IMAX Corporation (NYSE:IMAX) Q2 2022 Earnings Conference Call July 28, 2022 4:45 PM ET
Company Participants
Heather Anthony – Senior Vice President of Corporate Finance, Planning & Analysis
Rich Gelfond – Chief Executive Officer
Megan Colligan – President-IMAX Entertainment
Natasha Fernandes – Chief Financial Officer
Rob Lister – Chief Legal Officer
Conference Call Participants
Eric Handler – MKM Partners
Mike Ng – Goldman Sachs
Eric Wold – B. Riley Securities
Steven Cahall – Wells Fargo
Mike Hickey – The Benchmark Company
Jim Goss – Barrington Research
Chad Beynon – Macquarie
Operator
Good day, and welcome to the IMAX Corporation Second Quarter 2022 Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Mr. Anthony. Please go ahead, ma’am.
Heather Anthony
Thank you, operator. Good afternoon everyone and thank you for joining us on today’s second quarter conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; Natasha Fernandes, our Chief Financial Officer. Megan Colligan, President of IMAX Entertainment and Rob Lister, our Chief Legal Officer, are also joining us today.
Today’s conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our fourth quarter earnings press release and the slide presentation have been posted on the Investor Relations section of our website. At the conclusion of this call, a historical Excel model will also be posted to the website. I’d like to remind you of the following information regarding forward-looking statements.
Today’s call, as well as the accompanying slide deck may include statements that are forward-looking in that they pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause actual future results or occurrences to differ. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information, future events or otherwise.
During today’s call, references may be made to certain non-GAAP financial measures. Discussion of management’s use of these measures and the definition of these measures, as well as a reconciliation to non-GAAP financial measures, including adjusted net income or adjusted net loss, adjusted EPS and adjusted EBITDA as defined by our credit facility, are contained in this afternoon’s press release and in our earnings materials, which are available on the Investor Relations page of our website at imax.com.
With that, let me now turn the call over to Mr. Rich Gelfond. Rich?
Rich Gelfond
Thanks, Heather, and good afternoon, everyone. Thank you for joining us. In the second quarter, IMAX delivered strong year-over-year growth and global box office total revenue, gross margin and our trailing 12 month adjusted EBITDA is nearing $100 million. Our fast rebound and strong performance demonstrate once again the appeal of our high margin asset light business model.
Unlike our licensees in exhibition, our technology products, services and licensing revenue streams are not burdened with high operating cost or capital-intensive business requirements. On our last earnings call, we looked eagerly towards this summer’s fantastic slate and the rich pipeline of blockbusters stretching over the next two years. With summer now in a high gear that slate is fulfilling its promise.
Across the last two years, we’ve been unwavering in our belief that when people feel safe and content is in supply audiences will return to the movies and any lingering doubt among this captive are quickly evaporating as we drive record-breaking results at the IMAX Global box office affirm IMAX as a critical launch platform for major entertainment franchises and help blockbuster releases reestablish the dominance of the cultural conversation.
It’s no longer a question of whether global consumers will come back to the cinema for blockbuster movies, they are back. It’s not just a super hero fan, it’s not just the millennial and Gen-z it’s movie fans of every demographic in every region around the world turning out for films across virtually every genres. The data is showing that people everywhere are going back to the movies and many of them in increasing numbers are choosing IMAX.
Now is IMAX come to lead the global resurgence and movie going, we are redoubling our efforts to drive future growth for the company by expanding our global theater footprint, content portfolio and technology platform.
Today I’d like to discuss the growth trends IMAX is seeing at the global box office and a strategic outlook for China, how IMAX is driving growth across all our global networks and content portfolio and our strategic effort to drive long-term growth by expanding the IMAX platform.
First, our results at the global box office underscores the strength and differentiation of IMAX. We are not an exhibitor and it’s obvious fact is further demonstrated by our results. Despite our first quarter nearly – our blockbuster releases, our year-to-datedomestic box office through June trailed 2019 our best year ever by only 5%.
And in contrast the domestic exhibition industry was down 35% over the same period. IMAX domestic box office for the second quarter was on a par with the second quarter of 2019. In fact, our domestic box office in June even surpassed June 2019 and we continue to increase market share. Our domestic market share in the second quarter was 5.3% and in May alone, we captured an impressive 7 plus percent of the domestic box office.
For the first time in IMAX history, we delivered three consecutive $25 million plus global openings with Dr. Strange, Top Gun and Jurassic World. Top Gun Maverick has been an unbelievable success, which has nearly doubled our initial projection and will top $100 million in global box office for IMAX. From Avatar to Avengers, Top Gun Maverick joined the long list of you got to see it in IMAX blockbuster.
Films that became in its typically linked with our brand readily demonstrates the power of our platform. A lot of credit for that goes to Tom Cruise and Director Joe Kosinski, who conceptualized Top Gun and IMAX, shot it’s unbelievable play sequences in IMAX exclusive expanded aspect ratio and remain big champions of our technology.
Top Gun delivered the highest IMAX opening weekend indexing ever for a film debuting over $100 million and our indexing reached its high at 16.4% in the film initial IMAX run. We look forward to bringing Top Gun back to our network in August when no doubt continue to excite fans.
Just last weekend, IMAX delivered roughly 12% of the opening weekend box office for Jordan Peele’s NOPE, which the visionary Director shot with our IMAX film cameras. Peele concedes the film for IMAX working closely with our post-production teams, hosting the opening night IMAX live event at our Lincoln Square Flagship and achieving a first in the history of IMAX making our iconic film cameras part of the movie itself.
It’s no coincidence that we are driving strong indexing and unprecedented market share at a time when more filmmakers than ever are embracing and creating for IMAX than ever before. It’s also notable that we are driving these strong results, even as concerns build over inflation and the potential for recession. This tracks of what we’ve seen during previous economic downturns.
IMAX has historically a recession resistant business. Going to the movies is an affordable luxury, certainly cheaper than things like travel and live events. In fact, since 1980, the U.S. has seen seven recessionary years and in all of those years, gross box office grew. Consider that for IMAX, our fastest pace of network growth ever was during the great recession of 2008 and 2009.
Our momentum at the global box office is striking, but even more so, given we’ve done it without the real benefit of China, due to COVID lockdowns in China for much of the first half of the year and nearly all the second quarter, China has contributed little to our overall results. The environment in China remains challenging, but we are beginning to see thoroughly encouraging signs.
As of yesterday, 91% of IMAX theaters in China were operational. 92% of our Beijing theaters were open and 55% of our Shanghai theaters were open with various capacity limitations. During the second quarter, IMAX China box office saw sequential improvement as the quarter progressed as more theaters became operational and Jurassic World Dominion was released day and day.
As we’ve seen in the domestic market, a consistent cadence of releases is critical to getting audiences back in the theater. Beginning earlier this month, the pipeline of fresh local content in China began to accelerate with Texas versus flu and Mozart from Space. We are seeing encouraging presales for this weekend’s debut of Moon Man and the action film, Warriors of Future followed [Indiscernible] in August.
We’ve also seen incremental progress in Hollywood movies gaining entry to the Chinese market. Most recently, Jurassic World Dominion became the first Hollywood film in more than a year to growth over $145 million U.S. in China. That comes on the heels of the Batman, Fantastic Beast and Ambulance, all gaining approval.
Of course, there is no question that the bar for approval remains higher now given the broader issues pitching the West and China. However, we believe two developments should help clear the way for more Hollywood films to gain entry into China. First, the failed experiment of day and day streaming releases for blockbusters has been abandoned, a misguided effort that unleash rapid piracy in China.
And second, the backlog of local Chinese films that built up throughout the pandemic is now running its course, which should create more space for Hollywood content in the slate.
We are encouraged by the mix of local and Hollywood films set at the Chinese network through the end of the year. Whether it’s a current prop of local language summer films, the always lucrative October national holiday period, Avatar, The Way of Water, which we feel is good chance to gain entry to China given James Cameroon and the franchise’s history in the market.
And the sequel to the biggest Chinese film of all time Wandering Earth is tentatively slated for Chinese New Year in 2023. We are optimistic this situation will continue to turn as lockdowns are fully lifted and consumers are free to get out and enjoy out-of-home experiences.
There are many similar areas to where we are at the end of summer 2020 when COVID restrictions began to ease in China and local blockbusters like The 800 ultimately open to record-breaking business. We’ve been in business successfully in China for more than 20 years. We’ve seen up years and we’ve seen down years and we remain confident that the recent setbacks in the market are only temporary.
As I said earlier, we are focused on building box office to drive growth across our networks, our content portfolio and by evolving and expanding the IMAX platform. First, in terms of network growth, or market share gains and the strength of our brand globally are beginning to accelerate sales activity in important markets as our partners in the exhibition industry look to IMAX as the driver for future growth.
As key industry touchpoints including CinemaCon, the Cannes Film Festival and CineEurope can return to in-person. We are seeing optimism and growing demand for the IMAX experience. We’ve been very active with our exhibition partners signing agreements for new theaters and solidifying locations and timelines for the roll out of contextual backlog.
In the past three months, we’ve announced new theater agreements with key international partners including Aeon in Japan, Major Cinemas in Thailand and ODEON in the UK. As we’ve lock locations for the launch of contracted theaters across key markets including the U.S., India, Spain, Italy, Germany, France, The UK, and the United Arab Emirates. At the same time, we are enhancing and diversifying the IMAX content portfolio.
That portfolio consists of Hollywood blockbusters more of which feature IMAX DNA, local language blockbusters across a growing international footprint, a new generation of IMAX documentary and exclusive live events and experiences from a growing roster of new partners.
The Hollywood pipeline looks very strong through the second half of 2022 and into 2023. The summer is followed by a strong fall slate that includes Marvel’s Black Panther sequel and DC’s Black Adam. And as I mentioned, the year concludes with the several release of Avatar, The Way of Water, the first of four planned Avatar sequel.
Next year we expect to have multiple Marvel films including new installments of Captain Marvel, Guardian to the Galaxy and Ant Man. Multiple DC films including Aquaman and The Flash, the highly anticipated New Mission Impossible, the latest Fast and Furious event and of course, Chris Nolan’s Oppenheimer, which makes groundbreaking use of IMAX film cameras.
We are also very excited to see Marvel Studio’s forthcoming Slate presented at the Comic-Con last week which culminates with two new Avengers features in 2025. In addition to the previously mentioned China title, we have a robust slate of local language titles in key markets like Japan, South Korea and India. In fact, we have set to release approximately 15 local language titles across roughly 50 IMAX markets in the third quarter alone.
The first project in our reunited documentary slate Blue Angels with JJ Abrams, Bad Robot and Top Gun Maverick Breakout star Glen Powell has completed principal photography in advance of its release next year. We are excited to bring modern IMAX documentaries to our networks and create new business opportunities around them given the demand for compelling documentary content across the landscape. We are already in conversations with streaming services about downstream licensing opportunities for Blue Angels.
Finally, we are pursuing our vision of growing beyond blockbusters to include unique events and experiences globally by putting our technology in the hands of an expanding set of content creators and platform partners and becoming a destination for fandom of all kinds. We are making good progress, building our connected network to support these events and enable the delivery of live and interactive content with low latency and superior visual and audio clarity.
This is a capability that is unmatched by anyone in the global marketplace. In partnership with leading top tier ISP partners including Verizon, NTT, Orange and others, we’ve now expanded our connected network to more than 100 theaters across the United States, Canada and Europe and we expect to double our connected footprint by year then with locations in Asia and the Middle East, as well.
We’ve also focused on the expansion of our IMAX Enhance initiatives. Our goal is to grow the footprint of Enhance further cross-streaming platforms and high end devices. We are growing our presence on Disney Plus, most recently with the IMAX through Enhance release of Dr. Strange, and the Multiverse of Madness in June.
And we recently added LG to our roster of device partners while expanding our partnership with Philips as well. We are also looking to building out our tech stack to further drive the IMAX experience on streaming platforms and incorporate software tools that would yield recurring revenue in our streaming partnerships.
Across both IMAX Live and Enhance, we can make smart incremental investments in new revenue-driving opportunities given how we’ve successfully managed the challenges over the past two years to maintain a very strong balance sheet.
In conclusion IMAX is capitalizing on the strong blockbuster pipeline to drive solid results, grow its share at the global box office and strengthen its brand with consumers. As we do, we are committed to building on our strength and to drive further growth for the company by expanding our network, our content portfolio and what we can deliver for our fans in our theaters and their homes.
We look forward to furthering our transformation into a premier global technology platform for entertainment and events of all kinds and remain focused on accelerating our financial momentum and driving value for our shareholders.
With that, I am happy to turn it over to Natasha.
Natasha Fernandes
Thanks, Rich, and good afternoon, everyone. As Rich mentioned, we posted another quarter of significantly improved performance driven by an exceptional film slate that highlighted IMAX DNA. Operating results continued to improve which served to highlight our superior, differentiated business model.
As a reminder, we are a global, asset light licensing business with a low cost base and high incremental margins. Second quarter 2022 revenue increased 45% to $74 million from $51 million in 2021. Adjusted EBITDA increased to $25 million versus $9 million in the year ago period and adjusted EPS improved to $0.07 from a loss of $0.12 in the year ago period.
Net income and EPS for the quarter was constrained by a $3 million or $0.06 per share impairment of a Chinese film investment due in part to COVID-related lockdowns and depressed box office levels in China. In addition, the quarter was impacted by a $5 million or $0.09 per share valuation allowance against our deferred tax assets. A remnant of the pandemic which creates uncertainty regarding the ultimate realization of these assets.
IMAX Technology Network revenue increased 134% to $46 million in the second quarter from $20 million in Q2 2021. Total gross box office was $248 million, an increase of 128% over last year’s second quarter box office of $109 million. As we expected, the appeal of a Q2 slate drove strong box office results with domestic office in May and June eclipsing that of the same period in 2019.
Gross margins for this business were $31 million or 67%, up from $9 million or 44% in 2021 due to the higher box office driven revenue and the operating leverage inherent in our business model. IMAX Technology sales and maintenance revenue, for the second quarter decreased to $24 million from $29 million in last year’s second quarter.
The lower revenue was the result of seven fewer revenue system installations versus the prior year comparative period as China’s zero COVID policy for much of the quarter affected our ability to grow the IMAX footprint in that region. This quarter, we installed four new IMAX systems, three of which were sales of STLS and one hybrid. This compares to 11 new IMAX systems, of which nine were sale or STLs and two hybrids in the prior year period.
Gross margins for this business decreased to $13 million from $16 million, which reflected the lower level of installation activity, particularly in China and a loss of revenue associated with the theaters in Russia, Ukraine and Belarus. These factors were partially offset by an increase in maintenance margin. Conversations with our exhibition partners around network expansion continues to build given our performance in the second quarter and the strong slate ahead and into 2023.
As history is a guide, Avatar will be a catalyst. Already we are seeing exhibitors accelerate installations to get ahead of the highly anticipated sequel. We expect to exceed the number of installations achieved in 2021 with a total of between 80 and 100 systems this year. Our ability to hit the high end of that range will depend on how quickly the situation in China continues to improve.
Moving on to operating expenses, SG&A, excluding stock-based compensation was $30 million in the quarter, which was above the comparative quarter in 2019 of $26 million and higher than 2021 levels of $22 million. The year-over-year increase in SG&A is primarily driven by increased staff cost as we returned to normalized work schedules, a $3 million negative variance year-over-year related to foreign currency movements mostly in Greater China and other expense areas like increased travel and office costs as the business returned to more normalized operations.
With respect to China, during the period of prolonged theater closure, we managed our cost proactively by adjusting our work week, while maintaining our ability to quickly scale operations as soon as theaters fully reopen and business normalizes. We have also significantly reduced marketing, T&E and other discretionary spends. These important steps during the quarter to reduce our cost in China will help the second half of the year.
We ended the quarter with $110 million in cash and $230 million of debt excluding deferred financing costs. $77 million of cash was held at IMAX China and $33 million at IMAX Corp. Our $300 million revolving credit facility remains undrawn. When combined with our cash on hand and the undrawn components of our IMAX China working capital facilities, we have approximately $470 million of available liquidity.
In May, the company chose to terminate the covenant waiver period under the credit agreement. Upon this election, the original terms of the credit facility were reinstated including but not limited to full access to our investment and share repurchase baskets, as well as the $75 million minimum liquidity covenant was no longer in effect.
Capitalizing on what we view as an undervalued stock price during the quarter, we repurchased 2.7 million IMAX shares at an average per share of $15.92 for a total cost of $43 million. Subsequent to quarter end, we have purchased an additional 71,000 shares bringing our year-to-date repurchases to approximately 3.2 million IMAX shares at an average price of $15.99 for a total cost of $50 million with $25 million of remaining available room under our current program which we recently extended for 12 months.
For the six months ended June 30, IMAX China repurchased 1.5 million shares at an average price of US$1.26 per share for a total cost of US$1.8 million. We intend to continue to be opportunistic in repurchasing shares when we view our stock price as disconnected from the underlying fundamentals of the business.
Overall, we believe our second quarter results represent the key fundamentals of our business and we look forward to building on our momentum. Fans are turning us to see their favorite movies in IMAX, increased revenue is driving profitability improvement highlighting our superior high margin, asset light business model. We have a strong balance sheet with substantial liquidity to support strategic investments aimed at driving growth.
And finally, we remain excited for the strong slate of IMAX family titles set to be released later this year and in 2023.
With that, I will turn the call over to the operator for Q&A.
Question-And-Answer Session
Operator
[Operator Instructions] We will now take the first question from Eric Handler from MKM Partners. Your line is open. Please go ahead.
Eric Handler
Yes. Good afternoon and thanks for the question. Rich, I wonder if you could just dig down into China a little bit here. Specifically, I know the government doesn’t give a lot of lead time with films, but are you getting any visibility at all into the back half of the year slate, particularly around the October Hollywood – the October holiday period? And what Hollywood films might actually get approved? And then, also for installs which were pushed out of 2Q in China? Are you – is already a plan to get those installed and how is that going? And Shanghai, any idea of what needs to happen to get those theaters opening yet?
Rich Gelfond
Okay. So – and in trying to answer them in order of your questions, Eric, I think there are some promising signs about more Hollywood films getting in, as a matter of fact, we don’t have permissions to say it on the call, but we’ve heard one film that is getting in the name probably towards the end of August of decent size film. And as I said in my remarks, I think Avatar will get in at the end of the year, because of James Cameroon’s relationship with China and how well this movie gets there. I think a lot of things going on in China, especially with the West little bit intense supply because the election of the new leader at China is in early November. So, I kind of look around that day and I think people are just being fairly cautious in China before that period of time, because not everybody is kind of doesn’t want to do the wrong thing. So, cautiously optimistic with the words I would have about some of the films getting in and I think the law of gem will probably open up after the election.
On your second question, the installs that went out of Q2, I mean, obviously, you couldn’t install if there was a lockdown in the city. So, my answer would be that when things more return to normal and the COVID levels go down and it’s more business as usual, that’s where they would happen. With that said, when we gave our guidance for the year, we took into account some things that have moved forward from next year because of Avatar, as well as things have moved back from early in the year because things were closed and now they are open.
So, if I could be more specific I would be, but I think you better of focusing on the overall range that we gave in China predict which particular ones are moving from quarter-to-quarter. In terms of Shanghai, as you probably know it was scheduled to pretty much open up, I think it was around – overall. And then it slid back a little bit. Our offices are in Shanghai. As you know, most of our employees live in Shanghai. I think the only context I could give is that, this lockdown is a lot less rigorous than the earlier one and I think anecdotally the people who work with us don’t get the sense that it’s going to be as long-term and that it’s more short-term lived. But again, I’m not being there and the government not being more specific, I am giving you more of my impression that my guidance.
Eric Handler
Understood. And that’s all very helpful and then just as a quick follow-up question, can you talk about maybe some of your live events that are scheduled for the back half of this year?
Rich Gelfond
I’ll turn that over to Megan.
Megan Colligan
Yeah, we are in the process right now of making some announcements that will be coming out in September. We have some studio events that are lining up. We are even be doing something with Moonage Day Dream. We have some music events but we are going to be announcing them when we put our tickets on sale to drive the tickets on sale dates. So those will be rolling beginning in September and we also have an announcement coming with an ongoing partner that we will be announcing again in the early fall.
Rich Gelfond
And by studio, what Megan means is, the Q&As and [Indiscernible] a call we’ve done a number of those. We’ve did it around JurassicWorld, we did it with NOPE with Jordan Peele. There have been series meeting Q&As before after meetings. So, that just detail in what she means by studio events.
Eric Handler
Very helpful. Thank you both.
Operator
We will now take the next question from Mike Ng from Goldman Sachs. Your line is open. Please go ahead.
Mike Ng
Hey. Good afternoon. Thank you very much for the question. I just have two. First it was encouraging to hear about the new theater agreements in Thailand, The UK and Japan. I was just wondering if you could talk a little bit about the pace of signings and whether or not those signings have been skewing more towards sales type of drawing revenue sharing and has there been any meaningful change relative to pre-pandemic?
And then, second, just on the installs outlook, thank you very much for that. I was just wondering if we should think about that 80 to 100 installs as a good runrate beyond this year. Rich I know you mentioned there may have been some pull forward due to Avatar, but it is also impacted by COVID lockdowns. So any general thoughts around that would be great. Thank you very much.
Rich Gelfond
Well, thanks, Mike, and I’ll start with that. I wouldn’t think of 80 to 100 as the runrate. I mean, China has been closed for six months and we were back out of over 200 theaters in China and typically they, as you know, the backlog churns in about a three year period of time and in the first quarter, actually until May or June, there really wasn’t a film slate and then the third thing I’d say about this year is that exhibition was just coming out of the COVID period. So they were financially challenged. They weren’t going to make commitments on their financing wasn’t necessarily in place. So, I would be surprised at all not you shouldn’t consider this be guidance. But I would be surprised if the runrate next year wasn’t higher than it was this year I think a lot of Chinese events going on simultaneously this year.
In terms of signings, again it’s a very Asian, on the answer to that one, Michael, which is again they didn’t open the year and said, well I know Top Gun is going to do over $1 billion is going to and I know Dr. Strange is going to be this and Jurassic World and I know it’s going to be really great year. And I know IMAX is going to 95% of its 2019 box office in the first six months. As you agree, I mean, I think there would be a little bit cautious and say let’s see how it opens, let’s see how IMAX does. So, as a result, the first half of the year, the signings were slower than a typical runrate pace. And you know the way I would look at it, Michael, first you have engagement, then you have a period where people run through the numbers and we actually look at the size and figure out if we could do the theater and are there exclusivities and things like that. And then we actually get into deal negotiations. So, as you saw in the second quarter things started to pick up a little. There are lot of deals right now which are closed. So I would expect in the next month or so, you will see signings activity pick up again because it’s a cycle and I think we are negotiating a number of things and now we have to get signed. But I think it’s going to have to wait till the cycle goes forward a little more to get that to “normal”.
And then, the last question you asked I think was about the relationship between sales type leases and JVs and it is what it is typically. The answer is I am not really sure Michael. I don’t think that it’s dramatically one way or the other, because nothing is kicked up to me and it’s kind of said we are doing more of this. But I don’t really remember the exact number. I think it’s around the same as it’s been.
Mike Ng
Great. Thanks for the thoughts and remarks, Rich. I really appreciate it.
Rich Gelfond
No problem.
Operator
We will take the next question from Eric Wold from B. Riley Securities. Your line is open. Please go ahead.
Eric Wold
Thanks. Good afternoon. Rich, maybe just I want to follow-up a little bit on the China situation. Obviously, it’s kind of fluid. Visibility is not that great, but maybe just take you kind of somewhat of a worst case scenario, let’s say that the Hollywood titles never regain the same level of importance to that market as it did before when that’s because of censorship and – not to wanting to kind of change films or whatever the reason, you just don’t regain a prominent and a number of approved titles remain extremely low. Can that market’s box office get back to pre-pandemic levels under that scenario where you really mostly driven by local language titles?
Rich Gelfond
I mean, I think first, Eric, I just have to say that’s a scenario that I think is extremely unlikely then I’ll answer your question. But in my mind it’s kind of like saying if Hollywood releases 10% of the number of films next year than the releases today, how we are going to perform and I really do think it’s that remote. We have our feet on the ground in China. We have a lot of personnel. We talk to people all the time and I think there was just so much going on including the lockdowns, including the backlog of Chinese local language films, including issues with Hollywood that came out of the pandemic with piracy because of day and day releases. And I think the paradigm has just changed there. So, I think what you are suggesting is remote. But I think if it happens and we will react to it, the box office would be lower for us. There is no question about that and however if you look at our increase in local language films and you look at other kinds of events that we are trying to do, documentaries we would try and make up as much as that as we possibly could and again, when you look back in 2020 and 2021, when China came out of the pandemic without Hollywood films, we actually did really well since in part of your question, but in Japan in the past when there were no Hollywood films we did about $1.5 million per screen average using local language films and filming events. I mentioned in my remarks and it’s in the press release, for the third quarter, we’ve all read a lot of headlines about there are not being a lot of movies available and big movies, but for IMAX we have 15 foreign language films, local language films in the third quarter and for IMAX we are doing special releases of GMR, Jaws and ET and we will have a number of live events in those places. So, if there were no Hollywood films that would affect us but we are pretty agile, certainly much more agile than the exhibitor community and I think we will make up for a lot of it in other ways.
Eric Wold
I think your answer is accurate I was looking for, I know you always have to make the choice here or in China ever you kind of weekend or week – in terms of what film you are going to highlight on IMAX screen. It’s definitely sounds like there is enough replacement if that was worst case in other place but obviously – I don’t want to show that you got that flexibility and I appreciate that. Thank you.
Rich Gelfond
Thank you, Eric.
Operator
We will now take the next question from Steven Cahall from Wells Fargo. Your line is open. Please go ahead.
Steven Cahall
Yeah, thank you. So, maybe first, you gave the amount of the theaters as a percent that’s back online in China. I was wondering if you have any sense of like what the recovery is in attendance and where that’s running now. I am guessing it’s significantly below that 90th percent of spaces that are back online, but we’d love to get some sense.
Secondly, I am wondering as you go into a lot of these install negotiations given how strong the slate has been post-COVID, given how strong it looks going forward and with recession often being something that theaters want to invest ahead of, because I tend to get more attendance. Do you have any that of kind of negotiating strength in terms of the terms you might ask for in some of those?
And then finally, just wondering, if you have material revenue yet from IMAX in hands and if there is any new streamings are which is where we might see that show up on? Thank you.
Rich Gelfond
Okay. That’s a lot of questions. If I miss one of them, Adam come back and you please fix. Attendance in China is definitely not 91% of what we’d expect or seeing. But there are several reasons for that. First of all, there is diminished capacity in certain cities. So, in Beijing and Shanghai, it’s only 50% to 75% capacity and there are some restrictions in other cities. The bigger reason is on the content side and there just haven’t been as Eric Wold asked right before, there haven’t been Hollywood films, there haven’t even been big Chinese films. I’ll give you more context of we are a little bit hopeful going into this weekend and there is a movie coming out – that came out actually called Moon Man on Malian [Ph] which is a ranking service. It was rated 9.6 at a 10 and generally anything over 9 is considered quite good. And Malian, I think, again I could be wrong, but I’ll be close. I think Malian estimated something like a RMB4.5 billion ultimate for that movie, which is about RMB4.5 billion, which I think is about $500 million for the run of the movie. So that would be a significant recurrent, but again, I don’t own Malian and reporting public information which I have seen and I think increased sales have been decent for the movie. So there just has been that turning getting people back and as we talked about in 2020 and 2021, once it started to reopen it wasn’t really till The 800 came out. Sort of it a way like in the U.S. when some of the key movies came out and then they’d open the floodgates. So, Dr. Strange and then Top Gun and Jurassic World with creative sense of normalcy. So I think you need that kind of cadence, but it’s possible that that we are close to the beginning of that point and we have to see. I know it’s not a permit to answer. But I hope that gives you a sense of the way we see the market.
In terms of negotiating leverage U.S. I think it’s too soon to see anything like that. Again, we’ve just come through this even if we had leveraged a ton likely we use it right now with these studios or the exhibitors I think the industry is in the early stages of getting healthy and we are in the surges for the long run. We’ve been in it for over 50 years and I don’t think we look at the business. So how could we use short-term leverage, to increase short-term results. As you know, during the pandemic, we worked with our exhibitors to get the industry healthy and we gave concessions and we alluded to theirs that’s worth mentioning for a moment. We spend a lot of time in the couple of months because we didn’t enforce the install schedules that weren’t a lot of a context plus the industry was in a place to do that. But over the last couple of months, we really reinforced what the roll outs are on a global basis with our exhibitors and the fact that we had is the way we did I think has come back to us and virtually all of the companies that we gave a break to negotiated reasonable roll out schedules right now. So that’s more a philosophy rather than, I don’t want to overstate it, but I can’t think of any but I just to protect myself. Maybe there were a few but virtually everyone who have backlog with us has negotiated a reasonable rollout that was for most of us I think a philosophy of doing this has worked very well for us and with the exhibitors.
And then, the U.S. question was material revenue on Enhance and on live and I think as Megan gave the answer, to live I think at the end of the year, we will see more revenue. But I can’t characterize as material or not because I don’t know how it’s going to perform and I don’t know what days it’s going to come out, but I think you will be able to see an acceleration in the revenue stream as more events come online. And I mentioned during my remarks, but again this is something I want to reinforce that we’ve really been installing at a much more rapid pace.
So new IMAX theaters that can play Live and that’s whereas where we have built out the original network that wasn’t in our control in our spheres, because we had to get people to sign up for the theaters. Now these are existing IMAX theaters. So we are building out that as a fairly significant pace right now. And again, I confer not to give specific guidance on that, but I think as the network starts to grow out, you’ll start to see revenues accelerate there. And I feel pretty good about how our roll outs going right now.
Steven Cahall
Great. Thank you.
Operator
Next question from Mike Hickey from Benchmark. Your line is open. Please go ahead.
Mike Hickey
Hey, Rich, Natasha, Heather, congrats on a strong quarter. Awesome to see your business back. Rich, I guess, first question, I was just curious if you could speak to sort of the broader health of the exhibitor market. I guess, more specifically, domestically, your business is back, but when you look at sort of the attendance trends across the broader circuit there is still a pretty big disconnect from what we are seeing this year compared to 2019 despite the slate. But just sort of curious why you think that is and if that sort of disconnect sustains, how that could impact your business? And then I have a follow-up for Natasha.
Rich Gelfond
It’s a good question, Mike. I think it’s the lack of film products, mostly. So I think during – as I said during the first three months of the year it was very little film products in the domestic market. I think it’s picked up a lot in the second quarter and I guess we’ll figure out how much when the companies start reporting. And I think there is an imbalance little bit in the domestic market in terms of the number of theaters I think, I have said this before there aren’t in our business the number of movies coming out isn’t size with the way the number of theaters that are out there right now. And the 20 plus and the 25 plus and things like that it’s just not a film market to fill those theaters the way it did in 2019. And as you said, I mean, we are all the way back because our network is sized in a different way. Also as you know well, Mike, we are global and if you look at some of the results, Top Gun, I would say the international results were surprising. I mean, the book – they are great, but I think just how well that franchise did internationally and again the international nature of our business presents a different dynamic that people in the exhibition business and then also we have a lot of local language content so to the extent there is a shortfall we can fill in different places. So I think it’s just a lag for them. There needs to be more titles coming out on a more consistent basis and I think ifs and whens that happens they’ll trend more towards where they were in 2019 than they are now.
Mike Hickey
Nice. Thank you, Rich. Natasha, just curious on – one, thank you for the installation guidance that’s something more than I expected. Just curious sort of why now I guess that you have sort of the confidence to give us some visibility here. Well, I think this is the first time you sort of reinitiated your view of what you can do for the year and Rich sort of alluded to maybe – maybe that’s the answer. Sort of curious given in this second half build here, primarily your confidence level to guide. And then, can you give us a comp of where you were in 2019? I have one 20, but I don’t know if that includes upgrades or not and any color I guess Natasha on the mix between sales type leases, JV hybrids or upgrades would be great. Thank you.
Natasha Fernandes
Certainly. We – what Rich alluded to as well that we talk to the exhibitor partners then we’ve been firming up the roll out schedules for our theater systems then we pass it out to the team for working so hard with all of our exhibitor partners outside of China showing them in slate and igniting growth plans in key markets. And so, with all of that work is done, we’ve been able to firm up and feel confident about the install guidance that we are providing.
And as for the mix I mean, definitely, Q3 will be higher than levels seen in Q1 and Q2 and the vast majority of these plans for Q4 and we are fairly balanced between JVs and sale in STLs as we look out for Q3 and Q4.
Mike Hickey
Did that guidance includes upgrades or is that incremental?
Natasha Fernandes
Yes, the guidance we’ve provided includes upgrades about one-third upgrades and two-thirds new locations.
Mike Hickey
Okay. Perfect. Alright guys. Thank you very much good luck.
Operator
Next up we have David Karnovsky from JP Morgan. Your line is open. Please go ahead.
Unidentified Analyst
Hi, this is John on for David. Most of my questions have been answered. But I did want refocus in on the live events. Can you give us some color around how the consumer reception has been, any highlights of attendance to these events or learnings as COVID impacts have become more or less apparent. And I guess maybe what’s the reception from artists to the events offerings been so far? Thanks.
Megan Colligan
Yeah, happy to do that. So, I mean, I think there is – we are doing with a range of events, but I think one of the things that we’re looking at is, we are capable of being able to scale our event into see there is right now we are talking about 100 theaters as Rich said we are talking about nearly 200 theaters by the end of the year. And that allows you to be in across North America and into Europe and for artists whether in you are a musician or if you are a song maker, your aim will be master places at once. You are also able to give spend that increased sense of fandom which is a super special, super where opportunities for people in places outside of New York and Los Angeles where you may not be able to access those kinds of opportunities. And we are seeing that people are really gravitating to those experiences. So, whether you are talking about a Q&A or you are talking about what we did most recently with Jordan Peele in NOPE, and you are getting a special introduction before a movie that you aren’t expecting or you are getting a highlighted premier event prior to opening which kind of ringfences IMAX and we get these special premier in advance of the film which gives not only increased box office that sets us apart from everybody else before the movie opens. It also signals to you audiences that that is a premium and even more immersive experience in the film itself and audiences are really responding to it.
On the music level, we are doing with artists all the time. We have artists coming through our offices and into our theaters, experiencing the technology, understanding how they can utilize that technology and I can only say that there is going to be a wide breadth of experiences that will be sought up over the course of the next year, because when you are dealing with the sound system you are dealing with the screen, the capability to utilize both film’s content and live content and be able to use that intermix creatively whether you are launching an album, whether you are using it to deploy against a catalog content, whether you are using it to scale a concert. There is a lot of opportunity there and artists are very interested in how this can be utilized in new fresh ways. So, we had tremendous accept both on the artist side and also I think the reception that we have received when we’ve done concerts and certainly you can go online and see the reactions with the concerts to understand how much people enjoy the experience of being in an IMAX theater and watching an artist that they really love.
Unidentified Analyst
Great. I will keep an eye out for some of those experiences going forward. I think that’s pretty much it for me. Thanks guys.
Rich Gelfond
Thank you.
Operator
Next question will be from Jim Goss from Barrington Research. Your line is open. Please go ahead.
Jim Goss
Hey, thanks. I’ve got a couple of, so, first, there is usually a pretty big low between, say, August and September or into October. This year is no exception as outlined in your Page 11 slide. And I know you’ve indicated, you are bringing Top Gun there and that’s a tremendous resilience. Do you have other plans to fill in both in the domestic market and rest of the world, ex China, you did talk about China quite a bit, so I just wondered about the other parts.
Rich Gelfond
Yes. I think I mentioned, Jim that we have 15 foreign language films in the third quarter. I think like four are five from China and the other ten are from other territories. In addition to that and you mentioned, Top Gun, NOPE has only played in North America. So we are playing that in the rest of the world starting in a couple of weeks and I think that will do pretty decent box office. Then we are also – we DMR, meaning converted into IMAX, JAWS and ET, I can tell you that particularly JAWS, because I have seen the other one looks spectacular. But we’ll see what the appetite is to come back and see it out this in live. I don’t think it’s ever been released in IMAX that I don’t think you have to be certainly genius to make the brand association that big shark, IMAX summer. So we have some hopes around that. We are bringing Avatar in and I think given the promotion around the opening of Avatar World of Water, there should be a decent interest in people and reseeing Avatar. Megan said there are couple of live events we are looking at during that period of time. So, between all of that I think we’ll – it’s not like the last quarter, but I think we have lots of opportunities.
Jim Goss
Okay. And – thanks for that – and you’ve been perhaps the biggest beneficiary of this premium preference as attendance has resumed. I was just wondering if you have any concern as to risk of loss of customers back to some of the 9MX films as things normalize to a greater extent or do you think you are establishing some new IMAX favorable abbots that you think you can sustain?
Rich Gelfond
Well, I mean the market share number suggests that the preference is growing to go to IMAX rather than alternative ways of seeing it and anecdotally, you look at the conversation and the culture of events we’ve created around a number of these movies coming out over the last period of time. And again the global nature of the numbers coming out. So, I don’t have a crystal ball, Jim, on where that’s going but I – looking at the numbers that I’ve looked at, I am looking at our brand recognition and I add that we’ve put in place some more digital marketing efforts and different ways to promote the films not only through live which we just talked about, but other ways in the ecosystem on a global basis and given the way looking forward in the film slate, again without going through it again. But films shot by Christopher Nolan, who typically index very well, Marvel Films DC Comics films, 23 slate is very IMAX friendly. So I would like to thank that these trends are staying power.
Jim Goss
Okay. Maybe one last quick one. Your DMR process benefits more films for the efficiency you create and now you are also doing it domestically and internationally where – has some different staffing. How is that process working in terms of the efficiency of creating a product and iconic to those costs?
Rich Gelfond
Well, it’s always worked well, Jim, and actually we are in the process of moving a bunch of that to the cloud to make it more efficient and make it more user-friendly on a global basis. So, as you know, we are always ahead of the curve and trying to pick up the next things. So, it’s worked well and I think it will get more vision.
Jim Goss
Alright. Thank you very much.
Operator
We will take the next question from Chad Beynon from Macquarie. Your line is open. Please go ahead.
Chad Beynon
Good afternoon. Thanks for taking my question. Just one from me kind of a follow-up on gross margins or EBITDA margins, I guess, in line with the last comment, but this one is more directed for the VSPLs and the installations that you said should expand in the back half of the year and into 2023. Given everything that we’ve seen with inflation and supply chain, should there be pressures on the margins when you install these or can we start to see some gross margins on those installs closer to what we saw back in 2019 and 2020 or 2018 and 2019 when things were really coming along? Thank you.
Rich Gelfond
Well, we have inventories and we were concerned about some of the supply chain issues. So, we filled pretty much a lot of what we have then saw this year. We brought it into backlog. We bought it against our backlog. So I don’t think we have a lot of pressure on the cost side. Again the margin is always a mix of which installs you have and what parts of the world, so, I can’t answer that but I can tell you that we haven’t really left ourselves vulnerable this year to the supply chain issues.
Chad Beynon
Appreciate it. Thank you very much. Nice quarter.
Rich Gelfond
Thanks, Chad.
Operator
It looks like there are no more further question at this time. I would like to turn the call back to our speakers for any additional or closing remarks.
Rich Gelfond
Yeah, thanks, operator and thanks, everybody for joining our call. I mean, if you just go out to a very high level that has some part of our network almost half has either been closed or operating at limited capacity, when you are at China and Russia and so literally do the math. And we manage to be almost identical to 2019, the best year in IMAX’s history.
So, I mean, life is imperfect, but I think if you are sitting where IMAX is and with the macro trends and the win that you bet I am quite pleased with where we ended up for the quarter and I am pretty pleased with where we are for the year. So we’ll be back to you at the end of the next quarter and appreciate you taking the time to answer all those very well thought out questions, to ask all those thought out questions. Thank you.
Operator
This concludes today’s call. Thank you for your participation. You may now disconnect.
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