cash proceeds received from the sale of the Company’s investment in Maoyan (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized and Unrealized Investment Gains (Losses)”). This cash inflow is partially offset by $1.5 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitors, $1.5 million of intangible assets acquired, principally related to the purchase or development of software (2020 — $0.9 million), and $0.5 million for the purchase of property, plant and equipment (2020 — $0.3 million). Based on management’s current operating plan for 2021, the Company expects to continue to use cash to deploy additional IMAX Theater Systems under joint revenue sharing arrangements.
Capital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, other intangible assets and investments in film assets were $5.7 million for the three months ended March 31, 2021, as compared to $5.8 million for the three months ended March 31, 2020.
Financing Activities
For the three months ended March 31, 2021, net cash used in financing activities totaled $52.6 million, as compared to $239.2 million provided by financing activities in the same period of the prior year. In the first quarter of 2021, the net cash used in financing activities is principally due to $255.0 million in repayments of Credit Facility borrowings, which were funded in part with a portion of the $223.7 million in net proceeds received from the issuance of the Convertible Notes (as defined in “Liquidity and Capital Resources”). The net cash used in financing activities for the current period is also the result of the $19.1 million purchase of capped calls related to the Convertible Notes. (See Note 7 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 for additional information on the issuance of the Convertible Notes and the related capped call transactions.)
For the three months ended March 31, 2020, net cash provided by financing activities was principally due to the $280.0 million in revolving credit facility borrowings drawn in the period, partially offset by $36.6 million paid to repurchase common shares under the Company’s share repurchase program, $3.1 million paid to purchase treasury stock for the settlement of restricted share units and related taxes, $0.9 million for the repurchase of common shares under the IMAX China share repurchase program, and $0.2 million of taxes withheld and paid on vested employee stock awards.
62
LIQUIDITY AND CAPITAL RESOURCES
Credit Agreement
The Company has a credit agreement, the Fifth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (“Wells Fargo”), as agent, and a syndicate of lenders party thereto (the “Credit Agreement”). The Company’s obligations under the Credit Agreement are guaranteed by certain of its subsidiaries (the “Guarantors”) and are secured by first-priority security interests in substantially all the assets of the Company and the Guarantors. The facility provided by the Credit Agreement (the “Credit Facility”) matures on June 28, 2023.
The Credit Agreement has a revolving borrowing capacity of $300.0 million, and contains an uncommitted accordion feature allowing the Company to further expand its borrowing capacity to $440.0 million or greater, subject to certain conditions, depending on the mix of revolving and term loans comprising the incremental facility.
In the first quarter of 2020, in response to uncertainties associated with the outbreak of the COVID-19 global pandemic and its impact on the Company’s business, the Company drew down $280.0 million in available borrowing capacity under the Credit Facility, resulting in total outstanding borrowings of $300.0 million, which remained outstanding as of December 31, 2020. In the first quarter of 2021, the Company repaid $255.0 million of Credit Facility borrowings, using cash on hand following the issuance of the Convertible Notes (as discussed below). As of March 31, 2021, outstanding borrowings under the Credit Facility were $45.0 million. As of March 31, 2021, and December 31, 2020, the Company did not have any letters of credit or advance payment guarantees outstanding under the Credit Facility.
The Credit Agreement contains a covenant that requires the Company to maintain a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), as of the last day of any Fiscal Quarter (as defined in the Credit Agreement) of no greater than 3.25:1.00. In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit indebtedness, liens, capital expenditures, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets. The Credit Agreement also contains customary representations, warranties and event of default provisions.
On March 15, 2021, the Company entered into the Second Amendment to the Credit Agreement (as amended by the First Amendment to the Credit Agreement, dated as of June 10, 2020), (collectively, the “Amendments”). The Amendments, among other things, (i) suspend the Senior Secured Net Leverage Ratio covenant through the first quarter of 2022, (ii) re-establish the Senior Secured Net Leverage Ratio covenant thereafter, provided that for subsequent quarters that such covenant is tested, as applicable, the Company will be permitted to use its quarterly EBITDA (as defined in the Credit Agreement) from the third and fourth quarters of 2019 in lieu of EBITDA for the corresponding quarters of 2021, (iii) add a $75.0 million minimum liquidity covenant measured at the end of each calendar month, (iv) restrict the Company’s ability to make certain restricted payments, dispositions and investments, create or assume liens and incur debt that would otherwise have been permitted by the Credit Agreement and (v) permit the issuance of the Convertible Notes (as discussed below) and related transactions, including the capped call transactions, or other unsecured debt, in an amount not to exceed $290.0 million. The modifications to the negative covenants, the minimum liquidity covenant and modifications to certain other provisions in the Credit Agreement pursuant to the Amendments are effective until the earlier of the delivery of the compliance certificate for the fourth quarter of 2022 or the date on which the Company, in its sole discretion, elects to calculate its compliance with the Senior Secured Net Leverage Ratio by using either its actual EBITDA or annualized EBITDA (the “Designated Period”). As of March 31, 2021, the Company was in compliance with all of its requirements under the Credit Agreement, as amended.
Borrowings under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin ranging from 1.00% to 1.75% per annum; or (ii) the U.S. base rate plus a margin ranging from 0.25% to 1.00% per annum, in each case depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement); provided, however, that from the effective date of the First Amendment to the Credit Agreement until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the applicable margin for LIBOR borrowings will be 2.50% per annum and the applicable margin for U.S. base rate borrowings will be 1.75% per annum. The effective interest rate for the three months ended March 31, 2021 was 2.65% (2020 ― 2.03%).
In addition, the Credit Facility has standby fees ranging from 0.25% to 0.38% per annum, based on the Company’s Total Leverage Ratio with respect to the unused portion of the Credit Facility; provided, however, that from the effective date of the First Amendment to the Credit Agreement until the Company delivers a compliance certificate under the Credit Facility following the end of the Designated Period, the standby fee will be 0.50% per annum.
63
The Company incurred fees of approximately $1.2 million in connection with the Amendments, which are being amortized on a straight-line basis to Interest Expense over the relevant amendment periods.
Working Capital Facility
On July 24, 2020, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”), one of the Company’s majority-owned subsidiaries in China, renewed its unsecured revolving facility for up to 200.0 million Renminbi (approximately $30.4 million) to fund ongoing working capital requirements (the “Working Capital Facility”). The Working Capital Facility expires in July 2021.
As of March 31, 2021 and December 31, 2020, outstanding Working Capital Facility borrowings were 49.9 million Renminbi ($7.6 million). As of March 31, 2021, the amount available for future borrowings under the Working Capital Facility was 140.1 million Renminbi ($21.3 million) and 10.0 million Renminbi ($1.5 million) was available for letters of guarantee. The amount available for future borrowings under the Working Capital Facility is not subject to a standby fee. The effective interest rate for borrowings under the Working Capital Facility for the three months ended March 31, 2021 was 4.34% (December 31, 2020 ― 4.31%). Subsequent to March 31, 2021, IMAX Shanghai made a repayment of Working Capital Facility borrowings of 1.7 million Renminbi ($0.3 million).
Wells Fargo Foreign Exchange Facility
Within the Credit Facility, the Company is able to enter into foreign currency forward contracts and/or other swap arrangements. As of March 31, 2021, the net unrealized gain on the Company’s outstanding foreign currency forward contracts was $1.7 million, representing the amount by which the fair value of these forward contracts exceeded their notional value (December 31, 2020 ― $2.0 million). As of March 31, 2021, the notional value of the Company’s outstanding foreign currency forward contracts was $21.9 million (December 31, 2020 ― $31.9 million).
NBC Facility
On October 28, 2019, the Company entered into a $5.0 million facility with the National Bank of Canada (the “NBC Facility”) fully insured by Export Development Canada for use solely in conjunction with the issuance of performance guarantees and letters of credit. The Company did not have any letters of credit or advance payment guarantees outstanding as of March 31, 2021 and December 31, 2020 under the NBC Facility.
Convertible Notes
On March 19, 2021, the Company issued $230.0 million of 0.500% Convertible Senior Notes due 2026 (the “Convertible Notes”) in a private placement conducted pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the Convertible Notes were $223.7 million, after deducting the initial purchasers’ discounts and commissions. In addition, the Company incurred $1.2 million of debt issuance costs associated with the Convertible Notes. The Company used a portion of the net proceeds from the issuance of the Convertible Notes to make a partial repayment of outstanding Credit Facility borrowings (as discussed above), and intends to use the remainder for working capital or other general corporate purposes.
The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 0.500% per annum on the principal thereof, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The Convertible Notes will mature on April 1, 2026, unless they are redeemed or repurchased by the Company or converted on an earlier date.
Holders of the Convertible Notes have the right to convert their notes in certain circumstances and during specified periods. Before January 1, 2026, holders of the Convertible Notes have the right to convert their notes only upon the occurrence of certain events. From and after January 1, 2026, holders of the Convertible Notes may convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. Upon conversion, the Company will pay or deliver, as applicable, cash or a combination of cash (in an amount no less than the principal amount of the Convertible Notes being converted) and common shares, at its election, based on the applicable conversion rates. The initial conversion rate is 34.7766 common shares per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $28.75 per common share, and is subject to adjustment upon the occurrence of certain events.
64
The Convertible Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after April 6, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for a specified period of time. In addition, calling any note for redemption will constitute a “make-whole fundamental change” with respect to that note, in which case the conversion rate applicable to the conversion of that note will be increased in certain circumstances if such note is converted after it is called for redemption.
In addition, upon the occurrence of a “fundamental change” (as defined in the indenture governing the Convertible Notes), holders may require the Company to repurchase their notes at a cash repurchase price equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any.
On January 1, 2021, the Company elected to early adopt ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt that may be settled in cash. As a result, the Company recorded the Convertible Notes entirely as a liability in the Condensed Consolidated Balance Sheets, net of initial purchasers’ discounts and commissions and other debt issuance costs, with interest expense reflecting the cash coupon plus the amortization of the discounts and capitalized costs. Additionally, ASU 2020-06 modifies the treatment of convertible debt securities that may be settled in cash or shares by requiring the use of the “if-converted” method. Under the “if-converted” method, because the principal amount of the Convertible Notes is settled in cash and the conversion spread is settleable in the Company’s common shares, diluted earnings per share is calculated by including the net number of incremental shares that would be issued upon conversion of the Convertible Notes, using the average market price during the period. Accordingly, the application of the “if-converted” method may reduce the Company’s reported diluted earnings per share.
In connection with the pricing of the Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions are expected to reduce potential dilution resulting from the common shares the Company is required to issue and/or to offset any potential cash payments the Company is required to make in excess of the principal amount of the Convertible Notes in the event that the market price per share of the Company’s common shares is greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial cap price of $37.2750 per share of the Company’s common shares, which represents a premium of 75% over the last reported sale price of the common shares on March 16, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of the Company’s common shares underlying the Convertible Notes. The cost of the Capped Call Transactions was approximately $19.1 million.
The Capped Call Transactions are separate transactions, and are not part of the terms of the Convertible Notes and will not affect any holder’s rights under the notes. Holders of the Convertible Notes will not have any rights with respect to the Capped Call Transactions.
The Capped Call Transactions meet all of the applicable criteria for equity classification in accordance with ASC 815-10-15-74(a), “Derivatives and Hedging—Embedded Derivatives—Certain Contracts Involving an Entity’s Own Equity,” and, as a result, the related $19.1 million cost was recorded as a reduction to Other Equity within Shareholders’ Equity on the Company’s Condensed Consolidated Statements of Shareholder’s Equity and Condensed Consolidated Balance Sheets.
Assessment of Liquidity and Capital Requirements
As of March 31, 2021, the Company’s principal sources of liquidity included: (i) its balances of cash and cash equivalents ($267.8 million); (ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and DMR agreements with movie studios; (iii) the anticipated collection of financing receivables due in the next 12 months; and (iv) installment payments expected in the next 12 months on its existing sales and sales and sales-type lease arrangements in backlog.
65
The Company’s $267.8 million balance of cash and cash equivalents as of March 31, 2021 includes $115.1 million in cash held outside of Canada (December 31, 2020 — $89.9 million), of which $84.2 million was held in the People’s Republic of China (the “PRC”) (December 31, 2020 — $76.7 million). In the first quarter of 2020, management completed a reassessment of its strategy with respect to the most efficient means of deploying the Company’s capital resources globally. Based on the results of this reassessment, management concluded that the historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested. As a result, in the first quarter of 2020, the Company recognized a deferred tax liability of $19.7 million for the applicable foreign withholding taxes associated with these historical earnings, which will become payable upon the repatriation of any such earnings.
The Company’s operating cash flows will be adversely affected if management’s projections of future signings of IMAX Theater Systems and film performance, theater installations and film productions are not realized. The Company forecasts its short-term liquidity requirements on a quarterly and annual basis. Since the Company’s future cash flows are based on estimates and there may be factors that are outside of the Company’s control (see “Risk Factors” in Item 1A in the Company’s 2020 Form 10-K), there is no guarantee that the Company will continue to be able to fund its operations through cash flows from operations. Under the terms of the Company’s typical sale and sales-type lease agreements, the Company receives substantial cash payments before the Company completes the performance of its obligations. Similarly, the Company receives cash payments for some of its film productions in advance of related cash expenditures.
The impact of the COVID-19 global pandemic has resulted in significantly lower levels of revenues, earnings and operating cash flows during 2020 and through the end of the first quarter of 2021, when compared to periods prior to the onset of the pandemic, as GBO results from the Company’s theater customers declined significantly, the installation of certain theater systems was delayed, and maintenance services were generally suspended for theaters that were closed. Even as the pandemic has receded in many markets around the world, there continues to be few new films released by Hollywood movie studios and a significant number of theaters in the IMAX network remain either closed or operating with capacity restrictions. The Company continues to experience a significant decline in earnings and operating cash flows as it is generating lower than normal levels of GBO-based revenue from its joint revenue sharing arrangements and digital remastering services, it is unable to provide normal maintenance services to any of the theaters that remain closed, and while some installation activity is continuing, certain theater system installations have been, and may continue to be delayed. However, with approximately 77% of the Company’s global theater network open as of March 31, 2021 (including substantially all of the theaters in Greater China), GBO receipts generated by IMAX DMR films and joint revenue sharing arrangements increased in the current quarter, leading to improvement in the Company’s segment results, when compared to the prior year period.
In addition, as a result of the financial difficulties faced by certain of the Company’s exhibition customers as a result of theater closures during the pandemic, the Company has experienced and may continue to experience delays in collecting payments due under existing theater sale or lease arrangements. In response, the Company has provided temporary relief to exhibitor partners by waiving or reducing maintenance fees during periods when theaters are closed or operational with reduced capacities and, in certain situations, by providing extended payment terms on annual minimum payment obligations in exchange for a corresponding or longer extension of the term of the underlying sale or lease arrangement.
Based on the Company’s current cash balances and operating cash flows, management expects to have sufficient capital and liquidity to fund its anticipated operating needs and capital requirements during the next twelve month period following the date of this report.
(See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of COVID-19 Pandemic” and “Risk Factors – The Company has experienced a significant decrease in its revenues, earnings and cash flows due to the COVID-19 global pandemic and its business, financial condition and results of operations may continue to be significantly harmed in future reporting periods” in Part II, Item 1A of this Form 10-Q.)
66
CONTRACTUAL OBLIGATIONS
Payments to be made by the Company under contractual obligations as of March 31, 2021 are as follows:
|
|
Payments Due by Period
|
|
(In thousands of U.S. Dollars)
|
|
Total
Obligation
|
|
|
Less Than One Year
|
|
|
1 to 3 years
|
|
|
3 to 5 years
|
|
|
Thereafter
|
|
Purchase obligations(1)
|
|
$
|
29,366
|
|
|
$
|
27,799
|
|
|
$
|
1,550
|
|
|
$
|
—
|
|
|
$
|
17
|
|
Pension obligations(2)
|
|
|
20,298
|
|
|
|
—
|
|
|
|
20,298
|
|
|
|
—
|
|
|
|
—
|
|
Operating lease obligations(3)
|
|
|
20,264
|
|
|
|
3,233
|
|
|
|
4,966
|
|
|
|
4,228
|
|
|
|
7,837
|
|
Credit Facility(4)
|
|
|
45,000
|
|
|
|
—
|
|
|
|
45,000
|
|
|
|
—
|
|
|
|
—
|
|
Working Capital Facility
|
|
|
7,590
|
|
|
|
7,590
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Convertible Notes(5)
|
|
|
235,750
|
|
|
|
575
|
|
|
|
2,300
|
|
|
|
2,300
|
|
|
|
230,575
|
|
Postretirement benefits obligations
|
|
|
3,295
|
|
|
|
127
|
|
|
|
268
|
|
|
|
276
|
|
|
|
2,624
|
|
|
|
$
|
361,563
|
|
|
$
|
39,324
|
|
|
$
|
74,382
|
|
|
$
|
6,804
|
|
|
$
|
241,053
|
|
(1)
|
Represents total payments to be made under binding commitments with suppliers and outstanding payments to be made for supplies ordered, but yet to be invoiced.
|
(2)
|
The Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “ SERP”), covering its CEO, Mr. Richard L. Gelfond. The SERP has a fixed benefit payable of $20.3 million. The table above assumes that Mr. Gelfond will receive a lump sum payment of $20.3 million six months after retirement at the end of the term of his current employment agreement, which expires on December 31, 2022, in accordance with the terms of the SERP, although Mr. Gelfond has not informed the Company that he intends to retire at that time.
|
(3)
|
Represents total minimum annual rental payments due under the Company’s operating leases, which almost entirely consist of rent at the Company’s leased office space in New York.
|
(4)
|
The Company is not required to make any minimum payments on the Credit Facility, which matures on June 28, 2023.
|
(5)
|
The Convertible Notes bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The Convertible Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted.
|
Pension and Postretirement Obligations
The Company has an unfunded defined benefit pension plan, the SERP, covering the Company’s CEO, Mr. Gelfond. Under the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause (as defined in his employment agreement), he is entitled to receive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral of six months after the termination of his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federate rate for short-term obligations. Pursuant to an amendment to his employment agreement dated November 1, 2019, the term of Mr. Gelfond’s employment was extended through December through December 31, 2022, although Mr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of this amendment to his employment agreement, the total benefit payable to Mr. Gelfond under the SERP has been fixed at $20.3 million. As of March 31, 2021, the Company’s Condensed Consolidated Balance Sheets include the present value of the related SERP benefit obligation of approximately $20.1 million recorded within Accrued and Other Liabilities (December 31, 2020— $20.1 million).
The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As of March 31, 2021, the Company’s Condensed Consolidated Balance Sheets include an unfunded benefit obligation of $1.8 million within Accrued and Other Liabilities related to this plan (December 31, 2020 — $1.9 million).
67
In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Bradley J. Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors, upon retirement. As of March 31, 2021, the Company’s Condensed Consolidated Balance Sheets include an unfunded benefit obligation of $0.7 million within Accrued and Other Liabilities (December 31, 2020 — $0.7 million). In the first quarter of 2021, Mr. Wechsler notified the Company’s Board of Directors that he will not stand for re-election as a director at the Company’s annual meeting of shareholders on June 9, 2021. Upon his departure, the Company will maintain Mr. Wechsler’s current health benefits through December 31, 2021, and thereafter will provide him with Medicare supplemental coverage.
The Company maintained a nonqualified deferred compensation benefit plan (the “Retirement Plan”) covering the former CEO of IMAX Entertainment and Senior Executive Vice President of the Company. Under the terms of the Retirement Plan, the benefits were due to vest in full if the executive incurred a separation from service from the Company (as defined therein). In the fourth quarter of 2018, the executive incurred a separation from service from the Company, and as such, the Retirement Plan benefits became fully vested as of December 31, 2018 and the accelerated costs were recognized and reflected in Executive Transition Costs in the Consolidated Statements of Operations.
As of March 31, 2021, the benefit obligation related to the Retirement Plan was $3.7 million (December 31, 2020 — $3.7 million) and is recorded on the Company’s Condensed Consolidated Balance Sheets within Accrued and Other Liabilities. As the Retirement Plan is fully vested, the benefit obligation is measured at the present value of the benefits expected to be paid in the future with the accretion of interest recognized in the Condensed Consolidated Statements of Operations within Retirement Benefits Non-Service Expenses.
The Retirement Plan is funded by an investment in company-owned life insurance (“COLI”), which is recorded at its fair value on the Company’s Condensed Consolidated Balance Sheets within Prepaid Expenses. As of March 31, 2021, fair value of the COLI asset was $3.2 million (December 31, 2020 — $3.2 million). Gains and losses resulting from changes in the cash surrender value of the COLI asset are recognized in the Condensed Consolidated Statements of Operations within Realized and Unrealized Investment Gains (Losses).
OFF-BALANCE SHEET ARRANGEMENTS
There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition.
NON-GAAP FINANCIAL MEASURES
GAAP refers to generally accepted accounting principles in the United States of America. In this report, the Company presents financial measures in accordance with GAAP and also on a non-GAAP basis under U.S. Securities and Exchange Commission rules. Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance:
|
•
|
Adjusted net loss attributable to common shareholders;
|
|
•
|
Adjusted net loss attributable to common shareholders per basic and diluted share;
|
|
•
|
Adjusted EBITDA per Credit Facility.
|
Adjusted net loss attributable to common shareholders and adjusted net loss attributable to common shareholders per basic and diluted share exclude, where applicable: (i) share-based compensation; (ii) COVID-19 government relief benefits; (iii) realized and unrealized investment gains or losses, as well as the related tax impact of these adjustments, and (iv) income taxes resulting from management’s decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries.
The Company believes that these non-GAAP financial measures are important supplemental measures that allow management and users of the Company’s financial statements to view operating trends and analyze controllable operating performance on a comparable basis between periods without the after-tax impact of share-based compensation and certain unusual items included in net loss attributable to common shareholders. Although share-based compensation is an important aspect of the Company’s employee and executive compensation packages, it is a non-cash expense and is excluded from certain internal business performance measures.
68
A reconciliation of net loss attributable to common shareholders and the associated per share amounts to adjusted net loss attributable to common shareholders and adjusted net loss attributable to common shareholders per diluted share is presented in the table below.
|
|
Three Months Ended
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2021
|
|
|
|
March 31, 2020
|
|
(In thousands of U.S. Dollars, except per share amounts)
|
|
Net Loss
|
|
|
|
Per Share
|
|
|
|
Net Loss
|
|
|
|
Per Share
|
|
Reported net loss attributable to common shareholders
|
|
$
|
(14,840
|
)
|
|
|
$
|
(0.25
|
)
|
|
|
$
|
(49,354
|
)
|
|
|
$
|
(0.82
|
)
|
Adjustments(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
5,348
|
|
|
|
|
0.09
|
|
|
|
|
4,075
|
|
|
|
|
0.07
|
|
COVID-19 government relief benefits(2)
|
|
|
(1,484
|
)
|
|
|
|
(0.03
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
Realized and unrealized investment (gains) losses
|
|
|
(3,677
|
)
|
|
|
|
(0.06
|
)
|
|
|
|
3,165
|
|
|
|
|
0.05
|
|
Tax impact on items listed above
|
|
|
(537
|
)
|
|
|
|
(0.01
|
)
|
|
|
|
(338
|
)
|
|
|
|
(0.01
|
)
|
Income taxes resulting from management's decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries
|
|
|
381
|
|
|
|
|
0.01
|
|
|
|
|
13,726
|
|
|
|
|
0.23
|
|
Adjusted net loss(1)
|
|
$
|
(14,809
|
)
|
|
|
$
|
(0.25
|
)
|
|
|
$
|
(28,726
|
)
|
|
|
$
|
(0.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
|
|
|
|
|
59,012
|
|
|
|
|
|
|
|
|
|
60,418
|
|
Weighted average diluted shares outstanding
|
|
|
|
|
|
|
|
59,012
|
|
|
|
|
|
|
|
|
|
60,418
|
|
(1)
|
Reflects amounts attributable to common shareholders.
|
(2)
|
For the three months ended March 31, 2021, the Company recognized $1.5 million in benefits from the CEWS program, as reductions to Selling, General and Administrative Expenses ($1.2 million) and Costs and Expenses Applicable to Revenues ($0.3 million) in the Condensed Consolidated Statements of Operations. No such benefits were incurred in same period of 2020.
|
In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Credit Agreement, and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization. Accordingly, this non-GAAP financial measure is presented to allow a more comprehensive analysis of the Company’s operating performance and to provide additional information with respect to the Company’s compliance against its Credit Agreement requirements in the current period, if applicable. In addition, the Company believes that Adjusted EBITDA per Credit Facility presents relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry to evaluate, assess and benchmark the Company’s results.
EBITDA is defined as net income or loss excluding: (i) interest expense, net of interest income; (ii) income tax expense or benefit; and (iii) depreciation and amortization, including film asset amortization. Adjusted EBITDA per Credit Facility is defined as EBITDA excluding: (i) share-based and other non-cash compensation; (ii) realized and unrealized investment gains or losses; (iii) write-downs, net of recoveries, including asset impairments and credit loss expense; (iv) legal judgment and arbitration awards; and (v) the gain or loss from equity accounted investments.
A reconciliation of net loss attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility is presented in the table below.
69
|
For the Three Months Ended March 31, 2021 (1)
|
|
|
|
Attributable to
|
|
|
|
|
|
|
|
|
|
Non-controlling
|
|
|
|
|
|
|
|
|
|
|
|
Interests and
|
|
|
Less: Attributable to
|
|
|
Attributable to
|
|
|
(In thousands of U.S. Dollars)
|
Common Shareholders
|
|
|
Non-controlling Interests
|
|
|
Common Shareholders
|
|
|
Reported net loss
|
$
|
|
(10,500
|
)
|
|
$
|
|
4,340
|
|
|
$
|
|
(14,840
|
)
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
3,068
|
|
|
|
|
974
|
|
|
|
|
2,094
|
|
|
Interest expense, net of interest income
|
|
|
1,412
|
|
|
|
|
(86
|
)
|
|
|
|
1,498
|
|
|
Depreciation and amortization, including film asset amortization
|
|
|
12,986
|
|
|
|
|
1,149
|
|
|
|
|
11,837
|
|
|
EBITDA
|
$
|
|
6,966
|
|
|
$
|
|
6,377
|
|
|
$
|
|
589
|
|
|
Share-based and other non-cash compensation
|
|
|
5,421
|
|
|
|
|
246
|
|
|
|
|
5,175
|
|
|
Realized and unrealized investment gains
|
|
|
(5,248
|
)
|
|
|
|
(1,571
|
)
|
|
|
|
(3,677
|
)
|
|
Write-downs, including asset impairments and credit loss expense
|
|
|
518
|
|
|
|
|
(180
|
)
|
|
|
|
698
|
|
|
Adjusted EBITDA per Credit Facility
|
$
|
|
7,657
|
|
|
$
|
|
4,872
|
|
|
$
|
|
2,785
|
|
|
|
For the Twelve Months Ended March 31, 2021 (1)
|
|
|
|
Attributable to
|
|
|
|
|
|
|
|
|
|
Non-controlling
|
|
|
|
|
|
|
|
|
|
|
|
Interests and
|
|
|
Less: Attributable to
|
|
|
Attributable to
|
|
|
(In thousands of U.S. Dollars)
|
Common Shareholders
|
|
|
Non-controlling Interests
|
|
|
Common Shareholders
|
|
|
Reported net loss
|
$
|
|
(108,575
|
)
|
|
$
|
|
686
|
|
|
$
|
|
(109,261
|
)
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
14,067
|
|
|
|
|
1,826
|
|
|
|
|
12,241
|
|
|
Interest expense, net of interest income
|
|
|
4,982
|
|
|
|
|
(353
|
)
|
|
|
|
5,335
|
|
|
Depreciation and amortization, including film asset amortization
|
|
|
51,340
|
|
|
|
|
4,479
|
|
|
|
|
46,861
|
|
|
EBITDA
|
$
|
|
(38,186
|
)
|
|
$
|
|
6,638
|
|
|
$
|
|
(44,824
|
)
|
|
Share-based and other non-cash compensation
|
|
|
23,150
|
|
|
|
|
1,063
|
|
|
|
|
22,087
|
|
|
Realized and unrealized investment gains
|
|
|
(7,706
|
)
|
|
|
|
(2,314
|
)
|
|
|
|
(5,392
|
)
|
|
Write-downs, including asset impairments and credit loss expense
|
|
|
22,235
|
|
|
|
|
5,492
|
|
|
|
|
16,743
|
|
|
Legal judgment and arbitration awards
|
|
|
4,105
|
|
|
|
|
—
|
|
|
|
|
4,105
|
|
|
Loss from equity accounted investments
|
|
|
1,329
|
|
|
|
|
—
|
|
|
|
|
1,329
|
|
|
Adjusted EBITDA per Credit Facility
|
$
|
|
4,927
|
|
|
$
|
|
10,879
|
|
|
$
|
|
(5,952
|
)
|
|
(1)
|
The Senior Secured Net Leverage Ratio is calculated using Adjusted EBITDA per Credit Facility determined on a trailing twelve-month basis. During the first quarter of 2021, the Company entered into the Second Amendment to the Credit Facility Agreement which, among other things, suspends the Senior Secured Net Leverage Ratio financial covenant in the Credit Agreement through the first quarter of 2022 and, once re-established, permits the Company to use EBITDA from the third and fourth quarters of 2019 in lieu of EBITDA for the corresponding quarters of 2021. (See Note 7 of Notes to Condensed Consolidated Financial Statements.)
|
The Company cautions users of its financial statements that these non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Additionally, the non-GAAP financial measures used by the Company should not be considered as a substitute for, or superior to, the comparable GAAP amounts.
70