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IMAX revenues and profits fall in Q3 2013 but future opportunities remain

IMAX Corporation (IMAX) has announced its Q3 2013 results and, on the surface, it does not look good: Q3 2013 revenues are down by 35.9% over the same quarter of last year, and net income is down by a substantial 89.2%. This will be of great concern for IMAX and its shareholders, but it would be wrong to write the company off at this stage.

On a year-to-date basis, the company’s slide in revenue and profit is not as severe. Revenues for the first three quarters of 2013 are down by 10.9% over the same period in 2012, while net income has dropped by 42.8%. Declines mirror the US box office performance of the year so far. According to statistics from Box Office Mojo, domestic grosses were down by 1% between January and September 2013 compared to the same period in 2012. However, the fact that IMAX’s revenues have dropped at a higher rate than the overall box office may worry some stakeholders.

Crucially, the biggest year-on-year decline in revenue in Q3 has been from sales and sales-type leases of its theater systems, which have dropped by 70.7%. Although this is jarring, it should be noted that this reflects IMAX’s strategy to move away from such installations towards more profitable and stable joint revenue sharing agreements (JRSAs), where IMAX foots the cost of installations for a share of a theater operators’ box office revenues from IMAX showings. Notably, sales and sales type lease installations were down by 133.3% in Q3 2013 compared to Q3 2012.

Unfortunately for IMAX, revenues from JRSAs were also down on a year-on-year basis in Q3 2013 by 9.3%. It is, however, crucial to note that the company has continued to grow its commercial multiplex theater network in the past year, and a greater percentage of its theaters now operate under more profitable and dependable JRSAs than at the end of September 2012 (53.8% as compared to 51.6%). The company will hope to further increase the number of operating JRSAs in key growth markets, such as China and Russia in the future, as it continues to grow its global footprint.

Revenues from IMAX exhibitions of films that have been converted to IMAX, which come under the company’s production and IMAX DMR segment, have declined by 42.3%. This represents a poor performance of the company’s film portfolio in 2013 thus far, and demonstrates the need for the company to assess its exhibition lineup in terms of quality and mass appeal. However, this may be ameliorated to an extent by the strong performance of Gravity, which falls under its Q4 2013 exhibition lineup.

In essence, the company still has tremendous growth opportunities, and a drop in revenue and profit at this stage are not disastrous for IMAX. If it continues to employ its JRSA and global expansion strategies effectively, as well as assess the quality and potential of its film portfolio, it still has vast amounts of future potential.

You can read more about IMAX’s JRSA strategy, its global expansion and key partnership strategies, as well as the threats and opportunities faced by the company in my latest case study, IMAX Corporation: Rapid expansion in premium cinema available on the MarketLine store.

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