Okay, we're gonna get started. Happy to have back at the conference Rich Gelfond, CEO of IMAX Corporation. Rich, thanks so much for being here. Thanks for inviting us, David. Cool. I wanna kick it off with the slate, which I love talking about. You're coming off Fast X last weekend. You got Little Mermaid coming up Memorial Day. Pretty much through or straight through year-end with a small gap in August, very consistent run of tent-pole films. What does it mean for IMAX to have this lineup now as your circuit is, I think, basically almost entirely open or fully open? Our circuit is, Well, I wouldn't call it a circuit, as you know. Right. No, I understand. We're a technology license company, not an exhibitor. We're in 90 countries, as you know. Yeah. 1,800 theaters license our technology. Yeah. Globally. You know, it's a great time to be in the IMAX business. I mean, if you look back at 2022, except for China, we were back to pre-pandemic levels. As you know, we said this year, including China, we expect to be back to pre-pandemic levels. What, what... I don't know what's going on out there. Yeah. I guess it's IMAX customers trying to storm the door. They heard about our film slate. If you look at IMAX through time, you know, our box office every year has kinda gone up. During the pandemic, obviously it had some issues. Yeah. This is a year where we think we're very much on track again. You mentioned films coming out. Shortly, we have an unbelievable amount of flexibility. You know, you didn't even get. You're talking about the next couple weeks. I was talking about this weekend. This weekend. Right, yeah. In fact, as an example of flexibility, we played Fast X last weekend, and it did well in some places and not as well in others. We're able to pivot into Little Mermaid and share schedules. There's enormous global flexibility. Then, you know, as you go forward, you've got, Indiana Jones, Mission: Impossible, Oppenheimer, Dune, Aquaman. This is kind of a fantastic year. As you know, our market share has grown, the last several years. Since before the pandemic, our market share in North America is up 50%, and our market share globally is up over a third. Yeah. It's a great time to be in the IMAX business. Yeah. Dune: Part Two is the one I've got circled. By the way, I have that circled too. Yeah. Sorry, but I can't avoid the opening there that you gave me. On Dune: Part One, we did 22% of the global box office. Dune: Part Two has the same cast, Timothée Chalamet and Zendaya, but it also has Austin Butler and Florence Pugh, and also has more action. That's one of the ones I have circled too, actually. Got it. All right, you mentioned market share. Every Sunday morning, I read the box office roundups in the trade press. The one consistent theme every weekend is strong PLF indexing, and that's true for IMAX, for 3D proprietary formats, right? I'm interested in your view, like, what's going on with the consumer? Why are they coming to the movie theaters, and they want that premium experience? Yeah, I was gonna say, they're coming to the movie theaters in healthy numbers, but they're coming to IMAX in much- Right. bigger numbers. In that premium demand, yeah. I think it's consistent with the global trends of in other businesses. You look at the phenomenon of the Taylor Swift concert. Yeah. How high the ticket prices are. You look at sporting events. You look at kind of at most out-of-home entertainment experiences, and people are willing to pay a premium for something really special. IMAX, I'll back up without prolonging it, but a PLF is basically a big screen. Yeah, yeah. An IMAX theater is an end-to-end solution, which includes filmed with IMAX cameras or using IMAX algorithms. We have real-time monitoring in our theater of what the image looks like. We have bigger brightness, laser projectors. As you know, for Avatar, we did 11% or $250 million of the world's box office on less than 1% of the screens. I think it's all manifesting itself on a global basis that during the pandemic, people were kind of on their couches. They weren't able to get out. I think now that they can get out, they're gonna choose what they want that's special for them and their families. I think IMAX is clearly part of that trend. You know, the indexing, you know, you look at last weekend in China, I mean, we're on 1% of the screens, and we did 11% of Fast X. Yeah. In the entire world, we're over-indexing, and that's part of the market share issue. I think it's also the fact that, you know, we charge more, but I think people are saying, "What? For something special and something out of the home and something I can enjoy with my family is something worth paying for." I think that's the trend. Then I would say the second part of the winds at our backs is the blockbustersation of cinema. Yeah. You know, IMAX has always done best with blockbusters. You know, I don't have a great recent example, but there was that film Sideways of two people drinking wine in Napa. Yeah. I think that's not necessarily you wanna pay extra to go see it in IMAX, but I think if you wanna see Mission: Impossible 8, you're going to see it in an IMAX. You know, obviously for Top Gun. Yeah. Mission: Impossible 7 first-. Right. 8. I think the twin trends of post-pandemic recovery and the increased number of blockbusters on a global basis. The third thing I would say is we're doing a lot more local language films, and they're films that are traveling from one territory to another, so it's Japanese anime, it's Indian films. I think IMAX has become a place to see blockbusters on a global basis. All those trends are coalescing. That's, you know, that's what's driving our strong market position. Now you're gonna have to re-release Sideways in IMAX and test it out. I used to talk about, which was the one, the one about cannibalism. I forget the name of it, but My Dinner with Andre. Oh. I think I probably could avoid it. I was gonna say Alive, but okay. I think not seeing that in my mind, that's gonna be a good idea. At earnings at the end of April, you announced, I think it was 63 signings year -to -date, more than you had in all of 2022. I think that was outpacing 2019. Of course not all signings are the same, so interested if you could give us a view into where you're generating this activity, how that differs from some of the markets of the past. Yeah. I think in the past, half or more of our signings were in China, and China's kind of a year behind the rest of the world in the recovery from the pandemic. If you look back, you know, it probably takes a year to sort of normalize before you get signings. When you normalize and open, you might get box office 'cause people aren't quarantined, movies are being released, they're willing to go out. I think it takes longer than that for exhibitors in the market to say, "I wanna build an IMAX theater," or, "I wanna, you know, open an IMAX theater." I think, you know, that's what we're seeing in China now. By the same token, because of the market share and because of the economic model has been so strong in the other markets, there's really great demand for IMAX. In Japan, our per screen average is close to $2 million. To give you a context, in the U.S. it's close to $1 million. In France, it's a little over that. In India, it's similar to that. If you look at the countries where we're doing a lot of the signings and we're generating growth, it's a lot of those places where the economic model is working so well. Let me just back up for a second. One way to think about IMAX is, you know, we're not an exhibitor, we're not a studio. We provide the technology that enables theaters on a global basis in 90 countries to use our brand and to see the movie in a really special way that no one else can show. We get roughly, if you look at The model is somewhat complicated, but getting more similar. We get $0.18 on every dollar of IMAX gross box office. If you're in Japan, we're getting $0.18 on that $2 million, but the exhibitor is making an awful lot of money. Those are the countries where they're really doubling down on IMAX in a really big way. In Japan, we signed a 7-theater deal earlier this year with AEON, and three or four of those are already open this year. Yeah. In France, we've been very successful because of the high per screen averages that are happening. Surprisingly, of those 63 signings, 25% were in North America, which is a fairly penetrated market. I think again, the regular movie business, the ones that where people sell concessions and they, you know, they have lots of debt and they have real estate costs, which we don't have any of, you know, that's been slow to recover. The IMAX end of it has been very fast to recover. It was put best to me, I think, and David, I don't wanna prolong the answer, but I think it's a useful way to think about, which is an exhibitor in Europe, it's actually Kinepolis, which just signed an 8-theater deal with us throughout Europe. he said, "I don't think I'm over-screened, but I think I'm under-revenued... Right. -either per theater or per seat. Instead of investing money in growing my network, which is what I might have done in the old days and built more screens, I have to figure out how to get more revenue per seat or more revenue per multiplex. The way to do that is to double down on IMAX. Ironically, I think some of the issues surrounding exhibitors on a global basis, too much debt. Overextension. Too much fixed costs. Yeah. Becomes much more solved by adding an IMAX rather than adding a multiplex. Mm-hmm. It contributes to their bottom line, and I think, you know, that's really what's driving us. Just to fill it out, as part of our corporate strategy, one thing that I've focused on is under-penetrated markets. Although we have a global sales force, you know, it's sometimes hard for a middle-level executive to get a meeting with the owner or the CEO of an exhibitor. In the past, since Christmas, I'm based in New York, I've been home something like 20 days. Right. I just got back from two weeks I was in Germany, because in Germany, we have 10 screens for 80 million people. In Ecuador, we have 10 screens in Ecuador. We've identified that market as potentially a very strong market. I went to Japan because that also, as I mentioned, the high PSAs. After Germany last week, I was in France, and we announced a number of deals in France, and there's a lot more going on in France. We're trying to strategically look at markets that are performing very well but are under-penetrated, and to focus on those. I guess another one, I forgot I've been traveling so much, but I was in India. Yeah. where we have 23 theaters. India has the same population as China, where we have 800 theaters. We're trying to adapt our business model and focus on places where we're under-penetrated and there's really good growth prospects. That under-penetration, I mean, what's that a function of, right? In a place like Germany. It sounds like the shift is reflective of the shift in what's going on with the overall movie landscape, right? I mean, with what you just talked to. I think the under-penetration is based on A number of factors, and some of them are local factors. An example would be in India, they're not building a lot of new malls or, you know, so there's not a lot of places to go. In Germany, I think culturally, they're slower to change the business model. Yeah. It's as I said to you, it's doing around $1 million PSA. One reason I went there was to meet a lot of the exhibitors and say, "What am I missing here? You know, you're in the same position as Ecuador, but you have this PSA." They've kind of been saying, you know, people who aren't... By the way, in Germany, there's no transparency. If you're not in the IMAX business, you don't know what the IMAX business is doing. Yeah. You know, you have to kind of proselytize to bring people in. Part of the strategy also is to create the true impression of scarcity. In England, we were at, like, 10 theaters forever, and that's 'cause we had one partner, and that one partner thought, "Well, I'm in no rush. Whenever I feel like opening one, I could open one." We found two other partners, and all of a sudden there was a sense of urgency because we have exclusive zones around IMAX- Yeah. ...theaters, so the other exhibitors sort of came into the business, and now we have 60 in the U.K., you know, a period of time later. I think in particular in France and Japan, there are more people in the business than there used to be. I think it's both the opportunity side and the fear of missing out side. Got it. You know, ultimately, IMAX generates systems revenue when those signings are executed as installations. Is there a way to frame how the acceleration and deal activity ultimately goes over to system sales, and are there constraints to think about also in that process? Sure. You know, kind of the chain works. You get an inquiry, then the inquiry turns into a signing. In generally between one and three years, the signing turns into a new theater. Right. When the theater opens, we get a fee from the exhibitor and we get sometimes an upfront payment, and sometimes we share revenues with them, depending on the territory. Yeah. Yeah. ...and the business model. We also get a fee from the studio. Typically, we get 12.5% of the IMAX box office globally from the studio. At the time of the signing, even though we may get cash up front, we frequently do, we don't recognize the revenue until the theater is installed, which is later in the cycle. When it's installed, if it's a revenue share, we don't really recognize revenue at that time. If it's a sale or a hybrid, we'll recognize the revenue at that time. Then once it opens, we get ongoing revenue. Also a really important point which people miss, 'cause it's similar to a software model, we get a very significant chunk of revenue from maintenance every year. Mm-hmm. Our typical maintenance per theater is about $35,000 a year, and we have, as I said, approaching 2,000 theaters in the world. Even if they do limited box office, we're getting that recurring revenue stream even before you turn on the box office thing. The new theater is a really, a leading indicator of where our earnings will be a few years out. Although in a year like this one, where we're installing relatively quickly after we sign, it could have a shorter-term impact. Got it. I wanna talk a little bit more about local content. During the pandemic, out of necessity, I think you shifted into local films 'cause Hollywood was production was disrupted, or films were going to streaming. Coming out of the pandemic, though, local has a significantly greater presence on your screen than prior. What are the key advantages for you and your exhibition partners in balancing that mix of content? There have been kind of three phases of local content. The first one was pre-pandemic. We kind of just dabbled, and in places like China, where we had a pretty decent footprint. We made local language films. We worked with studios, directors, to either film with IMAX or to convert to IMAX. It was a pretty decent business. As a matter of fact, in China, in 2020 and 2021, the largest box office films in the world were two out of China, The Eight Hundred and The Battle at Lake Changjin, and they were both filmed with IMAX cameras. They, I mean, they did high hundreds of millions, like $700 million, $800 million. Almost all of that was in China. Phase two was we kind of broadened that effort. Now we're, to give you a sense, in India, I think something like 3% of our revenues were Indian films in 2019, and I think in 2022, it was around 20% of our revenues. In the first quarter of this year, 1/3 of IMAX's global revenues were from foreign content. Now we're in kind of phase three of foreign content, which is really interesting to me and for the future. I think we're ahead of the studios on this, and I think you'll see this follow suit, which is local language films doing well outside of their local territory. A film called Pathaan in India, we did way more outside India in IMAX than we did in India. We did it in Scandinavia. We did it in Europe. We did it in the United States. Even a local Chinese film like Wandering Earth. That came to the U.S. We did 30% of the U.S. box office because we were associated. I was gonna say, the studios are relying on you for a signal, right? Right. Right. The Chinese studios in that case- Right. ...or the Indian studios and right now we have a French blockbuster called The Three Musketeers that's playing. You know, we even did a film in Indonesia that came out recently. I think one of the things investors and even analysts and you may totally get this, David, I don't know. You know, they say, like, after our first quarter, they said, "Well, IMAX did great, but there was Avatar and, you know, there were other blockbusters." A third of our revenues were from local language films in the first quarter. Also people look at it and they go, you know, "Well, this is a weak, you know, weekend for whatever reason." They say... They don't know that it could be over half our revenue that weekend is coming from films they've never heard of. Yeah. Now, the good news is every week we post our results online, so they know there's no surprise at the end of the quarter. Yeah. ...where it came from, but I think it's a hard thing to model because... The last point I'll make on this is I think it's part of a global trend, so you know, look at Netflix and look at how successful they've been with foreign language films, particularly Korean films. I think in the movie side of the business, we're on the cutting edge of this, but really, you know, no one other than, you know, Netflix is really early on in seeing what that trend is. I wonder if you could talk a little bit about the sourcing of local content, 'cause I remember when you first started carrying local language in China, right? There was a challenge, at least initially, in figuring out which films were gonna be successful. Took some time. You had to integrate with local filmmakers there. You know, is there a similar process now kinda going on with other regions? Let me start with China. We have a new CEO in China named Daniel Manwaring, and Daniel ran CAA's Motion Picture Finance group for over a decade and very well connected. In addition to knowing the studios and the filmmakers, we've actually hired someone whose expertise is really finding those and reaching out. We also, because we built such deep relationships there with the studio, I mean, they'll call us and say, "Two years from now, we're doing this, and we need you to be part of it." You're right, that's the place where it started, but we're kind of using a similar model elsewhere in the world. You know India is a very good example. I think last year it's either last year or this year, we'll do around 15, 20 films in India. We have in our headquarters in L.A., our film headquarters, you know, we have a team that sources them, and we have relationships with the directors and producers and the studios, we have that way in. We also have partners on the ground in those countries, we have theaters there. We also talk to our theater owners there, and we reach out and we say, "What films would you like to play? Mm-hmm. ...in that market?" That's particularly effective because of the way the schedule works. For example, in North America, February is not a very good month, you know, for a variety of reasons. In China, it's Chinese New Year, and we did $100 million in box office in China in the 1st quarter because it was Chinese New Year, and we picked the right films over there. The globalization also makes us not only more immune to Hollywood, but it makes it much more less cyclical, so you can fill in your gaps at that time. Also, we're taking a lot of other steps which, you know, we haven't talked that much about, but we should talk about them a little bit now. In the big local markets like China, like India, and starting in Japan, we're doing... We've put our DMR process, which is the one that converts the films to IMAX films, in the cloud. We've partnered with local post-production partners. For example, in India, we used to have to, if there was a film being released, we needed to send the film to L.A. We needed to put our magic process around it. We needed to send it back to India. We needed to work with the filmmaker in India. He'd have comments. It would come back to L.A. Doing local language films was more complicated. Now in India, we have a partner which not only can do it's a very sophisticated company using our DMR in the cloud, can DMR it quickly. Yeah. You don't have to get delivery a lot in advance and can do it just as well as they could do it, in L.A. As a side benefit, it won't surprise you, it's a lot cheaper. Yeah. to do it there. I think the last point I should make is maybe the most important one, which is that Japanese anime is really on a breakout. Japanese anime, so there were two films, one called Suzume and, Demon Slayer, right? No, no. Okay. Slam Dunk. Okay. Which did more business in China than they did in Japan for us in IMAX. Suzume also did business in the U.S. and elsewhere. Anime is just, for some reason, there's really a strong brand affiliation between IMAX and between anime. Anime is really working on a global basis, and I think that's driving a lot of our foreign language growth. Got it. Well, you talked about the balance, but now I'll push on the Hollywood side. I know I've asked you this question a bunch, but so the Hollywood titles started securing China release dates again. You could say the early performance was mixed more recently, and I think it's been better with Fast X. Interested to kind of get your view of, you know, the local tastes in that market. Have they shifted at all during COVID, or was that maybe early Marvel performance an anomaly? You know, I'll answer your overall question, but I don't think you could say the early performance was mixed because Avatar came out. You remember, the country was shut down, and then it opened... Fair enough, yeah. The day Avatar opened. In IMAX, we did over about $55 million in China when it was still in the middle of the- Yeah. COVID pandemic. I think, you know, for the right movie, people will obviously come out, and that's part of our first quarter where we did $100 million in Chinese box office, which I think, again, Tasha, that was our best first quarter ever in China. I think yes, then, you know, some of the Marvel movies didn't perform, but I think the narrative is a little overstated when you're in early May and you just had your best first quarter ever. I, you know, I think- Fair enough, yeah. I think that's a little bit of a stretch. You're right, Fast, you know, we did 11% of the box office on 1% of the screens last weekend. I know there's a narrative, but I think the more important narrative is China is still in a recovery phase. Our China office told me, and I did not know this, that the Fast performance was even more remarkable because there's a COVID mini outbreak again in China, which not surprisingly, is not on the front page of every newspaper in China. It's not like it was, and it's not lethal. It's kinda like in the U.S. You don't, like, come out of it, and then you come out of it tomorrow. You know, it takes a little time to normalize. I think we're in the process of normalizing. Again, because of our relationships with the local content filmmakers, because our new CEO in China is very well connected, because of big movies coming, like Mission, that I think will do extremely well in China. I should point out that, you know, I've been doing this at IMAX for 29 years, and I've never seen China let as many movies in as early as they have this year. Every movie we have through June and into early July has gotten approval. We're talking about Flash, we're talking about Indiana Jones. Little Mermaid. I don't know if Mission has been submitted yet, but I know they're expecting that to get in. But they used to be let in at the last minute. Like- Yeah. they played a little games 'cause they wanted less marketing time. Now the Chinese are much more interested in getting their domestic economy rolling and getting people back going to malls rather they are in... You know, are they doing 50% market share or 53%- Yeah. -market share. They've really opened the doors in China right now with time to market. Again, the way I recap it, David, is, you know, I don't think it's gonna be back to normal 'cause it's not a light switch, it's a faucet. Yeah. I think it's headed in that direction at a fairly rapid pace. Okay. Wanna make sure we ask, we get to SSIMWAVE. You've held that asset for around six months now. I guess, how are you thinking about what needs to be done in terms of building up the product before you can bring a more expansive offering to the market? SSIMWAVE is a business I'm extremely excited about. For those of you who aren't familiar, I'll just digress for a minute, which is, as you said six months ago, it's a tech company that's based in Waterloo, Ontario, not far from our Canadian headquarters in Mississauga. They have lots of technology, but their primary technology takes content, mostly streaming content, but it could also be broadcast content, and figures out how to optimize it to put it through the pipes, putting it in golf on more on language rather than technical language. If you're watching the news on this device, you can compress the hell out of the image. If you're Disney+ or Comcast or wherever you are, and by compressing the image, you can save a lot of money putting it through the pipes. On the other hand, if you're watching one of the Christopher Nolan movies on a 100-inch television, if you compress it too much, it'll look terrible. So what SSIMWAVE's technology does, and it's backed by a lot of AI intelligence. It maps the human view of perception, and it looks at what device every viewer is watching. It looks at what the content is, and it optimizes how much you can compress it. And there have been some early tests done, and by numerous people that show probably today, streamers could save in the neighborhood of about 20% of their streaming costs. Again, the physical cost of streaming. That's a very significant number. I mean, it's hundreds of millions of dollars that are being streamed. That's one of the primary reasons we bought the company. Before we launch that product broadly, there are some organizational changes we needed to make, so we hired a chief revenue officer. We have a new management team in place, and we kind of soft launched it at NAB, like about three weeks ago. We got a really good response, a meaningful number of leads. Again, it's only been a little while, but the leads we've had have been testing it out, and the tests have gone, you know, fairly well on it. You know, I'm incredibly optimistic. At NAB, in our category, we submitted some of our products, and SSIMWAVE's one of its products, won the best product at NAB. Again, could I give you a model? If you ask me in general, I think it's not gonna have a big financial impact in 2023, but I expect at some point in 2024, it's gonna have a meaningful financial impact. It's a SaaS business model... Yeah. It's very high margin business, and we're in the process of launching it, and I'm excited about it. With streaming as the end customer, is there any tie-in with IMAX Enhanced? There is. Yeah. We're working on how to integrate that. Again, for those of you don't know, IMAX Enhanced is a product that goes on large television sets, and it creates the IMAX aspect ratio. The most well-known arrangement we have out there today is for all Disney Marvel titles for the last, I don't know, five years or something like that, plus the new ones. If you go on Disney +, the default is IMAX Enhanced, and it says IMAX Enhanced, you know, on the television set. Disney even runs commercials saying, "Coming soon in IMAX Enhanced." Obviously because by the way, Disney+ is also a client of SSIMWAVE, as are, you know, companies like Comcast and Paramount Plus and HBO and a lot of them. It's the same client base. All of that is based really on a bigger vision, which is IMAX. You know, I think we've done a really good job at penetrating the out-of-home market, and I think we have a long way to go in that market. The brand is so strong, we're trying to figure out ways to broaden it in the home and both Enhanced and SSIMWAVE are ways to do that. Okay. We have about a minute left. Let me just get one in on capital allocation. You've been what I would term, you know, an opportunistic repurchaser of your stock over the past couple years, especially when you look at the average buyback price to where it is now. Maybe just refresh on how you're thinking about that relative to some of the initiatives you just spoke about. Almost all of these cap initiatives have low capital expenditures. For example, you know, SSIMWAVE, as I said, it's a SaaS model, so you have to invest a little, but once you get it out there, cost of goods sold is just a small fraction of what the cost of the product is. We're thinking about buybacks in the same way I think we've always thought about them, is to be opportunistic. Over the years, we bought in stock at higher prices than it is today. We bought in stock at lower prices than it is today. I forget, over the last year, we bought in, like, 9% of our stock. If you look at, you know, if we return to pre-pandemic levels, you know, even without multiple expansion, I mean, the stock price compared to where it is today or where it's been historically is kind of embarrassingly low. We'll remain opportunistic. We'll see how our company looks. We'll see what our cash balances are. We'll see what the stock price is, and then we'll make opportunistic investments, if it makes sense. Got it. Okay. Rich, thanks so much for being here. Right down to zero seconds, David. Yeah. Perfect. Perfect. Thanks. Thanks, Rich.