CEO Defends Imax's Weak Q1 Results
"It’s the movie business. I’m not better predicting than you are, but my feeling is it will be a strong summer,” says Richard Gelfond, pointing to 2011's Pirates of the Caribbean: On Stranger Tides 3D, Transformers and Harry Potter.
TORONTO – Imax topper Richard Gelfond told investors Thursday to look beyond a weak first quarter to theatre signing momentum to justify his cheery forecasts for 2011.
The immediate reception was promising: stock in Imax was up sharply on North American financial markets during mid-morning trading.
That came despite a lack of Hollywood tentpole performers for Imax this past winter, which sunk the company’s revenue line and produced a first quarter loss of $1 million, compared to earnings of $26.5 million in 2010, when the company released its latest results early Thursday.
“It’s the movie business. I’m not better predicting than you are, but my feeling is it will be a strong summer,” Gelfond insisted, with an eye to the rest of the 2011 film slate that includes Disney’s Pirates of the Caribbean: On Stranger Tides 3D, Paramount’s Super 8, Transformers: Dark of the Moon, The Adventures of Tintin: The Secret of the Unicorn 3D and Mission Impossible: Ghost Protocol and Warner Bros.’ Harry Potter and the Deathly Hallows 2.
But Imax faces other risks on the horizon beyond boxoffice duds.
Thursday’s headline first quarter loss is a blow to the Toronto-based large format exhibitor as it continues shifting from filmb-based to digital technology and promises more recurring revenue and more stable earnings by building out its international theatre network beyond North America.
To that end, Imax has already brought its revenue share model to China.
In March, Imax said it will build 75 giant screens in Chinese movie theaters over the next three years with partner Wanda Cinemas, China’s largest theater chain, a deal analysts valued at nearly $100 million.
The deal will make Wanda the second largest operator of Imax screens worldwide.
Gelfond said the Wanda deal is proceeding as planned: the Chinese partner is building new cinemas, while Imax will retrofit them with its digital technology.
He added Imax will have no exposure to a volatile Chinese real estate market, and will hire a local property market guru to help Wanda choose between possible theatre locations.
“There’s an analytical element, so we want someone to help us analyze the opportunities,” he explained.
Imax is also near to announcing a new CEO to oversee its China expansion.
At the same time, the giant screen exhibitor faces risks expanding into other major world markets beyond China.
Gelfond said Russia and India are obvious growth markets for Imax, but each is hampered by a lack of box office transparency and questions about the local rule of law.
“There’s no way as a company I will take joint venture risk in India,” he said.
And in Latin America, Imax finds itself constrained due to a 2008 exclusive licensing deal with Giencourt Investments SA that caps regional growth at 35 digital theatres, including in Brazil.
Gelfond said Racimec continues to make payments and open theatres, but Imax would like to revise the deal to increase Latin American growth beyond the 35-theatre cap.
“It’s a very attractive market and if there’s a way to create a win-win situation, where it’s good for Racimec and it’s good for us, I’d like to explore ways to accelerate the growth in the region,” he said.