What's Really Troubling Imax?

IMAX Corporation (IMAX) shares took another beating late last week after reporting second quarter results. A revenue decline of 28% helped swing the company to a $4.57 million loss. The main contributor to the revenue shortfall was a 32% decline in revenue from new theater installations.

The headline numbers look disappointing, but are shifts in installation options and accounting what's causing the disappointment?

IMAX recognized revenue from 4 theater installations in the current year compared to 9 in the prior year. However, they also performed 3 theater installations under joint venture agreements compared to zero in the prior quarter. Under joint venture agreements, IMAX generally supplies equipment and installations for free in exchange for a cut of the box office revenue. IMAX also performed one more theater installation that had to be classified as an operating lease. Since IMAX will be required to perform a digital upgrade at a later date, the majority of the revenue from these types of installations must be deferred until the digital upgrade takes place.

So is the "apples to apples" number for theater installations really 8 compared to 9?

The shift in IMAX theater installation options and the changes in accounting will continue to put a damper on reported results. IMAX continues to state that 2007 is a "transitional year" for the company. Do analysts and investors know how to make sense of the numbers until the company makes it to the other side?

IMAX 1-yr chart

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