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IMAX (NYSE:IMAX)
Q2 2018 Earnings Conference Call
Jul. 25, 2018 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the IMAX second-quarter 2018 earnings conference call. [Operator instructions] As a reminder, today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Michael Mougias, vice president, investor relations.

Please go ahead, sir.

Michael Mougias -- Vice President, Investor Relations

Thank you, Angel. Good afternoon, and thank you for joining us on today's second-quarter 2018 earnings conference call. Joining me today is our CEO Richard Gelfond; our CFO Patrick McClymont; and our Head of Entertainment Greg Foster, who each have prepared remarks and will be available for Q&A. Also joining us is Rob Lister, chief legal officer.

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 earnings press release and the slide presentation accompanying today's call have been posted to the Investor Relations section of our website. I would like to remind you of the following information regarding forward-looking statements, our comments and answers to your questions on this call as well as the accompanying slide deck may include statements that are forward-looking and that they pertain to future results or outcomes.

Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. During today's call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. Discussion of management's use of these measures and the definition of these measures as well as reconciliations to adjusted net income, adjusted EPS and adjusted EBITDA, as defined by our credit facility, are contained in this afternoon's press release.

With that, let me now turn the call over to Rich Gelfond.

Richard Gelfond -- Chief Executive Officer

Thanks, Mike, and good afternoon, everyone. Our strong second-quarter results illustrate the value of our differentiated consumer experience, expanding global footprint and focus on blockbuster content. During the quarter, we delivered a compelling mix of tentpole titles from Hollywood to China that generated $343 million of IMAX Box Office, an increase of 27% over the second quarter last year and in line with our highest grossing quarter ever. It was also the first quarter in IMAX history, where each of the domestic, China and rest of the world markets generated north of $100 million in IMAX Box Office, demonstrating the growing prominence of our international network.

We also continued to benefit from several macro trends, including studios, increasing emphasis on releasing franchise content and consumer's growing desire to experience this content in differentiated ways. These factors, coupled with our recent programming changes and ongoing focus on containing costs, helped drive second quarter adjusted net income of $19 million, a 97% increase compared to the same period last year. On an adjusted EPS basis, we grew earnings 97% over the prior-year period to $0.30 per share, which also reflects the impact of $33 million of stock repurchases in the second quarter and $46 million of repurchases year to date. Our second-quarter results also build on the strong results from last quarter.

Through the first six months of 2018, we have grown adjusted EPS to $0.51, up from $0.20 in the first half of 2017. If you break down the global industry box office over the past five years, several trends have become increasingly clear. First, while domestic industry box office has been at or around $11 billion per year, the contribution from films generating over $250 million in Box Office has grown to roughly one-third of the overall Box Office, up from just 13% in 2011, signaling the growing importance of blockbuster films. Moreover, international markets are becoming a more meaningful contributor to worldwide Box Office.

Last year, 72% of global box office was generated in international markets, up from 64% in 2013. We believe IMAX is uniquely positioned to benefit from the trend of blockbusterization and international growth. In fact, our recent box office performance helps illustrate this belief. For example, the North American industry grew box office a healthy 10% in the first half of 2018.

However, IMAX domestic box office increased 34% over the same period. Internationally, IMAX box office was up over 20% in the first half of 2018. As we articulated on our last call, growing earnings and improving operating leverage in our core business are two key initiatives of the company, and we are encouraged by our recent performance. That said, optimizing our core business extends beyond just refining our global programming strategy and containing costs.

Over the course of the next several years, we believe we can meaningfully improve the IMAX value proposition through several strategic initiatives, which collectively, should grow our share of the global box office. I'm pleased to say we made meaningful progress across all these initiatives during the past several months. First, as we discussed on our last call, we successfully launched our cutting-edge IMAX with Laser experience in April. We believe this innovative technology further differentiates the way people see movies, widening the gap between the IMAX experience and other offerings.

We also developed IMAX with Laser for broad commercial application, and thus, the cost of goods are attractive to IMAX and our exhibitor partners. In fact, the costs are only moderately higher than our Xenon system. To update you on our progress since lunch, I'm pleased to note that we've already signed agreements for over 180 IMAX with Laser systems. This includes an 87 theater agreement with AMC, a 55 theater agreement with Regal and a 20 theater agreement with Pathé in Europe.

In the case of upgrades, these deals extend the contract terms for an additional 10 to 13 years after installation, pushing out and derisking our renewal process. And in the case of AMC and Regal, our exhibitor partners are also upgrading the seating, entryways and in theater branding in all of these IMAX auditoriums. In Europe, we recently signed a 20-theater agreement with Pathé, which incorporates a combination of new sites, upgrades and replacements in the backlog from Xenon to Laser. The systems will be installed across France, the Netherlands and Switzerland, which are some of our performance -- strongest performing markets in Europe.

Overall, we're encouraged by the early reaction to IMAX with Laser from our major exhibition partners around the world and look forward to rolling these systems out more broadly. Another strategic priority for IMAX officially kicks off this week with the launch of our global brand campaign. Of all our achievements over the years, one area that I've always felt could be stronger was marketing. I'm confident that our new brand campaign will change that.

The campaign inspires audiences to experience films to their fullest, to really appreciate them in IMAX. Our immersive experience enables customers to see blockbusters the way the filmmaker intended and the campaign is focused on more effectively communicating that to moviegoers around the world. We want every audience to see the IMAX difference and understand what has continued to set us apart since our inception over 50 years ago. With an innovative rollout led by digital marketing, this will be our most comprehensive brand campaign launch to date.

It will launch in 77 countries and in 39 languages. I am pleased to note that early response from our partners has been outstanding, and in fact, many of them have funded on their own additional advertising around our campaign. Overall, we're excited by our partners' support of our brand and look forward to working with them to drive incremental ticket sales for the IMAX experience. Of course, we'll update you on the progress in the future.

Another development that we believe will positively impact our box office over time is the introduction of new pricing programs and subscription services such as AMC's new Stubs A-List. Though AMC -- through AMCs' program, for example, customers have the option to see three movies per week in any format for a fixed monthly rate of $20. Given the choice between IMAX and other formats, we believe consumers will predominantly choose IMAX, given there is no upcharge for the premium experience. We view this as analogous to an airline offers a fixed price for any seat on the plane.

Customers clearly would prefer fast -- first class, provided there was no upcharge. Overall, we believe these types of programs could meaningfully increase the IMAX foot traffic, not only driving more box office, but also potentially, introducing new first-time consumers to IMAX. Also remember, IMAX typically has more seating capacity than other boxes in a multiplex. This becomes increasingly important as subscription programs may drive more traffic during big opening weekends for blockbuster films.

I would also like to point out that these types of subscription programs which vary from exhibitor to exhibitor, have been largely successful for our partners in Europe for years, and we look forward to seeing the impact they could have on the North American market. Turning to our network growth. We signed agreements for 40 new theaters in the second quarter on top of the 98 signings for upgrades to IMAX with Laser. From an Installation standpoint, we have sold 30 new theaters last quarter, including our first commercial theaters in Saudi Arabia with Vox Cinemas.

We're encouraged by the initial performance of this theater and look forward to further expanding our footprint in the region. To date, we have signed agreements for five screens in the market and remain in ongoing discussions with several exhibitors for additional screens. Moreover, our recently installed system with Odeon in Germany was the No. 1 performing theater in the country on its launch of Jurassic World.

On a same-store basis, four screens in Germany drove a 40% increase in box office the last quarter, a milestone that already facilitated more activity in the region. For example, on July 4th, we opened our second screen with Odeon in Germany, these early screen service reference theaters in the market, which enable us to install more theaters with more customers and drive incremental box office over time. Currently, we have seven screens in backlog in Germany and believe that number will grow, particularly given the strong performance of our current screens. Another market I would like to highlight is India.

As I mentioned on our last call, we have made meaningful progress in this market over the past 12 months. We currently have 16 screens installed, with additional 23 in backlog. As part of our strategy to increase our penetration in this market, we are remastering more Indian language films. For instance, we're launching our Bollywood film called Gold in August, and later in November, Thugs of Hindostan, starring global star, Aamir Khan, will hit IMAX screens during the important Diwali holiday.

Overall, we will continue to work more closely with local studios in an effort to broaden the content offering across our global network, which now spans 1,314 screens in 79 countries. Turning to China. As we've articulated on recent calls, growing box office and improving the productivity of our network is a key initiative of the company, and we're encouraged by our recent performance. One effort we made recently is to program more Chinese titles, particularly during the periods when there are multiple Chinese blockbusters to choose from.

For example, during Chinese New Year this year, we played three Chinese films, which collectively delivered $27 million to IMAX box office, a 75% increase compared to the prior year holiday period. More recently, during the first two weeks of July, we played three Chinese titles, which collectively drove $13 million in IMAX box office. And tomorrow, Detective Dee: The 4 Heavenly Kings and Hello Mr. Billionaire will debut in IMAX theaters across China.

We believe that providing more programming flexibility to our exhibitors will increase the box office generation of our theaters. Another initiative of the company is to work more closely with the key ticketing platforms in China. Given the majority of industry tickets are sold through one of the two major platforms, as we work to improve IMAX's positioning on these platforms, we believe we will be able to sell more IMAX tickets and expand our audience. Overall, these initiatives, coupled with the enhanced differentiation of IMAX with Laser and our broader brand campaign, should facilitate continued growth of the IMAX box office.

Overall, we're very encouraged by our strategic progress and financial performance over the last several quarters and look forward to continuing to grow the IMAX value proposition for all our stakeholders. With that, I'll turn it over to Greg.

Greg Foster -- Head of Entertainment

Thanks, Rich, and hi to all of you listening. The second quarter delivered $343 million of global IMAX box office, which was up 27% over the prior year period. On a regional basis, the domestic market was up 53%, Greater China was up 14%, and rest of the world was up 21%. Last quarter also marked our fifth consecutive period of quarterly box-office growth, which coincides with the programming refinements we implemented last year.

We also believe our box office growth has been bolstered by an increased focus on marketing the IMAX DNA of certain films. Our box-office performance last quarter also represented a diverse portfolio of films, from blockbuster action titles to animated family fare. A couple of notable films last quarter included Marvel Studios Avengers Infinity War, which was the first movie filmed entirely with IMAX cameras. The film has generated almost $145 million in IMAX theaters to date, including $43 million from China, our highest grossing title of all time in the market.

Another film I'd like to call out is Pixar's Incredibles 2, which generated more North American opening weekend box office than any other animated film in the company's history, and indexed at over 8% in IMAX, which is a very strong number for a family film. We released the film exclusively in 2D in our North American theaters, which, based on our market share, proved to be the right call. Looking ahead, we have several exciting titles hitting screens in the second half of this year. A couple to note: Opening tonight is Mission Impossible-Fallout, which premiered in a purpose-built IMAX theater in Paris earlier this month and has received fantastic reviews.

In October, we'll launch Universal's First Man, which chronicles the life of Neil Armstrong and was partially filmed with IMAX cameras. In addition to the prominent Hollywood content, we also have an exciting slate of local language titles in the coming months that include films from Hollywood, China, Bollywood and South Korea. It's worth highlighting that many local language films have cross-border appeal. For example, Dangal, an Indian title released last year, grossed over $260 million in markets outside of India.

Secret Superstar, another Bollywood title released last year, grossed $140 million in overseas markets. This August, Along with the Gods 2, a Korean film, will hit IMAX screens. It's expected to be one of the biggest films in Korea, given the first film was the highest grossing Korean film in years. Importantly, the first film was not only successful in Korea, where we currently have 18 screens, but it was also successful in other international markets such as Hong Kong and Taiwan.

I won't go through everything because we have so many promising films for 2019, but next year is shaping up quite nicely. For instance, the Lion King, which is garnering fantastic buzz, will contain several sequences in IMAX's exclusive aspect ratio. The next Avengers film, which comes out in the Spring of '19, was also filmed entirely with IMAX cameras. Wonder Woman 2, another highly anticipated film, has several key action sequences that were shot with IMAX cameras.

And when studios and filmmakers bring IMAX into their early production process, it helps distinguish the film, and in particular, the IMAX experience. Studios and talent also tend to highlight the IMAX DNA at premiers, film junkets and through IMAX-focused marketing content, particularly digital content, which builds consumer awareness and interest. As a result, we've consistently demonstrated that more box office is generated when IMAX cameras or our exclusive aspect ratio are part of the film's release. And most importantly, more and more filmmakers are including IMAX DNA into their pillar titles.

In the last 12 months, we've worked with 11 different directors and production teams, a number that we expect will only grow over time. Another opportunity for us is to introduce IMAX DNA into local language titles. For example, last month, Wanda announced plans to film Detective Chinatown 3 with IMAX cameras. For those that don't know, the prequel was a huge hit during the recent Chinese New Year holiday, generating $542 million of box office over its run.

If we can work more closely with directors in international markets, we believe we can increase our market share and become even more synonymous with local language blockbuster titles, which is similar to what we've achieved on the Hollywood front. We look forward to updating you on this progress in the future. All in all, there are a lot of exciting things happening in IMAX, and we look forward to the exciting portfolio of global blockbusters ahead. With that, I'll now turn the call over to Patrick.

Patrick McClymont -- Chief Financial Officer

Thank you, Greg, and good afternoon, everyone. Our financial performance in the second quarter benefited from a compelling slate of global blockbusters, continued network expansion, and our ongoing focus on containing costs. We believe these factors, coupled with the introduction of IMAX with Laser, the launch of our new brand campaign and the promising macro trends that Rich mentioned, should continue to improve the box office productivity of our network and facilitate earnings growth in the years ahead. Beginning with our network growth, which is outlined on Slide 3 of our earnings presentation, we signed agreements for 40 new theaters in the second quarter, broken out by deal type: nine were for sales type and 31 were full JV.

The majority of these were with existing partners. We are encouraged to see our largest partners and some of the biggest exhibitors in the world, continue to grow their IMAX footprint, which we view as the best validator of the differentiation and incrementalities that IMAX affords our exhibitor partners around the world. In addition to the 40 new theaters signings, we also signed agreements for 98 upgrades to IMAX with Laser, which was driven by our launch agreements with AMC and Regal. From an installation standpoint, we installed 30 new theaters in the second quarter, including nine sales-type leases, 19 full JVs and two hybrid JVs.

Turning to our financial results, which begin on Slide 4. Our strong box office and installation activity resulted in total revenues of $98 million, an increase of 12% compared to the second quarter of last year. Network business revenue of $61 million was up 28% over the same period last year. Theater business revenue of $31 million was slightly below the second quarter of last year as a result of our installing three fewer sales-type theaters in the most recent quarter.

Revenue from new business was $3.1 million and included a one-time payment related to our VR camera development from last year. In addition to our revenue growth, we achieved notable operating leverage in the quarter. Gross profit of $60.4 million was up 23% compared to the $49.4 million we generated last year. Our resulting gross margin in the second quarter was 61%, which was up roughly 500 basis points over last year.

In fact, our total gross margin last quarter was better than the previous 11 quarters, demonstrating the earnings power of our network, particularly during strong box office periods. Turning to operating expenses. SG&A, excluding stock-based compensation, was $26.4 million, roughly $4 million higher than last year as a result of normalizing our marketing spend, as we previously indicated on our last call. And additional expenses related to FX also played a role.

R&D of $3.9 million was down roughly $1.8 million compared to last year, reflecting lower spend as we finalized development of our IMAX with Laser technology. Net income on a GAAP basis was $7.6 million or $0.12 per share. This compares to a loss of $1.7 million or $0.03 per share in the second quarter of 2017. On an adjusted basis, net income of $19 million and EPS of $0.30 were up roughly 100%, respectively.

Adjusted EBITDA was $39.5 million, up 35% compared to Q2 of 2017. Adjusted EBITDA margins were up 560 basis points to 43.5%. Please note, included in the reconciliation to our adjusted earnings and adjusted EBITDA figures, is a one-time charge of $7.5 million, related to the conclusion of an arbitration that has been pending since 2006. We do not anticipate any recurring charges related to this matter.

In addition to our strong financial performance and strategic achievements, we also repurchased $33 million of stock at an average price of $22.01 per share in the second quarter and $46 million at an average price of $21.54 year to date. Furthermore, we entered into a new credit facility last quarter, expanding our borrowing power to $300 million from $200 million, while also reducing our interest rate. In addition to providing the company with enhanced flexibility, as we continue to pursue network expansion and share buybacks, we also used the facility to refinance our existing Playa Vista loan, which will lower our interest expense. Overall, we are pleased by the outcome of the new facility and the additional flexibility it provides the company.

Next, I would like to review our guidance for the third quarter as well as the remainder of the year. Please note, an outline of this guidance will be posted to the IR website at the conclusion of this call. We continue to expect to install roughly 180 systems this year, consisting of 155 new systems and 25 upgrades. Breaking out the new systems by deal type, we expect 55 STLs, 75 JVs and 25 hybrids.

For the third quarter, we expect to install roughly 40 new theater systems, consisting of 12 STLs, 20 JVs and eight hybrids. With regards to DMR expense, I'm pleased to note that we now expect total DMR expense to fall in the $38 million to $40 million range, which is down from our previous guidance of $40 million to $42 million. As mentioned on previous calls, further automating and refining our DMR process is a priority of the company, and we are pleased with the progress we've made on this front. With regard to new business, which primarily consists of our VR and home initiatives, we now expect a pre-tax loss of $4.5 million to $5.5 million.

This is down from our previous guidance of a loss of $7 million to $8 million. The reduction in new business spend reflects the one-time payment related to our VR camera and the closing of two VR centers. Regarding our VR and home theater ventures, in order to continue to focus on reducing costs from new business, we expect to reach a decision on these initiatives during the next few months. Moving on, total operating expenses, which consist of SG&A, excluding stock-based comp plus R&D, is expected to be flat compared to last year, which is unchanged from our guidance on the last call.

The balance of our guidance is consistent with what we laid out on our Q1 call in April. All in all, financial performance over the past several quarters helps demonstrate the inherent operating leverage that exists in our core business. Looking ahead, we believe studios increasing emphasis on global blockbusters, combined with our growing footprint of theaters and more disciplined approach to costs, will continue to increase the earnings power of our business long term. With that, I'll turn it over to the operator for questions.

Questions and Answers:

Operator

[Operator instructions] And our first question comes from the line of Eric Handler of MKM Partners. Please go ahead.

Eric Handler -- MKM Partners -- Analyst

Yes. Thank you very much and good afternoon. Two things. First, Rich, I'm curious, with the laser systems that you are installing, is this revenue enhancing for you guys that you are finding to -- can consumers, without seeing a side-by-side comparison, do you think that they can readily see the difference? And then secondly, can you talk a little bit about some of the marketing initiatives that you're going to be moving forward with?

Richard Gelfond -- Chief Executive Officer

Sure. So, I think, consumers will be able to tell the difference, Eric, I have no doubt about that. As a matter of fact, this is an aside, but I think we're going to do demos for some investors and analysts who might like to see it. There was a piece that was released by an online publication called Digital trends, which you should reference, which really goes on and on about how superior the IMAX Laser experience is to anything that this reporter had ever seen in terms of image quality.

So that's a more objective view. Also, I think, you have to look at the number of signings so far. I mean, it's incredible that our biggest clients in the United States. In Europe, Wanda has agreed to do a number of laser deals, have already signed on.

So I think the proof is in the pudding. Clearly, the exhibitors think so. We've also -- in the ones that have been out there so far, we've done some studies in terms of what the exhibitors feel about the operation and people's reactions and the results are all -- are incredibly positive about that. On the second thing was about the marketing initiative.

I mean, we're very excited about it, Eric. I think you'll be able to see a lot of it hopefully, as soon as it goes up tomorrow. It's always hard to describe something artistic. I think, you have to experience it, but our clients around the world overwhelmingly ask for significant assets and there are different pieces to this.

There's in theater, there's digital, there's ticket booth, there is ad paid advertising, templates. So there's a lot of things, and I don't want you to stick on this number but it's in order of magnitude and an estimate. But so far, our clients have told us about their plans and tied them to specific assets, where -- which equate to about $14 million in paid advertising on their part. And remember, we haven't even launched it yet.

So I think it's going to make a big difference. As I said, during my prepared remarks, I think one thing, when I look at the company's performance under my tenure that we could have done better was more creative, more dynamic marketing, and I think we nailed it this time.

Eric Handler -- MKM Partners -- Analyst

Thank you very much.

Operator

And we will go ahead with our next question from Eric Wold of B. Riley. Please go ahead.

Eric Wold -- B. Riley FBR, Inc. -- Analyst

Thanks. Good afternoon. Two questions on the same topic. I guess, one -- first one, maybe for Greg or for Rich.

I guess, there's been a lot of kind of stuff in the press around obviously, China and the tariff issues and the back and forth and how this can potentially impact Hollywood films imported in the region. I guess, one, what are your thoughts in terms of what could happen there from what you're hearing in the market. And if we get to, kind of a worst case scenario, where Hollywood content is impacted in that market, do you think the local language content released is strong enough there and would be received well enough on IMAX to support that for yourselves? And then, two, you talked a little bit about what you're trying to do in China in past couple of calls, including this one in terms of stabilizing that market. Where do you think you are in terms of getting to a stabilized PSA in China, kind of obviously, excluding normal slate fluctuations.

I guess, how much of that do you think is slate versus other factors keep you from getting China on the increase again? Thanks.

Richard Gelfond -- Chief Executive Officer

On the second one, first, Eric. I think, as you said, there are lots of variables, not only the slate but also the seasoning of theaters, when new ones are opening, when old ones are opening. I think, internally, we believe that overall, it's been stabilized. That doesn't mean it can't go down a little, it doesn't mean it can't go up a little, but we think the falls we've seen over the last couple of years have been addressed between the programming changes that we've done.

But we're in the process of doing a lot more. We're doing the new market global campaign there. We're introducing Laser in a lot of those markets. We're working with the ticketing services, and I wouldn't say we're comfortable with being stabilized.

The question for us is, how can we make it better and bring it back toward levels that it was in the past, and we are working on it. There are -- of course, there are external factors in any market that you can't control completely. But, I think, in general, we have a handle on the downside, and we're working toward realizing the upside. On the other part of your question about tariffs, I think, you have to separate it into two pieces with IMAX.

One is the hardware and the other is the films. On the hardware side, since IMAX is a Canadian corporation, there are no issues with tariffs, so that's not a risk related to IMAX. But I should add that one of the reasons we went public in China on the Hong Kong Stock Exchange was to mitigate some of those risks at a time when it didn't look like that was necessary. So you have to remember, we have a public company there, some state-owned enterprises, among others are shareholders there, and we feel, in a lot of ways, that protects us from some of the noise.

In terms of Hollywood films, I personally think that that's going to be low on the list of things for the Chinese to go after. And at IMAX, we have kind of an interesting take on it. It's been a great development for Hollywood to go into the Chinese market but it's also been a great development for China to have Hollywood in the market. And if you've noticed the -- kind of the theme of the Hollywood movies and the image of China has gotten better and better.

So whereas years ago, the Chinese might have been portrayed as the bad guy in the movie, or movies might have concentrated on some negative aspects of China, as a natural consequence of opening the market, that's turned around. And I think when you look at China's list of important things, keeping that relationship with Hollywood is going to be much more important than finding another area to put a little tariff on. So, I think, in this world, with the two leaders of those two countries, both being somewhat unpredictable, you never say never, but I think it's somewhat remote.

Eric Wold -- B. Riley FBR, Inc. -- Analyst

That's helpful around. Thanks, Rich.

Operator

Your next question comes from Vasily Karasyov of Cannonball Research. Go ahead.

Vasily Karasyov -- Cannonball Research

Thank you. Good afternoon. My question is about the box office trends. If you look at the international box -- IMAX box office ex China, it accelerated in Q2.

And Chinese box office, IMAX box office actually decelerated. So can you talk about what trends are driving such a big divergence? And what do you think -- what kind of, at least in terms of puts and takes in the remainder of the year we can see in China where you can get closer to the growth of the overall box office, which I think, if my math is right, is 20%-plus this year so far?

Greg Foster -- Head of Entertainment

So this is Greg. Two things. First of all, in the second quarter, I think it's really important note timing. Because of the World Cup, a lot of titles that opened in one territory might have opened in July or August in other territories.

So I think it's a little bit of an anomaly, and I wouldn't get too focus just on that three-month period because of that unique month in June. The other part, as it relates to China, which has a little something to do with the question that Eric asked earlier from Rich, we're going to ultimately err on the side of another title, meaning multiple titles versus sort of outsmarting ourselves and deciding that we can only pick one, and that's both for local language and Hollywood. So I think that's going to do significant -- that's going to cause significant benefits to us because we're going to cast a wider net. And the reason we're able to do that, when you look on the cost side, is because we've made the DMRing of titles significantly more efficient.

And it makes us more nimble, not only in terms of growth but also more nimble in terms of reducing our costs. So, I think, that's going to have a very positive effect, not only in China, but also in some of the other territories that we've talked about on the local language side because it's very clear that local language is a huge part of our programming initiative going forward.

Vasily Karasyov -- Cannonball Research

So you think in China, it's not unreasonable to expect an acceleration in IMAX box office in the remainder of the year compared to Q2 growth?

Greg Foster -- Head of Entertainment

I mean, I don't think that we should ever be in a position again of predicting a quarter by quarter. Obviously, Q3 tends to be higher in local language because it has the so-called blackout period. But it really, over time, feels like we're in a better place and actually, quite a good place. But you really can't predict quarter-to-quarter because that would be -- that's just not a productive thing to do.

Vasily Karasyov -- Cannonball Research

All right. Thank you very much.

Operator

Your next question will come from line of Jim Goss of Barrington Research. Please go ahead.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

I've got a couple. One, related to the AMC Stubs A-List subscription program. I was wondering, to the extent that a couple of views would be enough to more than offset that $20 price. How does that impact your revenue splits in those instances?

Richard Gelfond -- Chief Executive Officer

With the studios, they are unaffected on the outside of the equation. So we're paid off imputed ticket price. And with AMC, we have a formula, where we're protected on the downside, Jim. So it's only upside for us.

And there's kind of a make-whole. So if it ends up being less, they'll write us a check for the difference.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

OK. That's good to know from your standpoint. Another thing, with the promotional program, your brand campaign, are you expecting that that's going to have some uplift to PSAs in general in each of the markets? And do you have any initial objectives or longer-term objectives you think can play into that?

Richard Gelfond -- Chief Executive Officer

Well, certainly, the longer-term objective is to put butts in seats, firm our pricing proposition all around with studios and exhibitors and reinforce the IMAX difference for filmmakers and studios and everyone. It's primarily driven, though, by economics that we're going to make more money by doing this brand campaign. I don't think you should expect the next movie mission the day after we launch to change because of the brand campaign. But when you see it, which I hope you do, there are iconic aspects to it that are going to be reinforced through all aspects in the theater, on the screen on the advertising, and I think that takes a while as a chain to be reinforced.

But when it is reinforced, I do expect it to make a difference on PSAs and on overall box office.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

OK. And one final thing. Historically, it's been a little tougher for IMAX to participate in some of the seating changes that have taken place just because of the IMAX geometry, and the distance and the slope of the theater seating. But you've talked again today about trying to participate in that.

I'm just wondering what kind of solutions you are coming up with that might be compatible with the IMAX geometry?

Richard Gelfond -- Chief Executive Officer

Well, Jim, we've done a number of retrofits already and they are mostly plush rockers. So if you are not familiar with that, think of like, sort of a recliner that doesn't go all the way down and doesn't have a foot part to it. But at Lincoln Square, for example, and the large AMC theaters, we've retrofit four of them already. And...

Unknown Speaker

40.

Richard Gelfond -- Chief Executive Officer

No, four of the big ones, and we've retrofit 40 theaters overall already. So the slow open -- and our philosophy, we're not interested in the full recliners. We don't think that's the way audiences want to see the blockbusters in IMAX, and we also think capacity for blockbusters is very important to us, and we don't want to reduce that capacity. But we've been implementing the solution.

And as part of the AMC and Regal deals, largely at their expense, we are going to reseat and rebrand and create portals around these theaters. And again, tie in the three elements, the laser experience, which is an upgrade, the new branding campaign and the reseating branding in the theaters, and you'll understand why we think the differentiation will increase.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

OK. Thanks very much. Appreciate it.

Operator

[Operator instructions] And we'll go ahead with our next question with Mike Hickey of The Benchmark Company. Please go ahead.

Mike Hickey -- The Benchmark Company, LLC -- Analyst

Hey, guys, thanks for taking the questions and congrats on a strong quarter. I guess, the first question is on the slate. I guess this year we sort of know most of the blockbusters. But looking at next year, sort of the top 15 films in 2019, it seems that there's maybe a bit of a mix shift toward, call it, family/kid movies.

I'm sort of curious, if you think that's true, that creates maybe a difficult comparable for you next year compared to what we saw in '18. And I'll follow up.

Greg Foster -- Head of Entertainment

No. I don't think it's difficult at all. And I think that when you look at particularly, that those movies are some of the biggest franchises in the world, for instance, like the Lion King, and you compare it to how Disney does it versus seemingly, there are other obviously, very much at the top of the game, I don't think that's an issue because of our flexibility. We're going to play the biggest titles.

So I know there's Toy Story and there's Aladdin and there's Lion King and those are all movies. There's Frozen 2 and those are all movies that IMAX should be a part because any billion-dollar franchise, whatever it does, we want to be a part of it. At the same time, mixed throughout that year, movies like Wonder Woman 2 and movies like Episode 9 and plenty of obviously, Marvel titles, and we want to be a part of that too. So our goal, in the process, Rich talked about it often in the call is blockbusters.

If it's a blockbuster, if it's a family title, if it's a blockbuster, then that's a fan boy title, we want to be a part of all of them, and we think there's plenty of room in our network for all kinds as long as they're working for consumers.

Mike Hickey -- The Benchmark Company, LLC -- Analyst

OK, fair enough. Thank you for that. I guess the last question, which is, sort of three parts, you can give quick answers if you want. On the subscriber plan, thinking about the one that seems to stand out which is AMC Stubs A list, clearly early days, but I was just wondering if you had any visibility at this point what you're seeing in terms of any incremental lift in attendance and sales from that program.

And I'm curious, if you think that a program like this, a subscriber model for moviegoers, can scale to something greater than, or maybe equal to, what you've seen in Europe, which I think is 20% of the box. In the last question is, I guess, if so, if you can scale, when you look at the AMC plan, it looks like a big part of the value proposition is that you can see a movie in IMAX. I guess to your example, you can see a movie with a first-class ticket, like you would on a plane, which I think is a good analogy. If so, do you think that potentially increases your potential screen installations domestically, because I think despite AMC being the biggest partner, you still own 29% of their domestic footprint.

A lot of questions, but I appreciate it. Thank you.

Richard Gelfond -- Chief Executive Officer

Yes, they are, and I appreciate you giving me the option of answering them briefly. How is it going? It's -- with the caveat, it's very early, it's going well. I think, we and AMC are both pleased with the uptake. It's going well early on.

We don't have numbers yet but better than they expected. And I haven't seen the result in the numbers yet because it's too small, but anecdotally, talking to AMC, they told me more people are going to IMAX theaters. So the two key parts are positive for us. In terms of scalability of the European model, I do think it's scalable.

In Europe, there have been things like reserved seating for years and advance ticketing which just came to the U.S.. So the European model wouldn't have worked until you had things like that. The increase in online ticketing. And in fact, in Europe, I'm trying to remember, I think, Pathé has been doing it for around a decade, and I think Cineworld has been doing it for 15 years.

And the number you cited, it varies from chain to chain, but I've heard a lot of them say it's around 20%. You also have to look at the fact that Cineworld now owns Regal and AMC owns Odeon so there is joint ownership of those. So a lot of that history of how those programs work is institutionalized in North America. So I do think it's going to scale the same way it did in Europe.

And in terms of installations with AMC being affected, as you know, North America is the most penetrated market in the world. AMC recently doubled down on the IMAX business with their big laser upgrade deal. So I think if it works and there are zones available, AMC and others will take those zones. So again, I think you've got to combine it all in the context with the increased differentiation, where the consumer experience is going to be better in both sound and image, the branding is going to be better and the in-theater experience is going to be better.

So you put all of that together, I think, the demand for IMAX theaters will still be there.

Mike Hickey -- The Benchmark Company, LLC -- Analyst

Thanks, Rich. Good luck, guys.

Operator

And this concludes the Q&A section. I'd like to now turn the call over to Rich Gelfond for closing remarks.

Richard Gelfond -- Chief Executive Officer

So as you can hear, there are a lot of exciting developments under way. We just had something that equaled our strongest quarter ever in box office, but we are not sitting on our hands. We're not running around celebrating. We say, how do we use the momentum we have and how do we do more and make sure we get better and better and bring in more and more audiences.

Studios from China to Hollywood are emphasizing big blockbuster content, and we are kind of the company that capitalizes on that on the consumer end. IMAX with Laser further differentiates the IMAX experience. The brand campaign, innovative pricing programs, new markets, signing and installation activity such as Saudi Arabia, India and Germany. And lastly, we expect our continued focus on containing costs to increase the earnings power of our business long term.

So we appreciate you all joining the call, and we look forward to being back with you at the end of next quarter.

Operator

[Operator signoff]

Duration: 53 minutes

Call Participants:

Michael Mougias -- Vice President, Investor Relations

Richard Gelfond -- Chief Executive Officer

Greg Foster -- Head of Entertainment

Patrick McClymont -- Chief Financial Officer

Eric Handler -- MKM Partners -- Analyst

Eric Wold -- B. Riley FBR, Inc. -- Analyst

Vasily Karasyov -- Cannonball Research

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

Unknown Speaker

Mike Hickey -- The Benchmark Company, LLC -- Analyst

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