Imax Corp (IMAX) Q4 2020 Earnings Call Transcript

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Imax Corp (IMAX 0.12%)
Q4 2020 Earnings Call
Mar 4, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the IMAX Corp Full Year 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brett Harriss. Please go ahead.

Brett Harriss -- Investor Relations

Thank you, and good afternoon, everyone, and thank you for joining us on today's fourth quarter earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; and Patrick McClymont, Chief Financial Officer; Megan Colligan, President of IMAX Entertainment; and Rob Lister, Chief Legal Officer, are also joining us today.

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 fourth quarter earnings press release and the slide presentation have been posted on the Investor Relations section of our website. At the conclusion of this call, our historical excel model will be posted on the website as well.

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 in 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 earnings, results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.

During today's call, references may be made to certain non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures as well as reconciliations to non-GAAP financial measures, including 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 turn the call over to Mr. Rich Gelfond. Rich?

Richard L. Gelfond -- Chief Executive Officer

Thank you, Brett, and good afternoon, everyone, and thanks for joining us today. As we saw with last month's record Chinese New Year, the impressive rebound our business in Asia offers an encouraging sign of pent-up demand for the IMAX experience around the world. This success is reflected in the results we share today, which demonstrate IMAX's continued strides toward post-COVID recovery and with our excellent strategic position. We believe IMAX is well positioned to help lead the recovery of the global entertainment industry.

We continue to see that where the virus is under control and people seem to say, audiences are returning to theaters. As they do, IMAX often outperforms the industry. Our fans are the most engaged and passionate moviegoers and have come back to the theaters first. Audiences want the biggest and best experience they can get as lockdowns ease and IMAX represents the pinnacle of immersive entertainment. And finally, while continued delays in the Hollywood slate, push out our recovery curve a bit, these delays have yielded what we believe is an unprecedented pipeline of IMAX friendly blockbusters that will fuel our recovery in the second half of the year.

There's no question that pandemic created challenges to our business, and it also revealed the unique advantages of our business model, disciplined financial management and a superior balance sheet, a flexible asset like business model with a low fixed cost base, a global diversified network and content portfolio, long-standing partners that continue to choose to grow with IMAX and see our technology as vital to their recovery efforts, and a nimble organization and creative workforce. I am proud of how efficiently our teammates have been able to adapt to an industry that seems to change on an almost weekly basis. With that in mind, I'll provide an update this afternoon with our performance at the global box office, and how it signals strong pent-up demand for the IMAX experience, our successful efforts to grow and reopen our theater network, and finally, a quick look at our financial results, which demonstrate our superior business model and continued momentum.

First, looking at the global box office, Asia continues to lead the way with its stronger-than-expected rebound, a clear sign that audiences are eager to get out of their homes and enjoy the communal, immersive experience that IMAX provides. Most recently, last month, Chinese New Year, opening weekend blew away our expectations. While we hope for business to meet a record breaking performance in 2019, the strong Detective Chinatown 3 results drove our opening weekend box office up 45% from 2019 record levels. For the entire holiday period, the industry earned a total of $1.2 billion in box office, up 32% over 2019. Overall, China emerged as the number one box office market in the world in 2020 and eight films have crossed RMB1 million or $150 million at the Chinese box office, including the highest grossing film of 2020, The Eight Hundred, the first Asian film shot entirely with IMAX cameras.

IMAX Technology has helped lead the way. This is the result of our multi-year strategy to build our brand and deeply advance our technology in the Chinese economic entertainment system. 2020 marked our second best year ever in China for local language box office beyond only our record breaking 2019, which is remarkable given theaters were closed for more than half of the year. Our average daily box office in China recovered to approximately 80% of second half 2019 levels, despite a continued 75% capacity limitation in Chinese theaters and an almost complete lack of new Hollywood blockbuster releases.

The national holiday in October of 2020 saw impressive growth with IMAX's box office increasing 23% year-over-year. In December alone, our Chinese box office was up 28% year-over-year, easily topping 2019 results that included Hollywood franchises like Star Wars and Jumanji. We set a record over New Year with our box office tripling over the prior year on the performance of Shock Wave 2. Furthermore, we are seeing clear evidence of a continued shift of premium in Chinese box office results. As audiences emerge from lockdown, they want a premium experience when returning out-of-home events, and the IMAX experience and the IMAX brand provide.

In the second half of 2020, our market share for all films in the country grew from 2.8% to 3.6%, despite IMAX accounting for only 1% of the screens. With the Chinese blockbuster, Shock Wave 2, for instance, IMAX delivered approximately 12% of the overall box office, even topping 20% of the overall box office on some weekends, despite as I just noted accounting for only about 1% of the screens. Because of these excellent results, IMAX China is able to maintain the dividend in 2020 and we'll raise this dividend payout ratio going forward from 33% to 50% of net income. This underscores our confidence in the business, pent-up demand for moviegoing, the continued recovery of the entertainment industry, and the future cash flow generation ability of our network in China.

We've also seen record breaking results in Japan and a very strong market in South Korea. In Japan, the local animated blockbuster Demon Slayer now stands as the highest grossing IMAX film of all time in that country with more than $27 million in IMAX box office. Globally, it was second to only Christopher Nolan's Tenet in terms of IMAX box office for the year. On the heels of its massive debut, we announced a slate deal with the film distributor, Toho Pictures, our first slate deal with a distributor outside of Hollywood. Our next film with Toho, the highly anticipated Shin Evangelion, is expected in theaters next week.

Demon Slayer also performed remarkably well in South Korea, where IMAX earned 20% of the over overall opening weekend box office on just 17 screens, the biggest IMAX opening for an animated film ever in South Korea. The South Korean box office overall has rebounded nicely beginning with the July release of the blockbuster Peninsula, which we played across 26 primarily Asian markets.

The strength of the rebound in Asia bodes well for a similar comeback across the world, particularly in light of the strong Hollywood slate that lies ahead. The first month of the year saw some significant, but not unexpected shifts in release dates, including today's announcement that Fast & Furious 9 will move from Memorial Day in May to June 25. This supports our belief that will indeed be a summer blockbuster season this year. At the same time, the key players in Hollywood continue to affirm their strong commitment to the theatrical window. It's become clear that we won't see a one-size-fits-all approach in what we're doing.

Disney is varying its approach from title to title, but it's emphasized that its flywheel relies on the value of theatrical and building franchise intellectual property. Paramount is implementing an exclusive 30 to 45 gate window for its famous blockbusters, including Top Gun: Maverick, Mission: Impossible 7 and A Quiet Place Part II, all IMAX releases. And we believe Warner will announce a more exhibitor friendly release strategy for its 2022 slate. The one constant though is that IMAX will become even more important to studios, filmmakers and talent as a critical driver of box office in a world of shortened windows, with our premium ticket prices, the prestige of our brand, tends -- lends itself to blockbuster releases and our ability to [Indecipherable] movies distinguishing them from others in a crowded marketplace. And as such, we've heard from many of the biggest names in Hollywood in recent weeks about how they can work more closely with IMAX.

We see positive signs outside of Hollywood as well. We're pleased that Governor Cuomo announced that New York theaters would reopen in early March. As the largest market in the US, this represents an important step in reopening the domestic exhibition industry and removes one of the major obstacles to Hollywood releases, and we look forward to those three openings starting tomorrow.

Vaccine distribution is clearly picking up in the United States with the Biden administration securing 200 million new doses. I'm predicting that virtually everyone who wants one will have access to the vaccine by May. Today, more than 70 million people in the US have received their first shot. The daily vaccination rate is approaching two million a day, all without the benefit of the recently approved one dose vaccine from Johnson & Johnson. We believe the world will feel very different in a few months.

In light of this progress, we continue to see much promise in the second half of the year, but actually it's for many of Hollywood's most bankable and IMAX-friendly franchises, including multiple Marvel films, the James Bond movie, Fast & Furious, Top Gun: Maverick, Mission: Impossible and Dune. And once the virus is under control, we remain confident based on our experience in Asia that audiences are eager to get out of the home to return to the movies and to seek out premium experiences. IMAX remains in an excellent position to benefit from this pent-up demand, gain market share and return quickly to profitability.

Looking at our network, we also see signs of demand for the IMAX experience among our exhibition partners as we delivered significant new system signings and installations in 2020. For the full year, we signed agreements for 65 IMAX systems and installed 71 new IMAX systems globally, including 33 in the fourth quarter. And our backlog remained remarkably stable, ending the year at 527 compared to 531 at the end of 2019. Given pandemic-related theater closures and related financial pressure on operators, this is clear proof of our partners' commitment to the IMAX experience and a positive indication that exhibitors see IMAX technology as a must have offering and a value driver for audiences.

It was also a remarkable logistical feat. Given the challenges of technical operations and travel in the middle of the pandemic that we were able to install this many systems. As of now, 1,077 or approximately 70% of our global network is open. With encouraging signs with the box office and throughout our network, IMAX continues to drive consistent financial improvement. IMAX is a unique entertainment technology business, and our financial results reflect our superior differentiated business model. We've driven strong sequential improvement across virtually every key metric since we first felt the global impact of the pandemic in Q2. That includes revenue, box office, EBITDA and free cash flow with IMAX achieving positive EBITDA and cash flow in Q4 for the first time since Q1 of 2020.

Notably, we achieved these results with only a portion of our network generating significant revenue without the major Hollywood releases that have historically driven our box office and many of our present partners under substantial financial pressure. Despite these headwinds, both our technology network and technology sales and maintenance revenue improved sequentially, contributing to positive EBITDA and free cash flow. In short, both our audiences and our exhibition partners continued to demand IMAX. We closed the year with a cash position of $317 million, up from $305 million at the end of the third quarter. In Q1 of this quarter, we sold our stake through IMAX China in Maoyan for $17 million, which was a 16% return, which will further strengthen our already solid liquidity position. We're also encouraged by the steps some of our biggest exhibition partners have taken to shore up their financial positions. Most notably, AMC, which completed a capital raise at the end of January to significantly mitigate its risks.

To conclude, we're very encouraged by the signs that we're seeing in the global marketplace, particularly at the Asian box office from our record-breaking Chinese New Year to the monster blockbuster performance of Japan's Demon Slayer, we have seen proof positive that global audiences are craving blockbuster entertainment and a return time when the virus is under control and people feel safe audiences are returning to theaters and our passionate IMAX fans are the first among them. As they do, IMAX is uniquely positioned to benefit as the only geographically diversified global platform for blockbuster entertainment. The IMAX experience has seen strong growing demand around the world, and we have a formidable pipeline of content ahead. The table is set for IMAX to grow our momentum and affirm our standing as one of the world's premier entertainment experiences.

We look forward to building on the unique privileged position we've established through the entertainment ecosystem, driving new OpEx means for growth and creating value for our shareholders. Thanks again for joining us today. And please continue to do everything you can to stay safe and healthy. With that, I'll turn it over to Patrick.

Patrick McClymont -- Chief Financial Officer

Thanks, Rich, and good afternoon, everyone. I'd like to start by thanking all of our IMAX teammates for their efforts during these difficult times. Today, I'm pleased to report solid financial results that reflect substantial pent-up demand for moviegoing and the company's differentiated asset-light business model. As Rich mentioned, we posted another quarter of sequential improvement across the company's key financial metrics.

Our gross box office, revenue, adjusted EBITDA and free cash flow all improved over the previous quarter. We reported our first positive adjusted EBITDA quarter since the pandemic began and generated modest free cash flow. We ended the quarter with $317 million of cash and $306 million of debt, $88 million of cash was held at IMAX China and $229 million at IMAX Corp. We generated $6 million in free cash flow this quarter, exceeding our guidance of approximately breakeven. This marks the third straight quarter of sequential cash flow improvement.

In Q1, we sold our stake in Maoyan with net proceeds of approximately $17 million, which will benefit Q1 cash flow and further strengthen our balance sheet. Before I jump to the details, I would like to touch on our earnings. Our technology network results were driven primarily by local language titles in China and Japan as well -- as Hollywood continues to delay the release of major 10 full titles that typically drive our box office. Because of this, our network in Asia, most notably China and Japan, generate the majority of our box office. Our technology sales and maintenance revenue was driven by sustained, albeit lower installation activity as our theatrical partners continued to invest in IMAX.

IMAX was able to reach approximate free cash flow breakeven given these constraints because we are a substantially different type of entertainment business. We are an asset-light licensing business. As you saw at the beginning of the pandemic, our zero revenue cash burn was quite modest at approximately $10 million per month. We were then able to quickly reach breakeven as revenue returns, given our high incremental margins and limited reopening costs. We are also geographically diversified, both in the location of our network and source of our content. While theaters in the US and Europe remain effectively closed, our network in China, Japan, Korea and other markets reopened quickly, with Hollywood delaying the release of titles, IMAX is able to leverage relationships with non-Hollywood studios to deliver local language titles with IMAX DNA, and grow our non-Hollywood market share.

Additionally, in our open markets, we saw ongoing new theater signings and installation activity, which ramped up during the fourth quarter and contributed to the recovery of revenue and earnings. It is very encouraging that our clients are choosing to continue to make IMAX a cornerstone of their long-term growth plans. As I discuss our fourth quarter results, please remember year-over-year results reflect the partial closure of our network during 2020.

Total revenue in the fourth quarter was $56 million. The IMAX Technology Sales and Maintenance segment reported revenue of $36.4 million, down 53% and gross margin of $13.6 million versus $39.5 million of gross margin in the previous year period. The decline in revenue and gross margin was driven by lower installation activity in the quarter. We installed 14 STLs versus 26 in Q4 of 2019 and two hybrid systems versus seven in the prior period. While installations were below 2019 levels, we are pleased to report meaningful installation activity with our partners which speak well to the value of the IMAX brand that our partners continue to choose to grow with IMAX. Maintenance revenue of $8.8 million declined from $13.3 million in the prior year period, which increased sequentially as theaters opened through Q4.

The IMAX Technology Network generated $7.3 million of gross margin with revenue down 59% to $17.7 million. Again, our network results were driven by the partial reopening of theaters in China and other markets in Asia. Our top performing titles in the quarter were local language films, Demon Slayer, Jiang Ziya: Legend of Deification and My People My Homeland. Hollywood films Tenet and Wonder Woman also contributed to results. The performance of local language titles benefiting from our efforts to partner with filmmakers and studios outside of the US

Moving to costs SG&A, excluding stock-based compensation of $19.9 million declined from the $28.8 million of expense recorded in the fourth quarter of 2019. The SG&A benefited from the cost actions we took at the beginning of pandemic as well as a $1.9 million benefit from government subsidies associated with COVID-19 relief, $1.4 million of which was allocated to SG&A. $5.7 million of costs normally allocated to cost of goods sold remained in SG&A this quarter due to reduced business activity. Adjusted EBITDA for the quarter was $10 million, down from $47 million in the previous year. We're very pleased to report positive EBITDA in the operating constraints and limited content available on our network.

Net loss attributable to common shareholders for the quarter was $21.2 million or a loss of $0.36 per share. Our fourth quarter results reflect the unique accounting items I would like to mention. Our noncash charges include a $4.9 million writedown of our deferred tax assets, a $3 million acquisition for expected credit losses associated with our theater and international studio partners and a $2.9 million inventory writedown. We also recorded a $4.1 million charge associated with the final judgment in the legal matter.

As Rich mentioned, IMAX China increased its target dividend payout ratio to 50% of net income. This reflects our underlying confidence that the strong recovery in box office seen in China can be sustained well into the future. As a reminder, IMAX Corporation owns 70% of IMAX China and will be a direct beneficiary of the increased dividend. To wrap up, as the pace of vaccination is increasing around the world, and we rapidly approach the full reopening of our economies and our lives, we firmly believe IMAX is well positioned to bounce back quickly.

Our experience in China and other markets give us confident that consumers will return to IMAX theaters post-pandemic. Our key financial metrics are all improving. Our balance sheet and asset-light business model gives us the flexibility to ramp up quickly and effectively. And there is a highly constant slate of IMAX friendly titles waiting to be released. In short, IMAX remains well positioned to immediately benefit on the reopening theaters in 2021 and driving post-pandemic entertainment ecosystem.

With that, I'll turn the call back over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. We'll take our first question from Eric Handler with MKM Partners. Please go ahead.

Eric Handler -- MKM Partners -- Analyst

Thank you very much and good afternoon. Rich, I was wondering if you could just sort of give us a few parameters to think about for 2021, it still stand now, any idea what the cadence of installs may look like or at least how are things shaping up for the first quarter and maybe the first half year, whatever you can give us with that.

And then secondly, now that fourth quarter, your positive cash flow situation, things look like they're getting a lot better for the industry, but said we're going to have a bunch of blockbuster this summer in the back half of this year. As the industry reopens, how are you thinking about using your free cash flow, where could it be invested to maybe accelerate some of the business initiatives? How are you thinking about the reopening? Is there an opportunity for IMAX to expand its presence?

Richard L. Gelfond -- Chief Executive Officer

Okay. I'm going to start with the second one and then I'm going to pass it to Patrick to talk about install cadence. So, where are we going to use our free cash flow. I mean I think the first part is, we still have an outstanding revolver. And I think you know we've been -- we've been incredibly nimble and adapt in getting through this situation. But I think we're not going to run out and take whatever cash we're generating, we spend a lot of money on a lot of these things. I think we like to just be opportunistic and I think where we'll focus that, is going to be on some new initiatives that we've been working on during the pandemic of kind of, we've been very busy during that period of time, I may be a little bit vague, because we'll announce it over the next couple of months.

But we've had some pretty good developments in IMAX Enhanced, and we are working on a number of things, that I think are building there that we'll see concept fruition. And we've been working on a direct-to-consumer strategy, which includes an app and some other things. So, as you know, our block model is historically a PAV model and by going direct-to-consumer, we feel we can best do better marketing and increase the IMAX penetration on a global basis.

I think we'll look at other initiatives, we haven't talked about yet. Over time consume a lot of cash with some cash that we've been very excited about that. We've working on during this period of time. And we still have a lot of, as Patrick said during his presentation, we still have over 500 theaters in backlog and then our joint venture as I think we'll continue to invest in our network and our growth and I think we've had very positive returns on that.

So, I'll pass it to Patrick to answer that if he chooses. But also to talk about the install cadence.

Patrick McClymont -- Chief Financial Officer

Note made on that front, install, the cadence will be we think where it typically is and even in 2020 then not being a similar cadence works relatively modest activity in the first two quarters, ramps up in third and peaks in the fourth quarter. That's the nature of how our partners think, we think about our theaters, so that drives our seasonality there.

So far this year, we've had kind of a handful of theaters in the first quarter that installed, that's typically what happens, where things need to get opened in advance of the New Year holiday in China. And so we've had that this year, just like any other year and would expect to unfold in a similar pattern. The big question is, where do we end up and that's still hard to predict. We are not going to get back to where we were in 2018-2019 kind of year, but that does not appear to be in the cards. And we think we should be above where we were in 2020, but it's really hard to give any specifics on that, because we're still working with our partners.

Eric Handler -- MKM Partners -- Analyst

Thank you very much.

Operator

We'll take our next question from Alexia Quadrani with JPMorgan. Please go ahead.

Alexia Quadrani -- JPMorgan -- Analyst

Thank you very much. Rich, we heard from several studio executives this week talk about their commitment to the theaters. But they also mentioned the windows will look different coming out of this crisis, than it was previously. And I'm wondering, you've got such great prospective of the industry having worked in that for so long, I'm wondering what you think about the potential for a change in consumer behavior, with shorter windows something like Paramount is talking about Universal's deal, will consumers wait?

And my second question is more on IMAX's ability to potentially, really clearly continue to gain a notable market share, just given the natural skew toward more premium experiences rather than just seeing content at home and will that -- will that -- will that demand for premium experiences continue to hold in order to just sort of a, which is get out of our house and we're excited to go back outside, if you can get to more sustainable demand?

Richard L. Gelfond -- Chief Executive Officer

So, I'm going to collapse both questions in a way, and if I don't fully answer, please follow up, Alexia. Which is, I think there is no question in my mind that consumer behavior is not going to change in a material way and we don't need to run -- take on a weekly Board to figure that out and we -- as we talked about, mostly in our script, we've seen consumer behavior in countries that are open and safe and if anything, they're more rather to go the movies and there was a quote, a little while ago from JJA we said it was going to be the rolling 20s [Phonetic] were partly because of the Spanish flu and I really do believe that I think people have been home on their couches for too long already and I think when they can go out, they really do not want to go out and the people I know who've gotten vaccinated already, they're out and traveling. I just think this is going to be a lot of pent-up demand.

In terms of -- so about consumer behavior, yes, they're sitting at home and streaming a lot, but they're not allowed to leave their houses. So it's a fairly biased sample at this point. I mean people have kitchens in their houses but in a normal time, they go to restaurants. Right now, they can't go to movie theaters. So they consume a lot online, and that makes a lot of sense to me. But when they can go out, they will go out.

In terms of the changes in windows, I think IMAX is actually going to benefit from that. And I think the reason is because more of the value proposition is going to go to the back end of the release. So when windows were static at 90 days and electronic sell-through and television and this and that. I think IMAX was important, but where if you are a company that owns a streaming service as well as the studio, you want to figure out a way to create the biggest possible profit overall for that property. And there's been studies done over years that show people who see a movie in IMAX like it better. They rate it higher, the brand association as well as the experience make it more valuable. So I think as windows get shorter, studios and talent are going to be more focused on how to create an event around their movies and how to make their movies stand out from the clutter and be really special.

And we started to see some of that already. So over the last couple of months since windows have moved around, a lot of talent, directors have been in touch with IMAX and sort of said, how do we get more IMAX into our movie? How do we do more trailers? How do we do more premiums? How do we get a release? So I think -- and then the final point I would make, I think the certainty, even though it's not completely certain, but sort of the general view now that windows for blockbusters is going to be around 30 to 45 days, the ones we do, I tend to think closer to 45 days, and we play them for only two weeks. So I don't think those windowing patterns are going to change people going to IMAX. But I think certainty around that is a good thing. I think the uncertainty of windows has been a cloud over the exhibition business for a long time. And I think the certainty coming out is going to be beneficial.

Alexia Quadrani -- JPMorgan -- Analyst

Thank you very much.

Operator

We'll take our next question from Mike Hickey with Benchmark. Please go ahead.

Mike Hickey -- Benchmark -- Analyst

Hey, Rich, Patrick, Brett, hopefully, you guys are good. Great quarter and nice to see the cash flow, that's amazing development. Curious sort of your perspective, Rich, I guess on US market, obviously, we've seen China and Japan and Australia, I guess, come back strong here. Are you seeing similar signs, I guess, in the US in terms of sort of green shoots, so to speak, is the market coming back? And I guess specifically, Tom and Jerry sort of shocked us all with the strength there in family, family movies, getting the kids out of the house and going back to the theaters. Typically, that's not always been the best content for you guys. But in this situation in time, do you think you have an opportunity to sell more family content at your screening? I have a quick follow-up.

Richard L. Gelfond -- Chief Executive Officer

Yes. I mean, it's interesting. I think this concept of pent-up demand is real. I think that if you look at other territories that opened like China and Japan, it wasn't a switch, it was a faucet. And I think you needed things to kind of prime the pump along the way, and Tom and Jerry is one of those movies. And I think there'll be a number of movies that come out.

One thing people haven't really talked about, but I do think is going to happen is I think as some movies move back because they're global theatrical releases. I wouldn't be surprised to see some movies come forward. And those discussions are happening right now in Hollywood because I think the US is going to be in kind of decent shape from a public perception point of view in May-ish, maybe even mid-April with all the vaccines and the age of moviegoers is more consistent with younger people. But I think the issue for a lot of the studios and their delays has been because of conditions in other countries like in Europe, which are a little behind and a little bit slower.

So I think not all the moves are going to be bad moves and not all are going to put it out -- put the bigger opening off. I think some of them are going to fit this time to pump thing, and there have been rumors about that. So I think kind of what you referred to as the Tom and Jerry phenomenon. I think we're going to see some of that along the way. And I think we're going to be a little bit pleasantly surprised as we move into the blockbuster season.

Mike Hickey -- Benchmark -- Analyst

Cool. The last question, slate [Phonetic] obviously looks great. with US, you'll follow China, what's the implication for I guess incremental margins and pre-cash flow?

Richard L. Gelfond -- Chief Executive Officer

Patrick?

Patrick McClymont -- Chief Financial Officer

Hey, Mike. Patrick. I'm sorry to follow that. Can you just repeat that question?

Mike Hickey -- Benchmark -- Analyst

Yeah, US sort of follows China here, Patrick, what's the implication for rental margins and free cash flow?

Patrick McClymont -- Chief Financial Officer

I think the applications are obviously good for better margins and free cash flow if the US follows China, because what happened in China was IMAX in debt better than it did before and we kind of were a key part of leading the recovery. So if that happens, obviously that will be positive for us.

Richard L. Gelfond -- Chief Executive Officer

Yes, the China numbers will be out shortly. They're reporting their year-end numbers, and you'll see that one things opened up again, because of the nature of our business overall, this assets to licensing the asset-light nature of it and the fact that we did all the right things on the cost side, their business snapped back quite nicely. Their structure will look similar to ours, they're -- statement structure, they have higher margins because they don't have the same R&D and some of the infrastructure that we have. But at the same dynamic, this business has great operating leverage, and we'd expect it to snap back quickly as the box office really starts to flow.

Mike Hickey -- Benchmark -- Analyst

Thanks, guys.

Richard L. Gelfond -- Chief Executive Officer

Thanks, Mike.

Operator

We'll take our next question from Jim Goss with Barrington Research. Please go ahead.

Jim Goss -- Barrington Research -- Analyst

Thank you. One follow-up, Rich, in terms of Alexia's question about windows and if you argue persuasively that they shouldn't affect you. But I answered wondering if there is some concern that the studios are going to focus so much on blockbusters and less so. And some of the smaller films that it may change the mix in available to box office in general and it may persuade some of the exhibitors to maybe dedicate our strengths to some of the current content that you'd have on your screen and maybe more of a competitive threat in that way.

Richard L. Gelfond -- Chief Executive Officer

Yeah. I mean, Jim. If we have seen that, we certainly would have seen it in China because while there has been local language films opening up without US films and there's been less Chinese films than there would ordinarily be in China. So I actually should have made that as an affirmative point. We're doing this terrific indexing, even though there's less films and there's more concentration in the multiplexes.

So we certainly haven't seen that. The other thing I would say, and it really isn't talked about very much yet, but as the windows shorten, I think some of the streaming companies and will come into the market particularly, word in to your question, with some of the niche movies and maybe shorter windows, more consistent with the Universal deal. And I know Apple has already made some noise about honoring theatrical movies. So, even though the -- the shorter windows will cut the length of some of the lines, I wouldn't be surprised to see content coming in from some of the streaming companies to make up for that.

Jim Goss -- Barrington Research -- Analyst

Okay, interesting point. You also mentioned earlier, there was a first Asian film shot only with IMAX Cameras and I'm wondering, to the extent that that process continues, and you get more films, majority or all in IMAX Cameras, does your participation in that process change the nature that of your involvement such that you are sort of one of the producers, and you may be able to participate in downstream and have access to other revenues you may not have before?

Richard L. Gelfond -- Chief Executive Officer

Jim, we've looked at that over the years that at one point, we were even playing together, you may remember, a Chinese film fund where for films shot with our cameras, we could get more economics that's something we might look at again. But generally, the reasons we do it are we think we index better and we get higher box office, and that's the primary way that we participated. It's worked out pretty well.

So recently, we had the 800, which I referred to. We had Detective Chinatown 3, which was one of the biggest blockbuster on Chinese New Year, and we had another one called A Writer's Odyssey, which is also done with our camera. So we continue that effort. I think the filmmakers in China understand it and they're excited by it. And we're also looking at it in other countries. As well, and I mentioned Demon Slayer and Japan, but I really didn't maybe spend enough time talking about Japan, 15 of the top 20 IMAX theaters in the world were in Japan.

I mean our PSAs are really high. We're just really doing well and our five theater -- the five-picture deal with TOHO, and we're excited about those movies. So I think you'll probably see more along the line with films use our cameras in territories where we're successful.

Jim Goss -- Barrington Research -- Analyst

Okay. Lastly, is there any update you may want to provide for our next Slide and our passed in the DTS relationship in terms of timing and potential?

Richard L. Gelfond -- Chief Executive Officer

I think things continue to go pretty well with IMAX Enhanced. We've made a bunch of positive stats along the way, how we see that the market for maybe some more significant steps and we're ready to talk about them, we'll announce them. And in terms of IMAX Live, it's obviously been a little bit difficult to do. Our entertainment in United States where the theatres have been closed, so, you know that's still there. We are working on different projects making progress, but I think we'll have to see when things open up, we're still find that strategy promising. But, we've done mostly kind of back room work, during this period of time.

Jim Goss -- Barrington Research -- Analyst

All right. Thanks so much.

Richard L. Gelfond -- Chief Executive Officer

Thanks, Jim.

Operator

We'll take our next question from Steven Frankel with Colliers. Please go ahead.

Steven Frankel -- Colliers -- Analyst

Good afternoon and thank you. Rich, given the strength of the slate this year, would you expect a typical summer season to extend into August or may be even mid August as opposed to kind of peaking earlier in the summer, as it has typically?

Richard L. Gelfond -- Chief Executive Officer

That's a really good question, Steve. I think it depends on where things move. So right now, August isn't a very crowded month for releases. But I think if things moved out of the April, May period and they put some in the August period, that potential is quite high. And I know the reason I say it's high is because typically one reason films aren't scheduled in August is because people are either out travelling or they are getting ready for the schooling and since both of those have been kind of disrupted during the pandemic, I would think there would be more people staying home and mutual in August. So, I think if there are films released and then blockbusters and we all know where that is going, but that's entirely possible.

Steven Frankel -- Colliers -- Analyst

Okay. And then what kind of marketing messages do you view -- what do you do differently to make sure people come out to IMAX, given you've got, you're going to have a two-week window on that sale, how do you make sure you maximize that opportunity and get beyond just the same there?

Richard L. Gelfond -- Chief Executive Officer

Well again, Chris, I think you said had some point of that it's not really the case for films that we acquired, it's going to be I believe buy in large a much longer window than that and I'll get the details.

Steven Frankel -- Colliers -- Analyst

Let's say, [Speech Overlap] that's typically on IMAX, sorry.

Richard L. Gelfond -- Chief Executive Officer

Two weeks in IMAX. Yeah, I think we'll probably, we've been doing that for a while. I have good size in that a little bit more, that is unlimited run. I think it's going to happen organically though, I think when people go out to the movies once the pandemic lifts, they're going to want something that's really differentiated. Where you get a 60-inch television. And I think -- I think they're also going to migrate, not only in the movie space, but in other areas to brand and entertainment, which is something they trust over the non-branded. And I think we'll just reinforce those messages.

And as I alluded to before, I think the studios and filmmakers and the other talent organize double down on their marketing efforts around IMAX's way to see those built kind of a similar way that Chris Nolan's 20 kind of how this and urges people to see it at IMAX, I don't know if you saw Zack side, is just not of as we believe some charters slate and was all over the place talking house especially as an IMAX. I'd expect because of the window in changes, that could be even a bigger part of it. I think we will push some of that out of our marketing channels and some of that will happen organically.

Steven Frankel -- Colliers -- Analyst

Great, thank you.

Richard L. Gelfond -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions]. We'll go next to Michael Ng with Goldman Sachs. Please go ahead.

Michael Ng -- Goldman Sachs -- Analyst

Thank you very much for the question. I just have two. First, I was just wondering if you could talk a little bit more about how you're leaning into the local language strategy and whether or not this higher contribution from local language can continue post pandemic, after things get back to normal and Hollywood continues to resumes exploring films again?

And then second, I was just wondering if you could provide a little bit more color on the installations in the fourth quarter, what markets are those? And do you see any changes in the pace of network expansion post-pandemic, especially from domestic theaters? Thank you.

Richard L. Gelfond -- Chief Executive Officer

Okay. Sure. So local language, Michael, is part of a trend that has been going on for years. So we made a strategic decision to increase local language content several years ago. And if you look at the results, specifically in places like China and Japan, any geography, you'd see that every year, year-over-year, we're doing more local language content. We accelerated that effort during the pandemic because I would say you know Hollywood films, so we doubled down on it.

Obviously, it's worked very well. And just to take out one example, the TOHO example with Demon Slayer in Japan, it became the biggest movie in the history of Japan and IMAX, our biggest move, we had $27 million. So I think it left us feeling very good about doing it. And I think it left TOHO, feeling very good, and that's why we have a five-picture deal now. So I think kind of having a track record and seeing it work is going to make it more viable. Obviously, there are going to be less slots available because of the Hollywood films and the blockbusters, which we'll spend some time doing.

But I think the other big thing, Michael, is that the genres are diversifying in the local language film. So in China, they used to be much more limited categories. But now there's science fiction, comedy and drama, all kinds of things. And they're discovering that certain genres like Sci-Fi with Wandering Earth did so well in IMAX. So I think that's going to really encourage people to seek out IMAX.

And I think that the audiences are coming in bigger numbers as you saw are indexing below the languages better than it was. So I do think it's a trend that's going to continue. We're just going to have to balance it in a more crowded slate with Hollywood releases.

And I'll ask Patrick to give you his views on installation.

Patrick McClymont -- Chief Financial Officer

Sure. Hey, Michael. Yes. Primarily, China and other places in Asia in the fourth quarter and that makes sense, right. China opened up first, they got their arms around operating issues and were back in business first, more broadly, real estate construction, development construction projects began the activity first. So, It just don't make sense that China was bigger focus in the fourth quarter. And that as I mentioned, even the first quarter getting things open and operational for the new year, we have further activity was also prominently in China. Some of the regions as well, then actually open is our partners were more length the back in installation again.

Michael Ng -- Goldman Sachs -- Analyst

Great. Thanks, Rich. Thanks, Patrick.

Richard L. Gelfond -- Chief Executive Officer

Thanks, Michael.

Operator

At this time, we have no further questions in the queue. I would like to turn the conference back to Rich Gelfond for any additional or closing remarks.

Richard L. Gelfond -- Chief Executive Officer

Okay. Thank you, operator. You know I don't want to make this overly really simple, but from our point of view, because we're in 82 countries, the question isn't, will people come back, the question is, when will they come back. We have enough of a vision, it's going up markets, we didn't talk about on the call, but, not just in Asia, places like Saudi Arabia, which is started to open and other markets when they were open. So, we know people are coming back. And we know that there haven't been altered by legal often in their living rooms for the last year, 100 years of cinema going doesn't change in a year because of something called streaming. The industry has withstood challenges which were much more difficult than this, including the invention of the television, the DVD all kinds of things. So again, I have no doubt that people are going to come back in large numbers. It's just when. And I think a lot of the growth, when people feel safe, they are coming back and I think the US is getting safer beyond pretty quickly and I think that's going to even accelerate.

And I think, we just all have to be patient and be ready and plan our strategy and to market in to that change and make sure we sequence the right films and we're available to -- for our audiences in helping to make them feel welcome back. And I think the blockbuster season, especially more around July 4 with Top Gun: Maverick, I certainly can't wait to get back to the movies and I think a lot of people feel that way. So that you for joining us. And I'm hoping when we have our next call, we have even more visibility into all of this.

Thanks Martin. I think that's a good call.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Brett Harriss -- Investor Relations

Richard L. Gelfond -- Chief Executive Officer

Patrick McClymont -- Chief Financial Officer

Eric Handler -- MKM Partners -- Analyst

Alexia Quadrani -- JPMorgan -- Analyst

Mike Hickey -- Benchmark -- Analyst

Jim Goss -- Barrington Research -- Analyst

Steven Frankel -- Colliers -- Analyst

Michael Ng -- Goldman Sachs -- Analyst

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