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Imax Corp  (NYSE:IMAX)
Q3 2018 Earnings Conference Call
Oct. 25, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the IMAX Corporation Third Quarter Earnings Conference Call. All participants are currently listening in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today's conference is being recorded.

At this time, I'd like to turn the conference over to, Head of Investor Relations, Mike Mougias. Please go ahead.

Michael Mougias -- Head of Investor Relations

Thanks, Brandon. Good morning, and thank you for joining us on today's third quarter 2018 earnings conference call. Joining me today is our CEO Rich Gelfond; our CFO, Patrick McClymont; and our Head of Entertainment, Greg Foster, who each have prepared remarks and will be available for Q&A. 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'd 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 morning's press release.

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

Richard Gelfond -- Chief Executive Officer

Thanks, Mike, and good morning, everyone. The positive momentum in our business from the first half of the year continued into the third quarter. Operating margins expanded for the third consecutive quarter, growing 670 basis points compared to last year. Our third quarter results benefited from strong box office in key markets such as China, where IMAX box office grew 31% versus last year and our ongoing focus on containing costs and demonstrating operating leverage.

Overall, we are pleased with the momentum we've seen in our business throughout 2018. Before we dive into the details of the quarter and some of our initiatives, I would like to discuss a few important strategic themes for our business. Particularly, the state of the blockbuster industry, the important strategic differentiators that set IMAX apart as the industry transforms and some of the key performance metrics that give us the confidence that IMAX is well positioned to capitalize on this transformation.

It's no secret that rapidly changing consumer habits are causing media companies to take a hard look at their businesses and how they adapt. The industry is evolving to a point where traditional streaming companies are increasingly getting into the blockbuster business and traditional studios are beginning to develop some streaming offerings. As much uncertainty as this convergence brings to many businesses in the industry, we have worked hard to position IMAX squarely at the intersection of this convergence with the unique opportunity to influence and benefited from it.

Our global network expands more than 1,400 screens, across nearly eight countries. We have partnered with over 200 exhibitors around the world and work with every major studio globally. Our ability to launch blockbuster content in a highly differentiated way across the global network uniquely positions us in the ecosystem, equally as important are our strong relationships with filmmakers and respect of the theatrical window, which position us well to help new content stand out within the theatrical window as competition intensifies.

The fact is, it's a cluttered, fragmented marketplace and consumers will continue to seek out differentiated premium experiences. Top filmmakers and talent are not content launching a new film exclusively in a streaming format. There is no premiere, no reviews, little social media reaction and ultimately no event surrounding the film's launch. Streaming platforms are increasingly recognizing the value that launching an important film via a global theatrical release can add through marketing, media and enhance word of mouth.

Importantly theatrical releases help monetize content beyond the theatrical window in areas such as video games, theme park rides, toys and other merchandise. Successful companies recognize that top tier, differentiated content deserves a premium and differentiated launch that only IMAX can deliver. With this in mind, we are in active discussions with key streaming services about creating strategic alliances as they develop their own content strategies.

At the end of the day, IMAX can motivate and excite people to go to theaters to experience compelling content. It's the incredible talent on screen. The big name directors behind the camera, the IMAX cameras or algorithms and the premium event inside blockbuster content that translates better than anything else on the biggest screens in the world.

IMAX is a key way to experience differentiated content as the world converges on a premium film experience. I would like to now turn to highlight some key performance metrics and strategic initiatives that further illustrate how we're positioning the Company to continue to capitalize on the shifting landscape. Through the first nine months of the year, IMAX's global box office is up 14% compared to last year. Compelling content coupled with our continued effort on containing costs and focus on our core business, helped drive a 132% increase and adjusted EPS through the first nine months compared to last year.

We also have recently benefited from subscription programs such as AMC's Stubs A-List, the program allows consumers to see up to three movies per week including IMAX for a fixed monthly fee of $20. AMC recently announced that they have over 400,000 subscribers, and given the customer's ability to see films at IMAX at no extra cost, the consumer and IMAX benefits are clear.

From a network growth standpoint, we continue to make progress in strategic growth markets, signing and installing screens in such key regions as India and Japan. Overall, we believe the factors contributing to our recent performance will continue to benefit the Company and our shareholders in 2019 and beyond. From film capture to our proprietary DMR process, to our best-in-class projection and sound technology, we strive to create, the best experiences across every facet of the blockbuster content value chain.

A recent example of how IMAX differentiates a film was evidenced by the recent launch of Universal's First Man. Key sequences were filmed with our cameras and could only be fully appreciated in IMAX. Importantly consumers overwhelmingly agree, given out 23% opening weekend indexing. We had additional success with IMAX DNA this year and titles including Avengers Infinity War and Black Panther, and look forward to the growing number of titles next year that are using our cameras, including the final of the Avengers series and Lion King.

Another component of our differentiated offering is our best-in-class technology. As we discussed on our last call, we successfully launched our cutting edge IMAX with Laser experience in April and it continues to elevate the IMAX experience compared to other movie going options, underscoring the industry's widespread adoption of the 200 plus signings from our exhibitor affiliates around the world of IMAX with Laser. We also continue to bring on new partners such as China Resources, one of the largest state-owned commercial real estate developers in China who signed an agreement for 14 new IMAX with Laser theaters last quarter.

You might also have seen that this quarter, we began to introduce our core technology into the home. In September, we announced IMAX Enhanced, our licensing partnership with the audio expert, Xperi, the parent company of DTS, which featured Sony and Sound United as hardware launch partners, a new certification program. This opportunity is exciting as that leverages our brands and core technology and serves as our first foray into the consumer electronics market through licensing. Televisions that are IMAX certified will come with an IMAX viewing mode, enhancing the quality of the in-home experience.

Additionally, in collaboration with our launch, studio partners, Sony Pictures and Paramount, we will be releasing IMAX remastered content, which has been optimized by IMAX for the device ecosystem. It is important to note that this initiative requires no IMAX capital investment, and virtually no ongoing OpEx, because it leverages our existing technology capabilities and leans heavily on our ongoing brand efforts, while profitable to IMAX on day one, we anticipate the initiative will become more meaningful over time as we introduce additional partners into the program. We are in active discussions with a number of potential partners and look forward to sharing updates in the coming months.

In conclusion, we are encouraged by our performance through the first nine months of 2018 where I mentioned earlier, EPS has more than doubled from '17. Looking ahead, we believe the evolving entertainment landscape coupled with increased differentiation through IMAX with Laser, more IMAX DNA and our strength in marketing initiative, which kicked off this summer will strategically position the Company to capitalize on the evolving entertainment landscape. At the same time, our ongoing focus on controlling costs and delivering operating leverage should continue to benefit IMAX and our shareholders into 2019 and beyond.

And finally, as many of you are aware, Greg will be exiting IMAX at the end of this year. I'd like to thank him for his tremendous contributions over his 18-year career in IMAX. His impact on the transformative growth of our business has been enormous and he played a pivotal role in building our highly successful film business. Greg will forever be part of the IMAX family and I thank him for his enormous dedication over the years.

Replacing Greg in the New Year is Megan Colligan, the formal Head -- former Head of Global Marketing and Distribution at Paramount. Megan brings extensive experience in media and entertainment and his deep industry relationships with studios, filmmakers, actors, and streaming companies. Megan has spearheaded the launch of major global box office of blockbusters such as Transformers and Mission Impossible franchises, and she has significant experience in China where Paramount was one of the most successful employers of content into that country. We're excited for her to join in February and look forward to her bringing a fresh perspective to IMAX.

With that, I'll turn the call over to Greg.

Greg Foster -- Chief Executive Officer of IMAX Entertainment

Thanks, Rich. Before I discuss our third quarter performance, I'd like to thank Rich, the IMAX team past and present and our shareholders for their continued support over the years. I believe this is the right time for me to start a new adventure and pass the baton to a new leader of IMAX Entertainment. I've known Megan for many years and believe she has a terrific choice to be the next Head of IMAX Entertainment. Her unique experience and fresh perspective would be valuable to IMAX in our next chapter.

Turning to our results, the third quarter, certainly exceeded our box office expectations. Titles including The Meg and Mission Impossible 6 help drive $206 million of third quarter IMAX box office. China in particular stood out last quarter. We generated $78 million of box office, which was up 31% compared to last year. It's also worth noting that we recently shipped the first IMAX cameras to China and we're hosting a filmmakers symposium to educate filmmakers on how to leverage IMAX cameras and the benefits from doing so. Just like we've done in Hollywood, we're strengthening our strategy of building closer relationships with filmmakers in China, so we can further differentiate the IMAX format, particularly for local language content.

On the topic of China, it's also worth mentioning that a number of Hollywood titles have been given official China release dates including Predator which comes out this Friday, Venom and Aquaman. In fact, Aquaman will open in China before any other markets. While only a few weeks into the quarter, we've been pleased with our box office performance. For example Venom exceeded everyone's expectations with an $80 million domestic opening where we indexed at nearly 11%. And just recently as Rich pointed out, we launched First Man were IMAX accounted for 23% of the opening weekend box office.

IMAX DNA is something we've spoken a lot about recently and seeing our results reiterate why this is such a big deal. Importantly, we are also seeing an increased number of top filmmakers who were -- who are approaching us to integrate IMAX at the early stages of the film production process. Our ability to differentiate content and present their film exactly as the director intended has afforded us valuable relationships that continue to grow stronger. We cannot announce all of the upcoming films that will feature IMAX DNA at this time. However, we are confident there will be several more films with IMAX DNA released over the next two years, and more than in any such period before.

Some IMAX DNA titles that I'm particularly excited about and can mention include The Lion King, the final Avengers film, Wonder Woman 1984 and Chinatown Detective 3, the first Chinese title to be filmed with IMAX cameras that will be released during Chinese New Year next year.

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 premieres, film junkets and through IMAX focused digital marketing 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. Again First Man being the most recent case in point. In addition to these attributes benefiting traditional studios, we believe our ability to differentiate and launch content on a global scale will benefit other entrants to the theatrical blockbuster space.

With that, I will turn the call over to Patrick.

Patrick McClymont -- Executive Vice President and Chief Financial Officer

Thanks, Greg and good morning, everyone. I'd like to start today by providing some additional detail about our recent network expansion activity and then cover our third quarter financial results and guidance for the remainder of the year. Overall, the message is clear, strong performance in the third quarter continues the momentum demonstrated by our business throughout 2018. Beginning with slide 3 of our earnings presentation, in the third quarter, we signed agreements for 25 new systems and 12 upgrades to IMAX with Laser. Our geographically diverse signings span markets such as China, Japan and France.

From an installation standpoint, we installed 36 new systems, last quarter, including 26 installs in China and theaters in key markets such as India and Western Europe. We also began rolling out our new IMAX with Laser experience. To-date, through October, we have nine commercial laser theaters in operation in several notable locations such as AMC Burbank in Los Angeles and Empire Time Square on 42nd street in New York.

Early feedback from the exhibitors and moviegoers is overwhelmingly positive. One specific region that I would like to provide some additional color on is China. Late last year, we made the strategic decision to remaster more Chinese content. Our 550 plus theater network spans nearly 200 cities, which requires us to take a detailed granular approach to the types of content we program in certain cities.

Two key changes we made include remastering more Chinese content during big holiday weekends, where the top title isn't obvious. And second, programming more Chinese language content in smaller cities where consumers seem to prefer local content. We're encouraged by the result and growth in the Chinese box office from these changes. Through the first nine months, our box office increased 18% in China compared to last year.

Moving along, I'd like to now review our financial results, which begin on slide 4. We delivered total revenue of $82.1 million in the quarter, compared to $98.8 million in the same period last year. Please note, our third quarter 2017 results reflect the Inhumans television series, which contributed $8.7 million of revenue in the quarter. Last year's results also reflect our installing four additional sales type systems compared to this year.

Looking at our revenue segments in more detail, network business revenue, which was driven by our $206 million of global box office came in at $36.7 million. Please note that strong performance of The Meg and Mission Impossible in China, which collectively contributed over $32 million of IMAX box office in the quarter. Recall we are in lower DMR fees in China on Hollywood titles.

Our theater sales and maintenance business contributed $40.7 million of revenue and reflects are installing 15 sales and six hybrid theaters last quarter. From a margin standpoint, we generated $42.2 million of gross profit last quarter which resulted in a 51.4% gross margin. Please note, year-over-year comparison of our gross margin is less relevant due to our investment in Inhumans in 2017. From a segment standpoint, network business margins were 61.4%. This is entirely a function of lower segment revenue as we held costs flat to the prior period. Theater sales and maintenance margins were 49.6%.

Turning to operating expenses, SG&A, excluding stock based compensation came in at $21.9 million, while R&D came in at $4 million. As we articulated on previous calls, we expect R&D to come down over the coming quarters as a result of our concluding development of the IMAX with Laser product. This will be partially offset by normalizing our marketing spend which was down last year as we did not have a CMO in place for the majority of the year. We continue to focus on controlling costs and demonstrating operating leverage as we have done throughout this year. I'd also like to note that our tax rate through the third quarter came in at 16% as a result of some reversals of uncertain tax positions in the quarter. For the full year, we continue to believe our effective tax rate is 24%.

Adjusted EBITDA for the quarter was $25.9 million producing adjusted EBITDA margins of 35.7%. Net income came in at $5 million or $0.08 per share, while adjusted net income was $9 million, which calculates to $0.14 per share. During the quarter, we also generated $6.9 million of free cash flow, bringing our free cash flow generation for the first nine months to $34.8 million.

I'd like to now review our fourth quarter guidance which will be posted on the IR website at the conclusion of this call. From an installation standpoint, we continue to anticipate installing roughly 155 new systems for the full year. For the fourth quarter, we expect to install approximately 21 sales-type, 11 hybrids and 41 full JV systems. We also expect to install 23 upgrades in the quarter. From a new business standpoint, we now anticipate our new business pre-tax expense for the full year to be $4 million to $5 million, which is slightly below our previous guidance of $4.5 million to $5.5 million.

This reduction reflects our continued scaleback of certain initiatives such as VR and the TCL JV combined with the benefit of the non-recurring expense in 2018, related to the VR camera.

Turning to DMR expenses, we now expect full year DMR cost of sales to fall in the $37 million to $38 million range. This is down from the $38 million to $40 million we guided to last quarter and is in line with 2017. This reduction largely reflects the progress we made on automating various aspects of our DMR process and our overarching efforts to reduce cost and create more efficiencies throughout the business. From an OpEx standpoint, we continue to expect total OpEx which includes SG&A, less stock based compensation plus R&D to be flat compared to last year. The balance of our guidance is unchanged from the last quarter.

Overall, our recent results helped demonstrate the inherent operating leverage that exists in our business and we're pleased with the momentum we have seen throughout 2018. Looking ahead, we believe studio and streaming companies increasing emphasis on blockbuster content combined with our growing footprint of theatres, increased differentiation and more disciplined approach to costs will continue to increase the earnings power of our business long term.

With that I will turn the call over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) The first question will come from Eric Handler with MKM Partners. Please go ahead with your question.

Eric Handler -- MKM Partners -- Analyst

Thank you very much. I think one for Patrick here. You guys are doing a really good job of reducing your DMR expenses and you mentioned several reasons why. So, as you look forward based on what you know now, is that $37 million to $38 million a year is that, can you expect that to stay flat in the next couple of years? And then secondly, you kept your install guidance the same, but third quarter was a little bit light for the installs relative to your prior guidance. Was there just some shifts? Or was there some other reasons why, installs came in a little different?

Patrick McClymont -- Executive Vice President and Chief Financial Officer

Sure. Thanks for the question, Eric. On the install guidance, it is just a shift, we've got a few of it split to the fourth quarter and we've got a very busy fourth quarter, but comfortable with the guidance there. On the DMR expenses, we're going for a budget process now and of course we'll give guidance for next year on our fourth quarter call. What I will say is we continue a lot of efforts to try to figure out ways to streamline the DMR process. I think it's really interesting, if you look at how many films we processed this year, this quarter at an year-to-date basis we're up year-over-year, yet our costs are staying flat.

So you can see that there's real efficiencies and there's more to come. So, I can't give you a specific thought now, but I do know that we're focused on this, and we do think there are opportunities continue to take those costs down.

Eric Handler -- MKM Partners -- Analyst

Great. Great. And thanks. Just one quick one for Rich. Rich, in China, as you do more of these local films, how are you seeing reception among Chinese moviegoers, particularly in, like the smaller markets to DMR-ing these titles.

Richard Gelfond -- Chief Executive Officer

Well, it's early Eric. So I hate to project trends, but you -- overall as you know our box office was up over 30% in the quarter. And the fact that we did multiple films clearly held our performance with the local language films. So optimistic about it, but we just started.

Eric Handler -- MKM Partners -- Analyst

Thank you very much.

Operator

Thank you for the question. The next question will come from Chad Beynon with Macquarie. Please go ahead with your question.

Chad Beynon -- Macquarie -- Analyst

Hi. Good morning. Thanks for taking my question, and congrats on the quarter. I wanted to start with capital allocation here, you recently entered into a new credit facility and have a lot of flexibility to repurchase shares. Stocks have been volatile. Patrick, maybe if you could just provide some color in terms of how you're thinking about this with all the other initiatives, just given the volatility in the stock market. Thanks.

Patrick McClymont -- Executive Vice President and Chief Financial Officer

Sure. On capital allocation, it continues to be what we communicated which is, the first use for our capital is investing in our growing network, where we see opportunities to produce attractive returns. We're going to end up adding something like 155 new theaters, 25 upgrades this year. So we continue to invest heavily in the network. So that's the first. The second is, when we've concluded that we have excess capital, then you've seen historically return that to shareholders. We have a $200 million authorization right now. We spent about $50 million against that, and when we see opportunities in the marketplace, we step in, so it's pretty straight forward and consistent with what we've communicated.

Chad Beynon -- Macquarie -- Analyst

Okay, great. Thanks. And then back on China, we've read that, there's been some new restrictions in the home market with Chinese TV content going less toward foreign directors and writers and actors, and that's more in the prime time. Could this actually be a positive for movie theater attendance in the market whereby if consumers want to experience what you're showing, and you know what Hollywood can bring to the country, they may actually have to go to the movie instead of watching it in their home. Any color on that? Thanks.

Richard Gelfond -- Chief Executive Officer

Yeah. The good news is we haven't seen any similar restrictions in the movie business, but whether the TV business has an effect on the movie business is very complicated. Obviously, there are so many factors. I wouldn't draw a direct correlation there. But as you know, I said it a minute ago, our box office was up very robust in the last quarter. And I don't know why, but I wouldn't identify that as one of the factors.

Chad Beynon -- Macquarie -- Analyst

Okay. Thank you very much.

Operator

Thank you for your question. (Operator Instructions) The next question will come from Alexia Quadrani with JP Morgan. Please go ahead with your question.

Alexia Quadrani -- JP Morgan -- Analyst

Hi. Thank you. Just a couple of questions. The first one, just on your commentary about shipping the IMAX cameras to China, I guess any timeline when you think that may translate into sort of a benefit that we can see. And then maybe any commentary about the local films like how we should think about China in the coming quarter? And then my follow-up question is just on the marketing initiative. I think, Rich, your commentary was well received. I guess, any thoughts about how much you will continue it and sort of -- what sort of benefit it's driving?

Greg Foster -- Chief Executive Officer of IMAX Entertainment

Hi. This is Greg. So, first of all, on the cameras, I think you're going to start to see it sooner rather than later. It really depends on the release dates, which we're not the driver of. That's more from the distributor. But there are two movies that we know of so far that are using IMAX cameras. One is a movie called 800 that Ye (ph) has made, and the other is the one the title talked about, which is Chinatown Detective 3.

Those movies will be coming out in the next 12 months or so. And there's several more that we're working on. With the cameras firmly planted in China, it makes it much easier. And again, through the filmmaker symposium, we're also going to begin to train a new generation of Chinese filmmakers to think about IMAX cameras and how to be a really realistic option, since it's physically there. So it's not going to be a rush in the next six months to a year, but you're going to start to slowly see it roll out, and I think it's going to be very beneficial.

Richard Gelfond -- Chief Executive Officer

In terms of the marketing plans, Alexia, they have two goals behind them. One is a general goal of increasing awareness of the brand over the long term. So when people wake up in the morning, rather than saying, oh, Avengers is in IMAX, let's see it in IMAX, they say, what's in IMAX that day, and then they seek that out. And that's a long term goal. And the short run is to influence box office, bust some (ph) seats.

And we're extremely data-driven. As you know, we were recently involved in First Man with extra marketing in a fairly big way, encouraged by Universal and integrated by Universal. While the results of the film generally were disappointing box office, as you know, we did over 20% indexing, was an extreme positive.

And we work with some of the ticketing agencies and some data services, and we'll have a very strong handle on actually how much our marketing move the needle in terms of driving people to IMAX. Our next kind of big film that we're going to focus on from a branding point of view is Aquaman, which actually opens early in China and then opens in the US near Christmas.

And again, we're going to use the iconic blue frame which we developed, and that will be the third different studio, which has agreed to let us do that. So just to put it in context, a year ago, our marketing with the studios said, and IMAX, in the tiny letters in the bottom of the poster. Now our marketing is integrated into the film with the IMAX frame and brand around it. So the early results have been positive. We're analyzing the data. And I think it's starting to work, but it'll have a more material effect going forward.

Alexia Quadrani -- JP Morgan -- Analyst

Okay. Thank you very much.

Operator

Thank you for your question. The next question will come from Steven Frankel with Dougherty. Please go ahead with your question.

Steven Frankel -- Dougherty -- Analyst

Hey, good morning. I wonder if we could revisit the DMR COGS subject for a minute. You have done a great job controlling those costs. But I do remember over the last couple of years, one of the pressure points had been the studios pushing you to put more marketing dollars to work. Is that still going on and your cost savings are enabling you to reduce overall COGS or has that pressure eased somewhat?

Patrick McClymont -- Executive Vice President and Chief Financial Officer

I don't think there's any change in that. We have displays deals in place with all the studios and most recently with Universal. So that gives us clarity not just on displays, but what our economic terms are. And I don't think it's changed meaningfully in the last year. So our efforts are really focused on making sure that we're controlling our cost and we're planning efficiencies in the system. And that's what you're seeing now. It's not really a change in the marketing side of things.

Steven Frankel -- Dougherty -- Analyst

Great. And can you give us any data points around the A-List and how that may have impacted your business this quarter?

Richard Gelfond -- Chief Executive Officer

Yeah, it's still small and early. So AMC has announced 400,000 subscribers. We have not seen the data, but we've discussed it with AMC. And my impression is that, it's a much higher percentage of A-List people go to IMAX movies than the regular AMC network to the magnitude of three times or something like that.

So the early indications are extremely positive, but the dollars are small. And also from talking with AMC, I think there's still odd momentum behind that program. We're in the early stages of it. Obviously, MoviePass' financial difficulties have made the AMC proposition even more attractive for people interested in that kind of product. So I think it's going to have a very positive effect over the long run, and it started to have one, but the dollars aren't meaningful yet.

Steven Frankel -- Dougherty -- Analyst

Great. And then you mentioned Japan. Could you just give us an update on how many theaters are open there today and what the backlog looks like?

Richard Gelfond -- Chief Executive Officer

Off hand, I don't really have the information. I think it's around 25. Mike is checking it. About 25 open. And I think there is 20-ish or something like that in backlog. I'm pretty sure, I'm in the ballpark.

Steven Frankel -- Dougherty -- Analyst

Okay, great. Thank you.

Operator

Thank you for your question. The next question will come from Eric Wold with B. Riley Incorporated.

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

Thank you, guys. Good morning. Thank you. So I guess kind of looking at the PSAs and looking at China, I guess obviously your PSAs may not be the, always the best metric to gauge strength in a market given everything that kind of goes into it. But it was good to see PSAs in China up for the first time in three years.

I guess knowing you guys are looking to do an increased use of hybrids and sales type leases in those markets where you pull out your capital, and so box office theoretically matters less for those locations than a full-fledged JV. Is there any way to kind of give us some sense of how the relative performance of the three install models in China or maybe even how same-store sales performing to where -- for kind of how it matters?

Richard Gelfond -- Chief Executive Officer

Eric, again reiterating what you said, as we segue away from the JVs, the PSAs are less relevant. And in fact, as we've said before, we're looking at return on investment. And virtually all of our network is profitable on a theater-by-theater basis, on an ROI basis.

I would say the mix is going well for us. When we talk about deals in progress, which we do monthly, we're skewing much more toward sales-type leases or toward hybrids. And that's being very well received. As you noted, PSAs were up. We started to look at same-store sales. And that's been in a positive direction, up a little bit in China this year. So we can't break it down in the buckets you want, or maybe afterwards Patrick can try and give you just more color on what you have it now. But generally, things are tracking positively.

Patrick McClymont -- Executive Vice President and Chief Financial Officer

Yeah. We don't disclose same-store sales basis, but it's positive for this year. And importantly, when you look at the China market overall, the -- our business is growing at a similar rate to the overall business and our network is growing there obviously, and the overall market is growing in terms of screens. And so we feel like we're in a position now where for our films, we're achieving the right market shares, we're headed in the right direction, and the business did stabilize quite a bit for the first nine months of this year.

Richard Gelfond -- Chief Executive Officer

Yeah. Just to clarify one of my last answers. There are 32 theaters open in Japan today and nine in backlog.

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

If you could, Patrick, clarify a statement you said. When you said same-store sales are positive for this year, were you talking about China specifically or globally or both?

Patrick McClymont -- Executive Vice President and Chief Financial Officer

I was answering your question on China.

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

Okay. And then on China, I know it may be a little wonky, because you've got (ph) September fiscal year versus your December, but they kind of saw the same thing where a number of expected theater installs in China were delayed. In the quarter, they came in below expectations. It's kind of like you experienced -- is that -- do you think it's kind of a one-quarter push-out due to some factor or do you think it's something that can continue in the next year, or kind of maybe what's behind some of the delays there?

Richard Gelfond -- Chief Executive Officer

Yeah. We don't have delays, Eric, to be clear. There were two installs that slipped from the third quarter to the fourth quarter, but we're right on budget for the year with China. Dolby has a very different issue, and they don't have brand awareness in China. We have 600 plus theaters in China plus a backlog in China. They have 26 open in China.

Our PSAs are practically double. They announced a deal with Wanda for 100 theaters that they were supposed to roll out in three years or four years. And they have 20 something rolled out. So basically Dolby has not worked as a business proposition in China. That's their problem. We don't have a problem. We have a huge network and our installs are on time.

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

Thanks, Rich. And then last two questions for Patrick. Just numbers -- or I guess numbers questions. One, what was the total number of films in Q3 that counted toward DMR costs? And then I know you're not giving 2019 guidance at this time, but assuming everything is kind of progressing as you planned on the new business that's now going to be $4 million to $5 million headwind this year, what would be kind of the max headwind you expect to see in 2019?

Patrick McClymont -- Executive Vice President and Chief Financial Officer

So on the second question, we'll answer that, on the fourth quarter call when we give guidance. Yeah, I think we've been very clear throughout this year that we're not looking for new business projects. We're keenly focused on the core business. And that will be our approach for next year as well. But in terms of a specific number, you're going to have to wait until we get to the fourth quarter call. And then in terms of the number of films, it was 23 in the quarter.

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

Perfect. Thanks, guys.

Operator

Thank you for your question. The next question will come from Vasily Karasyov with Cannonball Research. Please go ahead.

Vasily Karasyov -- Cannonball Research LLC -- Analyst

Thank you. I have one for Patrick, one for Greg. Patrick, can you comment please on the EBITDA to free cash flow conversion? I think through this first three quarters of this year, you had around 36%. Is that approximately what you see the business doing going forward, or some -- there are some puts and takes that would change that going forward? And I'll have one for Greg later.

Patrick McClymont -- Executive Vice President and Chief Financial Officer

Yeah. I think this nine months is probably getting closer to a proxy of what the free cash flow conversion will be for the core business, because we have meaningfully scaled back on the new business activities. There's still some spending. So I think it's a decent proxy, and we've got operating leverage in the network. And so, as we continue to focus on that, that flows through, you'll see even more free cash flow conversion.

Vasily Karasyov -- Cannonball Research LLC -- Analyst

All right. Thank you. And then I have a question about the genres and people's taste shifting. Do you guys see anything that would alarm you in terms of films that should be performing better and where you should be over-indexing like First Man or Solo and stuff like that? And then films like A Star Is Born doing better than expected where you would -- one would think that's not a typical IMAX title. Is there anything you see that you're closely watching and concerned about in that regard? Thank you.

Greg Foster -- Chief Executive Officer of IMAX Entertainment

So I think the punch line for that question is, should we be open to a wider variety of content? And the answer is yes. I think we can't limit what is an IMAX movie and what isn't. We're in the blockbuster business. There are certainly some movies that on paper and conceptually feel more aligned with the IMAX -- the DNA, if you will. But those movies don't perform. It's a move, point, it doesn't really matter.

So a movie that's supposed to be like an IMAX movie and is unsuccessful doesn't help us. So we're definitely going to be -- continue to focus on, what we'd call, fanboy type of titles. But we're also going to be much more open-minded, not only here but in China, what has to be the consumer taste. And consumer tastes are evolving and IMAX will need to evolve accordingly.

Vasily Karasyov -- Cannonball Research LLC -- Analyst

Okay. Thank you very much.

Operator

Thank you for the question. The next question will come from Jim Goss with Barrington Research. Please go ahead with your question.

Jim Goss -- Barrington Research -- Analyst

Good morning. Rich, I'm curious for a little more commentary on the streaming convergence thought. I'm wondering if you -- if a streaming company wanted to target a blockbuster type movie and involve you, if you're risking the pushback from exhibitor partners if you decided to launch a day and date, streamed version that would then later play at other channels.

Richard Gelfond -- Chief Executive Officer

So, Jim, the answer is quite simple. We wouldn't consider a day and date that would bypass the theatrical windows. So our discussions that we're having with the streaming services, and we've said, before we're talking to all of them mostly by answering our phones, we would not consider violating the theatrical windows. So that's not an issue for us.

Jim Goss -- Barrington Research -- Analyst

Okay. Perfect. And Greg, I'm wondering in terms of the discussion we've had over the years about hedging against a wrong bet, I'm wondering what has pleased you so far in terms of progress such as screen splitting and limiting number of weeks per title, and what still needs to be done. And you might have touched on it a little bit with being open to a wider variety of content. But what -- where does it go from here in your view?

Greg Foster -- Chief Executive Officer of IMAX Entertainment

So I think screen sharing is something that's going to become much more of a reality. When you look, for instance, in August and you see what happened with The Meg and Mission Impossible, where we were playing both titles at the same time, that ended up being one plus one equals two. Nobody expected The Meg to do quite as well as it did. And then -- so we ended up shifting to being more like two-thirds for that and one-third for Mission Impossible, which was hugely successful for us.

So I think going forward, there are going to be some periods of time -- most periods of time with IMAX where we're going to ostensibly play one movie. But when there are two good movies coming out at a specific time, we again have to be flexible to be able to kind of pivot, not only pivot in terms of having a second movie but what the balance or ratio is of the show schedule to one move to the next.

So, for instance, I think it's a really good opportunity to play a family oriented movie during the day and a quote, fanboy kind of movie at night. And I think going forward you'll see IMAX do more of that, and it's the right strategy.

Jim Goss -- Barrington Research -- Analyst

And you've seen greater receptivity on the part of the studios for your channeling those decisions?

Greg Foster -- Chief Executive Officer of IMAX Entertainment

Certainly not with every movie. We're not going to do that with a Marvel kind of title. It wouldn't make sense to do it. But when it's the right reasonable decision, yes, we are.

Jim Goss -- Barrington Research -- Analyst

Okay. Great. Thank you very much.

Operator

Thank you. That concludes the Q&A. I'll turn the call back over to Rich Gelfond for closing remarks.

Richard Gelfond -- Chief Executive Officer

Thank you, operator. So I'd like to use the occasion to look back a year where we were a year ago versus where we are today. So a year ago, our stock price was virtually identical to where it is today. Today, we increased EPS by 132% for the first nine months over where we were first nine months, a year ago. We've continued our cost reduction initiative and demonstrated significant operating leverage with a great jump in margins.

Our box office is extremely strong, considerably stronger than our budget. China has stabilized and in some ways turned, whereas -- I mentioned same-store sales were up in China. PVOD is no longer an overhang on the industry as it was a year ago. And we have over 200 signings for the year, which is more than we had last year, including our upgrades.

We have growth markets in Japan and India where each market has over 40 theaters, including the backlog, and a long, long runway to go. So we think from our point of view, we've really delivered on what we've said we're going to do over the last year and continue to do that. And we thank you for your continued support.

Operator

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect your lines.

Duration: 47 minutes

Call participants:

Michael Mougias -- Head of Investor Relations

Richard Gelfond -- Chief Executive Officer

Greg Foster -- Chief Executive Officer of IMAX Entertainment

Patrick McClymont -- Executive Vice President and Chief Financial Officer

Eric Handler -- MKM Partners -- Analyst

Chad Beynon -- Macquarie -- Analyst

Alexia Quadrani -- JP Morgan -- Analyst

Steven Frankel -- Dougherty -- Analyst

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

Vasily Karasyov -- Cannonball Research LLC -- Analyst

Jim Goss -- Barrington Research -- Analyst

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