Imax Corp. (NYSE:IMAX) investors should look past the box office revenue and focus on reported and ongoing system sales, as this is one of the largest chunks of IMAX’s source of revenue. This should be of interest to those who do not have full clarity on the subject of IMAX's system sales. For backlog alone, IMAX has reported a dollar value of $190,972,000 as of the end of Q1 2011. This figure represents the backlog of all signed theater systems, excluding joint venture agreements, which will be recognized as revenue in the future. In Q1 2011, IMAX systems income was over 50% of the companies earnings (Q1 2011).
From IMAX’s guidelines:
For arrangements qualifying as sales, the revenue allocated to the System is recognized when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition.
The Company derives revenue principally from the sale or long-term lease of IMAX theater systems and associated maintenance and extended warranty services.
IMAX only counts a theater system as sales revenue when certain requirements are met. Another point is that as installed systems increase, so does the system maintenance revenue, another large part of IMAX’s income. With this in mind, investors should look at the potential of revenue stored up in the current value of the company when considering market cap and future earnings. I think it is important to emphasize this aspect of IMAX, as system sales was the core of IMAX up until the joint revenue model, which has proven successful as well. The market for additional system sales is also growing as IMAX proves to be a strong brand and exhibitors realize the incremental gain for consumers who choose to go to an IMAX theater over a local or distant competitor.
As already stated, IMAX does not count its joint venture agreements in its backlog value. This includes the 200+ additional JV agreements, including Wanda Cinemas' 75-screen deal. The JV model usually consists of a flat fee starting at $100,000 but includes a percentage of the box office from Imax screens. The percentage from the JV and the film revenues usually amounts to anywhere between 17% to 22% of the total box office revenue.
IMAX has continuous international expansion in its future with its current backlog, strong brand, ongoing revenue, a solid balance sheet with an over 2-to-1 cash-to-debt ratio, and its attractive JV model with seven more signings in the past week, including deals in Russia and Portugal. IMAX’s relationship with studios is currently very strong, with an additional contract for the Steven Soderberg film Contagion, starring Matt Damon and directed by Steven Soderberg (who also directed the Ocean's Eleven series and Traffic). Contagian is to be released September 9th, placing the film in IMAX's third-quarter film slate.
Disclosure: I am long IMAX.