IMAX (IMAX) Q2 2022 Earnings Call Transcript

IMAX (IMAX 1.69%)
Q2 2022 Earnings Call
Jul 28, 2022, 4:45 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the IMAX Corporation second quarter 2022 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Heather Anthony.

Please go ahead, ma'am.

Heather Anthony -- Senior Vice President, Head, Global Financial Planning & Analysis

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's second quarter conference call. On the call today to review the financial results are Rich Gelfond, chief executive officer; Natasha Fernandes, our chief financial officer. Megan Colligan, president of IMAX Entertainment; and Rob Lister, our 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 second quarter 2022 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 also be posted to the website.

I'd like to remind you the following information regarding forward-looking statements. Today's call as well as the accompanying slide deck may include statements that are forward-looking and that they pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause actual future results or occurrences to differ. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future 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 because of new information, future events or otherwise. 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 a reconciliation to non-GAAP financial measures, including adjusted net income or adjusted net loss, adjusted EPS and adjusted EBITDA as defined by our credit facility, are contained in this afternoon's press release in our earnings materials, which are available on the Investor Relations page of our website at imax.com. With that, let me now turn the call over to Mr.

Rich Gelfond. Rich?

Rich Gelfond -- Chief Executive Officer

Thanks, Heather, and good afternoon, everyone. Thank you for joining us. In the second quarter, IMAX delivered strong year-over-year growth in global box office, total revenue, gross margin and our trailing 12-month adjusted EBITDA is nearing $100 million. Our fast rebound and strong performance demonstrate once again the appeal of our high-margin, asset-light business model.

Unlike our licensees in exhibition, our technology products services and listing revenue streams are not burdened with high operating costs or capital intensive business requirements. On our last earnings call, we looked eagerly toward this summer's fantastic slate and the rich pipeline of blockbusters stretching over the next two years. With summer now in high gear, that slate is fulfilling its promise. Across the last two years, we've been unwavering in our belief that when people feel safe and content is in supply, audiences will return to the movies.

And any lingering doubts among the skeptics are quickly evaporating as we drive record-breaking results at the IMAX global box office. A firm IMAX has a critical launch platform for major entertainment franchises and help blockbuster releases reestablish their dominance of the cultural conversation. It's no longer a question of whether global consumers will come back to the cinema for blockbuster movies, they are back. It's not just the super hero fans, it's not just the Millennials and Gen Z, it's movie fans of every demographic in every region around the world, turning out for films across virtually every genre.

The data is showing that people everywhere are going back to the movies. And many of them in increasing numbers are choosing IMAX. Now as IMAX helps to lead the global resurgence in moviegoing, we're redoubling our efforts to drive future growth for the company by expanding our global theater footprint, content portfolio and technology platform. Today, I'd like to discuss the growth trends IMAX is seeing at the global box office, our strategic outlook for China, how IMAX is driving growth across all our global networks and content portfolio and our strategic effort to drive long-term growth by expanding the IMAX platform.

First, our results at the global box office underscore the strength and differentiation of IMAX. We are not an exhibitor, and this obvious fact is further demonstrated by our results. Despite a first quarter nearly devoid a blockbuster releases, our year-to-date domestic box office through June trail 2019 our best year ever by only 5%. And in contrast, the domestic exhibition industry was down 35% over the same period.

IMAX domestic box office for the second quarter was on par with the second quarter of 2019. In fact, our domestic box office in June even surpassed June 2019, and we continue to increase market share. Our domestic market share in the second quarter was 5.3% and in May alone, we captured an impressive seven-plus percent of the domestic box office. For the first time in IMAX history, we delivered three consecutive $25 million-plus global openings with Doctor Strange, Top Gun and Jurassic World.

Top Gun: Maverick has been an unbelievable success, which has nearly doubled our initial projections and will top $100 million in global box office for IMAX. From Avatar to Avengers, Top Gun: Maverick joins a long list of you got to see it in IMAX blockbusters, films that became inextricably linked with our brand and readily demonstrate the power of our platform. A lot of credit for that goes to Tom Cruise and director, Joe Kosinski, who conceptualized Top Gun and IMAX, shot its unbelievable flight sequences and IMAX exclusive expanded aspect ratio and remain big champions of our technology. Top Gun delivered the highest IMAX opening weekend indexing ever for a film debuting over $100 million, and our indexing reached as high as 16.4% in the film's initial IMAX run.

We look forward to bringing Top Gun back to our network in August when it will no doubt continue to excite fans. Just last weekend, IMAX delivered roughly 12% of the opening weekend box office for Jordan Peele's Nope, which the visionary director shot with our IMAX film cameras. Peele conceived the film for IMAX, working closely with our postproduction teams, hosting an opening night IMAX Live event at our Lincoln Square flagship and achieving a first in the history of IMAX, making our iconic film cameras part of the movie itself. It's no coincidence that we're driving strong indexing and unprecedented market share at a time when more filmmakers than ever are embracing and creating for IMAX than ever before.

It's also notable that we're driving these strong results even as concerns build over inflation and a potential for a recession. This tracks with what we've seen during previous economic downturns. IMAX is historically a recession-resistant business. Going to the movies is an affordable luxury, certainly cheaper than things like travel and live events.

In fact, since 1980, the U.S. has seen seven recessionary years. And in all of those years, gross box office grew. Consider that for IMAX, our fastest pace of network growth ever was during The Great Recession of 2008 and 2009.

Our momentum at the global box office is striking, but even more so given we've done it without the real benefit of China. Due to COVID lockdowns in China for much of the first half of the year and nearly all of the second quarter, China has contributed little to our overall results. The environment in China remains challenging, but we're beginning to see some early encouraging signs. As of yesterday, 91% of IMAX theaters in China were operational, 92% of our Beijing theaters were open and 55% of our Shanghai theaters were open with various capacity limitations.

During the second quarter, IMAX China box office saw a sequential improvement as the quarter progressed as more theaters became operational, and Jurassic World Dominion was released day and day. As we've seen in the domestic market, a consistent cadence of releases is critical to getting audiences back in the theaters. Beginning earlier this month, the pipeline of fresh local content in China began to accelerate with detectives versus slot and moats are from space. We are seeing encouraging presales for this weekend debut of Moon Man and the action film, Warriors of Future, follows on its heels in August.

We've also seen incremental progress in Hollywood movies gaining entry to the Chinese market. Most recently, Jurassic World: Dominion became the first Hollywood film in more than a year to gross over USD 145 million in China. That comes on the heels of The Batman, Fantastic Beasts and Ambulance, all gaining approval. Of course, there's no question that the bar for approval remains higher now given the broader issues between the West and China.

However, we believe two developments should help clear the way for more Hollywood films to gain entry into China. First, the failed experiment of day-and-date streaming releases for blockbusters has been abandoned a misguided effort that unless rampant piracy in China. And second, the backlog of local Chinese films that built up throughout the pandemic is now running its course, which should create more space for Hollywood content in the slate. We are encouraged by the mix of local and Hollywood films set it the Chinese network through the end of the year, whether it's the current crop of local language summer films; the always lucrative October national holiday period; Avatar: The Way of water, which we feel is a good chance to gain entry to China, given James Cameron and the franchise's history in the market.

And the sequel to the biggest Chinese film of all time, Wandering Earth, is tentatively slated for Chinese New Year in 2023. We are optimistic this situation will continue to turn as lockdowns are fully lifted and consumers are free to get out and enjoy out-of-home experiences. There are many similarities to where we are at the end of summer 2020 when COVID restrictions began to ease in China and local blockbusters like The 800 ultimately open to record-breaking business. We've been in business successfully in China for more than 20 years.

We've seen up years and we've seen down years. And we remain confident that the recent setbacks in the market are only temporary. As I said earlier, we are focused on building box office to drive growth across our network, our content portfolio and by evolving and expanding the IMAX platform. First, in terms of network growth, our market share gains and the strength of our brand globally are beginning to accelerate sales activity in important markets as our partners in the exhibition industry look to IMAX as a driver for future growth.

As key industry touch points, including CinemaCon, the Con Film Festival and CineEurope returned to in-person. We're seeing optimism and growing demand for the IMAX experience. We've been very active with our exhibition partners, signing agreements for new theaters and solidifying locations and time lines for the rollout of contractual backlog. In the past three months, we've announced new theater agreements with key international partners, including Aon in Japan, major cinemas in Thailand and Odeon in the U.K.

As we've lock locations for the launch of contracted theaters across key markets, including the U.S., India, Spain, Italy, Germany, France, the U.K. and the United Arab Emirates, at the same time, we're enhancing and diversifying the IMAX content portfolio. That portfolio consists of Hollywood blockbusters, more of which feature IMAX DNA local language blockbusters across a growing international footprint, a new generation of IMAX documentaries and exclusive live events and experiences from a growing roster of new partners. The Hollywood pipeline looks very strong through the second half of '22 and into '23.

The summer is followed by a strong fall slate that includes Marvel's Black Panther sequel and DC's Black Adam. And as I mentioned, the year concludes with the decrease of Avatar: The Way of water, the first of four planned Avatar sequels. Next year, we expect to have multiple Marvel films, including new installments of Captain Marvel Guardian of the Galaxy and Ant-Man. Multiple DC films, including Aquaman and the Flash, the highly anticipated New Mission Impossible, the latest Fast and Furious event and of course, Chris Nolan's Oppenheimer, which makes groundbreaking use of IMAX film cameras.

We're also very excited to see Marvel Studio's forthcoming slate presented at Comic-Con last weekend, which culminates with two new Avengers features in 2025. In addition to the previously mentioned China title, we have a robust slate of local language titles in key markets like Japan, South Korea and India. In fact, we expect to release approximately 15 local language titles across roughly 50 IMAX markets in the third quarter alone. The first project in our reunited documentary slate, Blue Angels with J.J.

Abrams' Bad Robot and Top Gun: Maverick, breakout star, Glenn Powell, has completed principal photography in advance of its release next year. We're excited to bring modern IMAX documentaries to our network and create new business opportunities around them given the demand for compelling documentary content across the landscape. We are already in conversations with streaming services about downstream licensing opportunities for Blue Angels. Finally, we're pursuing our vision of growing beyond blockbusters to include unique events and experiences globally by putting our technology in the hands of an expanding set of content creators and platform partners and becoming a destination for fandom of all kinds.

We're making good progress building our connected network to support these events and enable the delivery of live and interactive content with low latency and superior visual and audio clarity. This is a capability that is unmatched by anyone in the global marketplace. In partnership with leading top-tier ISP partners, including Verizon, NTT, Orange and others, we've now expanded our connected network to more than 100 theaters across the United States, Canada and Europe, and we expect to double our connected footprint by year's end with locations in Asia and the Middle East as well. We've also focused on the expansion of our IMAX Enhanced initiative.

Our goal is to grow the footprint of ENHANZE further across streaming platforms and high-end devices. We're growing our presence on Disney+, most recently with the IMAX will enhance release of Doctor Strange and the multi verse madness in June. And we recently added LG to our roster of device partners while expanding our partnership with Philips as well. We're also looking into building out our tech stack to further drive the IMAX experience on streaming platforms and incorporate software tools that would yield recurring revenue in our streaming partnerships.

Across both IMAX Live and ENHANZE, we can make smart incremental investments in new revenue-driving opportunities, given how we've successfully managed the challenges in the past two years to maintain a very strong balance sheet. In conclusion, IMAX is capitalizing on the strong blockbuster pipeline to drive solid results, grow its share at the global box office and strengthen its brand with consumers. As we do, we are committed to building on our strength and to drive further growth for the company by expanding our network, our content portfolio and what we could deliver for our fans in our theaters and their homes. We look forward to furthering our transformation into a premier global technology platform for entertainment and events of all kinds and remain focused on accelerating our financial momentum and driving value for our shareholders.

With that, I'm happy to turn it over to Natasha.

Natasha Fernandes -- Chief Financial Officer

Thanks, Rich, and good afternoon, everyone. As Rich mentioned, we posted another quarter of significantly improved performance driven by an exceptional film slate that highlighted IMAX DNA. Operating results continue to improve, which serve to highlight our superior differentiated business model. As a reminder, we are a global asset-light licensing business with a low cost base and high incremental margins.

Second quarter 2022 revenue increased to 45% to $74 million from $51 million in 2021. Adjusted EBITDA increased to $25 million versus $9 million in the year ago period, and adjusted EPS improved to $0.07 from a loss of $0.12 in the year-ago period. Net income and EPS for the quarter was constrained by a $3 million or $0.06 per share impairment of a Chinese film investment due in part to COVID-related lockdowns and depressed box office levels in China. In addition, the quarter was impacted by a $5 million or $0.09 per share valuation allowance against our deferred tax assets, a remnant of the pandemic, which creates uncertainty regarding the ultimate realization of these assets.

IMAX Technology Network revenue increased 134% to $46 million in the second quarter from $20 million in Q2 2021. Total gross box office was $248 million, an increase of 128% over last year's second quarter box office of $109 million. As we expected, the appeal of the Q2 slate drove strong box office results with domestic box office in May and June, eclipsing that of the same period in 2019. Gross margins for this business were $31 million or 67%, up from $9 million or 44% in 2021 due to the higher box office driven revenue and the operating leverage inherent in our business model.

IMAX Technology Sales and Maintenance revenue for the second quarter decreased to $24 million from $29 million in last year's second quarter. The lower revenue was the result of 7 fewer revenue system installations versus the prior year comparative period as China's zero COVID policy for much of the quarter affected our ability to grow the IMAX footprint in that region. This quarter, we installed four new IMAX systems, three of which were sales or STLs and one hybrid. This compares to 11 new IMAX systems, of which nine were sale or STLs and two hybrids in the prior-year period.

Gross margins for this business decreased to $13 million from $16 million, which reflected the lower level of installation activity, particularly in China and a loss of revenue associated with the theaters in Russia, Ukraine and Belarus. These factors were partially offset by an increase in maintenance margins. Conversations with our exhibition partners around network expansion continue to build given our performance in the second quarter and the strong slate ahead and into 2023. If history is a guide, Avatar will be a catalyst.

Already, we are seeing exhibitors accelerate installations to get ahead of the highly anticipated sequel. We expect to exceed the number of installations achieved in 2021 with a total of between 80 and 100 systems this year. Our ability to hit the high end of that range will depend on how quickly the situation in China continues to improve. Moving on to operating expenses.

SG&A, excluding stock-based compensation, was $30 million in the quarter, which was above the comparative quarter in 2019 of $26 million and higher than 2021 levels of $22 million. The year-over-year increase in SG&A is primarily driven by increased staff costs as we return to normalized work schedules, a $3 million negative variance year-over-year related to foreign currency movements, mostly in Greater China and other expense areas like increased travel and office costs as the business returns to more normalized operations. With respect to China, during the period of prolonged theater closure, we managed our cost proactively by adjusting our work week while maintaining our ability to quickly scale operations as soon as theaters fully reopen and business normalizes. We have also significantly reduced marketing, T&E and other discretionary spends.

These important steps taken during the quarter to reduce our costs in China will help the second half of the year. We ended the quarter with $110 million in cash and $230 million of debt, excluding deferred financing costs. $77 million of cash was held at IMAX China and $33 million at IMAX Corp. Our $300 million revolving credit facility remains undrawn.

When combined with our cash on hand and the undrawn component of our IMAX China working capital facilities, we have approximately $470 million of available liquidity. In May, the company chose to terminate the covenant waiver period under the credit agreement. Upon the selection, the original terms of the credit facility were reinstated including, but not limited to, full access to our investment and share repurchase basket as well as the $75 million minimum liquidity covenant was no longer in effect. Capitalizing on what we view as an undervalued stock price during the quarter, we repurchased 2.7 million IMAX shares at an average price per share of $15.92 for a total cost of $43 million.

Subsequent to quarter end, we have purchased an additional 71,000 shares, bringing our year-to-date repurchases to approximately 3.2 million IMAX shares at an average price of $15.99 for a total cost of $50 million, with $25 million of remaining available room under our current program, which we recently extended for 12 months. For the six months ended June 30, IMAX China repurchased 1.5 million shares at an average price of USD $1.26 per share for a total cost of USD 1.8 million. We intend to continue to be opportunistic in repurchasing shares when we view our stock price as disconnected from the underlying fundamentals of the business. Overall, we believe our second quarter results represent the key fundamentals of our business, and we look forward to building on our momentum.

Fans are turning up to see their favorite movies in IMAX. Increased revenue is driving profitability improvement, highlighting our superior high-margin, asset-light business model. We have a strong balance sheet with substantial liquidity to support strategic investments aimed at driving growth. And finally, we remain excited for the strong slate of IMAX friendly titles set to be released later this year and in 2023.

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

Questions & Answers:

Operator

[Operator instructions] We will now take the first question from Eric Handler from MKM Partners. Your line is open. Please go ahead.

Eric Handler -- MKM Partners -- Analyst

Yes. Good afternoon and thanks for the question. Rich, I wonder if we could just dig down into China a little bit here. Specifically, I know the government doesn't give a lot of lead time with films, but are you getting any visibility at all into the back half of the year slate, particularly around the October Hollywood -- the October holiday period? And what Hollywood films might actually get approved? And then also for installs, which were pushed out of 2Q in China, are you -- is there already a plan to get those installed? And how is that going? And Shanghai, any idea what needs to happen to get those theaters open again?

Rich Gelfond -- Chief Executive Officer

OK. So in trying to answer them in order of your questions. Eric, I think there are some promising signs about more Hollywood films getting in. As a matter of fact, we've done our permission to say it on the call, but we've heard one film that is getting in the name probably toward the end of August, a decent size film.

And as I said in my remarks, I think Avatar will get in at the end of the year because of Jim Cameron's relationship with China and how well he's moving in there. I think a lot of things going on in China, especially with the West are a little bit intensified because the election of the new leader in China is in early November. So I kind of look around that date, and I think people are just being fairly cautious in China before that period of time because everybody kind of doesn't want to do the wrong thing. So cautiously optimistic read the words I would have about some of the films getting in.

And I think the log jam will probably open up after the election. On your second question, the installs that went out of Q2, I mean, obviously, you couldn't install if there was a lockdown and you see. So my answer would be that when things more return to normal and the COVID levels go down, and it's more business as usual, that's where they would happen. With that said, when we gave our guidance for the year, we took into account some things that have moved forward from next year because of Avatar as well as things that move back from early in the year because things were closed, and now they're open.

So if I could be more specific, I would be. But I think you're better off focusing on the overall range that we gave and trying to predict which particular ones are moving from quarter to quarter. In terms of Shanghai, as you probably know, it was scheduled to pretty much open up, I think it was around July 8 overall, and then it slid back a little bit. Our offices are in Shanghai.

As you know, most of our employees live in Shanghai. I think the only context I could give is that this lockdown is a lot less rigorous than the earlier one. And I think anecdotally, the people who work with us don't get the sense that it's going to be as long term and that it's more short-term live. But again, not being there and the government not being more specific, I'm giving you more of my impression than my guidance.

Eric Handler -- MKM Partners -- Analyst

Understood. That's all very helpful. And then just as a quick follow-up question. Can you talk about maybe some of your live events that are scheduled for the back half of this year?

Rich Gelfond -- Chief Executive Officer

I'll turn that over to Megan.

Megan Colligan -- President of IMAX Entertainment

Yes. We are in the process right now of making some announcements that will be coming out in September. We have some studio events that are lining up. We're going to be doing something with [inaudible].

We have some music events, but we're going to be announcing them when we put our tickets on sale to drive the tickets on sale dates. So those will be rolling beginning in September. And we also have an announcement coming with an ongoing partner that we'll be announcing again in the early fall.

Rich Gelfond -- Chief Executive Officer

And by studio events, what Megan means is like the Q&As and since our last call, we've done a number of those. We did it around Jurassic World. We did it around Nope not with Jordan Peele. There have been a meeting Q&As before after meeting.

So that just detail on what she means by studio events.

Eric Handler -- MKM Partners -- Analyst

Very helpful. Thank you both.

Operator

We will now take the next question from Mike Ng from Goldman Sachs. Your line is open. Please go ahead.

Mike Ng -- Goldman Sachs -- Analyst

Hey, good afternoon. Thank you very much for the question. I just have two. First, it was encouraging to hear about the new there agreements in Thailand, the U.K.

and Japan. I was just wondering if you could talk a little bit about the pace of signings and whether or not those signings have been skewing more toward sales type or joint revenue sharing? And has there been any meaningful change relative to pre-pandemic? And then second, just on the installs outlook, thank you very much for that. I Was just wondering if we should think about that 80 to 100 installs as a good run rate beyond this year. Rich, I know you mentioned there may have been some pull forward due to Avatar, but it was also impacted by COVID lockdown.

So any general thoughts around that would be great. Thank you very much.

Rich Gelfond -- Chief Executive Officer

Well, thanks, Michael, and I'll start with that. I wouldn't think of 80 million to 100 as the run rate. I mean China has been closed for 6 months, and we have a backlog of over 200 theaters in China. And typically, they, as you know, all the backlog churns in about a three-year period of time.

And in the first quarter, actually until May or June, there really wasn't a film slate. And then the third thing I'd say about this year is that exhibition was just coming out of the code period. So they were financially challenged. They weren't going to make commitments and their financing wasn't necessarily in place.

So I would be surprised, although I'm not -- you shouldn't consider this to be guidance, but I would be surprised if the run rate next year wasn't higher than it was this year. I think there's a lot of extraneous events going on simultaneously this year. In terms of signings, Again, it's a variation on the answer to that one, Michael, which is, again, they didn't open the year and say, well, I know Top Gun's going to do over $1 billion, and I no doubt the Strange is going to be this and Jurassic World. And I know it's going to be a really great year.

And I know IMAX is going to do 95% of its the 2019 box office in the first six months, as you would be. I mean, I think they're being a little bit cautious and say, well, let's see how it opens, let's see how IMAX does. So as a result, the first half of the year, the signings were slower than a typical run rate pace. And the way I would look at it, Michael, is first, you have engagement then you have a period where people run through the numbers, and we actually look at the sites and figure out if we could do the theater and other exclusivities or things like that.

And then we actually get into deal negotiations. So as you saw in the second quarter, things started to pick up a little. There are a lot of deals right now, which are close. So I would expect in the next month or so, you'll see signings activity pick up again because it's a cycle.

And I think we're negotiating a number of things. I know we haven't yet signed. But I think it's going to have to wait until the cycle goes forward a little more to get back to normal. And then the last question you asked, I think, was about the relationship between sales-type leases and JVs.

And is it what it is typically? The answer is I'm not really sure, Michael. I don't think that it's dramatically one way or the other because nothing's kicked up to me, that's kind of said we're doing more of this, but I don't really remember the exact number. I think it's around the same as it there.

Mike Ng -- Goldman Sachs -- Analyst

Great. Thanks for the thoughts and remarks, Rich. I really appreciate it.

No problem.

Operator

We will now get the next question from Eric Wold from B. Riley Securities. Your line is open. Please go ahead.

Eric Wold -- B. Riley Securities -- Analyst

Thanks. Good afternoon. Rich, maybe just I want to follow up a little bit on the China situation. Obviously, we know it's kind of fluid and visibility is not that great.

But maybe just take it kind of somewhat of a worst-case scenario, let's say, the Hollywood titles never regain the same level of importance to that market as they did before, whether that's because of censorship and [inaudible] not wanting to kind of change films or whatever the reason is, they just don't regain the prominence and the number of approved titles remain extremely low. Can that market box office get back to pre-pandemic levels under that scenario where you really mostly driven by local language titles?

Rich Gelfond -- Chief Executive Officer

I mean, I think, first, Eric, I just have to say that's a scenario that I think is extremely unlikely, then I'll answer your question. But in my mind, it's kind of like saying if Hollywood releases 10% of the number of films next year than it releases today, how we're going to perform? And I really do think it's remote. We have our feet on the ground in China. We have a lot of personnel.

We talk to people all the time. And I think there was just so much going on including the lockdowns, including the backlog of Chinese local language films, including issues with Hollywood that came out of the pandemic with piracy because of day and date releases. And I think the paradigm has just changed there. So I think what you're suggesting is remote.

But I think if it happens and we didn't react to it, the box office would be lower for us. There's no question about that. And however, if you look at our increase in local language films and you look at other kinds of events that we're trying to do, documentaries, we would try and make up as much as that as we possibly could. And again, when you look back in 2021 when China came out of the pandemic without Hollywood films, we actually did really well and is in part of your question.

But in Japan, in fact, when there were no holiday films, we did about $1.5 million per screen average using local language domes and filling it in. I mentioned in my remarks and it's in the press release that for the third quarter, we've all read a lot of headlines about there not being a lot of movies available and big movies. But for IMAX, we have 15 farm line with films, local language films in the third quarter. And for IMAX, we're doing special releases of DMR, Jaws and ET, and we'll have a number of live events in those places.

So if there were no Hollywood films there it would affect us, but we're pretty agile, certainly much more agile than the exhibitor community. And I think we make up for a lot of it in other ways.

Eric Wold -- B. Riley Securities -- Analyst

Not in -- I think you answered exactly what I was looking for because I know you always have to make the choice here or in China every kind of weekend or weak in terms of what film you're going to highlight on IMAX 3. It definitely sounds like there's enough replacement if there was -- like a worst case scenario took place. But obviously, we don't get there, but I kind of want to show that you've got that flexibility, and I appreciate that.

Rich Gelfond -- Chief Executive Officer

Thank you, Eric.

Operator

We will now take the next question from Steven Cahall from Wells Fargo. Your line is open. Please go ahead.

Steven Cahall -- Wells Fargo Securities -- Analyst

Yes. Thank you. So maybe first, just you give the amount of theaters or percentage that's back online in China. I was wondering if you have any sense of like what the recovery is in attendance and where that's running now? I'm guessing it's significantly below that 90th% of spaces that are back online, but would love to get some sense.

Secondly, I'm wondering, as you go into a lot of these installed negotiations, given how strong the slate has been post COVID, given how strong it looks going forward and with recession often being something that theaters want to invest ahead of because they tend to get more attendance, do you have any bit of kind of negotiating strength in terms of the terms you might ask for on some of those? And then finally, just wondering if you have material revenue yet from IMAX Enhanced? And if there's any new streaming services where we might see that show up on? Thank you.

Rich Gelfond -- Chief Executive Officer

OK. That's a lot of questions. If I missed one of them, come back to me, please.

Steven Cahall -- Wells Fargo Securities -- Analyst

Six to seven in three. Attendance in China is definitely not 91% of what we'd expect or have seen. But there are several reasons for that. First of all, there is diminished capacity in certain cities.

So in Beijing and Shanghai, it's only 50% to 75% capacity, and there are some restrictions in other cities. The bigger reason is on the content side. And there just haven't been, as Eric Wold asked right before, there haven't been Hollywood films there haven't even been big Chinese films. I'll give you more context, though, we're a little bit hopeful going into this weekend.

There's a movie coming out that came out actually called Moon Man. And on Mylan, which is the ranking service. It was rated 9.6 out of 10. And generally, anything over nine is considered quite good.

And Mylan, I think -- again, I could be wrong, but I'll be close. I think Mylan estimated something like a $4.5 billion ultimate for that movie, which is about RMB 4.5 billion, which I think is about $500 million for the run of the movie. So that would be a significant return. But again, I don't own Mylan.

I'm reporting public information, which I've seen. And I think presales have been decent for the movie. So there just hasn't been a turning point, getting people back. And as we talked about in 2021, once it started to reopen, it wasn't really until the 800 came out sort of in a way like in the U.S.

when some of the key movies came out and then they'd opened the flow gate. So Doctor Strange and the Top Gun and Jurassic World that create a sense of normalcy. So I think you need that kind of cadence, but it's possible that we're close to the beginning of that point. And we have to see, I hope -- I know it's not a perfect answer, but I hope that gives you a sense of the way we see the market.

In terms of negotiating leverage you asked about, I think it's too soon to see anything like that. Again, we've just come through this even if we had leverage, it's unlikely we'd use it right now with either the studios or the exhibitors, I think the industry is in the early stages of getting healthy and we're in this business for the long run. We've been in it for over 50 years, and I don't think -- we look at the business of how can we use short-term leverage to increase short-term results, as you know, during the pandemic, we worked with our exhibitors to get the industry healthy. And we gave concessions and we alluded to this, but it's worth mentioning for a moment.

We spent a lot of time in the last couple of months because we didn't enforce the install schedules that were in a lot of the contracts because the industry wasn't in a place to do that. But over the last couple of months, we've really reinforced what the rollouts are on a global basis with our exhibitors. And the fact that we acted the way we did I think, has come back to us. And virtually all of the companies that we gave a break to have negotiated reasonable rollout schedules right now.

So that's more our philosophy rather than -- and I don't want to overstate it, but I can't think of any, but just to protect myself, maybe there are a few, but virtually everyone who had a backlog with us has negotiated a reasonable rollout that works for both of us. I think our philosophy of doing business has worked very well for us and the exhibitors. And then your last question was material revenue on Enhanced and on live. And I think as Megan gave the answer to live, I think at the end of the year, we'll see more revenue.

But I can't characterize it as material or not because I don't know how it's going to perform, and I don't know what date that's going to come out but I think you'll be able to see an acceleration in the revenue stream as more events come online. And I mentioned during my remarks, but again, this is something I want to reinforce that we've really been installing at a much more rapid pace. So new IMAX theaters that can play live, and that whereas when we built out the original network, that wasn't in our control with IMAX theaters because we had to get people to sign up for the theaters. Now these are existing IMAX theaters.

So we're building out that at a fairly significant pace right now. And again, I'd prefer not to give specific guidance on that. But I think as the network starts to roll out, you'll start to see revenues accelerate there. And I feel pretty good about how our rollout is going right now.

Great. Thank you.

Operator

Next question from Mike Hickey from Benchmark. Your line is open. Please go ahead.

Mike Hickey -- The Benchmark Company -- Analyst

Rich, Natasha, Heather, congrats on a strong quarter. Awesome to see your business back. Rich, I guess first question, I was just curious if you could speak to sort of the broader help or the exhibitor market, I guess, most specifically domestically, your business is back. But when you look at sort of the attendance trends across the broader circuit, there's still a pretty big disconnect.

from what we're seeing this year compared to 2019 despite the slate. Just sort of curious why you think that is? And if that sort of disconnect the stains, how that could impact your business? And then I have a follow-up for Natasha.

Rich Gelfond -- Chief Executive Officer

It's a good question, Mike. I think it's the lack of film product mostly. So I think during -- as I said during the first three months of the year, there was very little film product in the domestic market. I think it's picked up a lot in the second quarter.

I guess we'll figure out how much when the company start reporting. And I think there is an imbalance a little bit in the domestic market in terms of the number of theaters I said this before, there aren't -- the number of movies coming out is in size with the way the number of theaters that are out there right now and the 20 plex and the 25 plex and things like that, it's just not a film market to fill those theaters, the way it did in 2019. And as you said, I mean, we're all the way back because our network is sized in a different way. Also, as you know well, Mike, we're global.

And if you look at some of the results are coming, Top Gun, I would say the international results were surprising. I mean they're great. But I think just how well that franchise did internationally. And again, the international nature of our business presents a different dynamic than people in the exhibition business.

And then also, we have a lot of local lease content. So to the extent there's a shortfall, we can fill in different places. So I think it's just a lag for them. There needs to be more titles coming out on a more consistent basis.

And I think if and when that happens, they'll trend more toward where they were in '19 than they are now.

Mike Hickey -- The Benchmark Company -- Analyst

Nice. Thank you, Rich. Natasha, just curious on -- well, one, thank you for the installation guidance. That's certainly more than I expected.

Just curious sort of why now, I guess, that you have sort of the confidence to give us some visibility here, where I think this is the first time you sort of reinitiated your view of what you can do for the year? And Rich sort of alluded to maybe enforcement, maybe to ask the answer, but sort of curious, given this is the second half build here, primarily your confidence level to guide. And then can you give us a comp where you were in '19? I have $120 million, but I don't know if that includes upgrades or not. And any color, I guess, Natasha, on the mix between sales-type leases, JVs, hybrids, our upgrades would be great.

Natasha Fernandes -- Chief Financial Officer

Sure, Mike. Rich alluded to as well that we talked with exhibitor partners, and we've been firming up the rollout schedules for our theater systems, and we're proud of the team for working so hard with all of our exhibitor partners outside of China, showing them the slate and igniting growth plans in key markets. And so with all of that work done, we've been able to firm up and feel confident about the install guidance that we're providing. And as for the mix, I mean, definitely Q3 will be higher than levels seen in Q1 and Q2, and the vast majority will be planned for Q4, and we are fairly balanced between JVs and sale and SPLs as we look out for Q3 and Q4.

Mike Hickey -- The Benchmark Company -- Analyst

And that guidance includes upgrades or is that incremental?

Natasha Fernandes -- Chief Financial Officer

Yes. The guidance we provided includes upgrades, about one-thirds upgrades and two-thirds new locations.

Mike Hickey -- The Benchmark Company -- Analyst

OK. Perfect. All right, guys, thank you very much. Good luck.

Operator

Next up, we have David Karnovsky from JPMorgan. Your line is open. Please go ahead.

Unknown speaker

Hi. This is John on for David. Most of my questions have been answered, but I did want to refocus in on the live events. Can you give us some color around how the consumer reception has been? Any highlights of attendance to these events or learnings as COVID impacts have become a little less apparent? And I guess, maybe what's the reception from artists to live events offerings been so far?

Megan Colligan -- President of IMAX Entertainment

Yes, happy to do that. So I mean, I think there's -- we're dealing with a range of events, but I think one of the things that we're looking at is, we're capable of being able to scale our events into theaters right now. We're talking about 100 theaters, as Rich said. We're talking about nearly 200 theaters by the end of the year.

And that allows you to be in across North America and into Europe. And for artists, whether you're a musician or if you're a filmmaker, you're able to be in lots of places at once. You're also able to give fans that increased sense of fandom, which is super special, super rare opportunity for people in places outside of New York and Los Angeles, where you may not be able to access those kinds of opportunities. And we're seeing that people are really gravitating to those experiences.

So whether you're talking about a Q&A or you're talking about what we did most recently with Jordan Peel's Nope. And you're getting a special introduction before a movie that you weren't expecting or you're getting a highlighted premier event prior to the opening, which kind of brings senses IMAX, and we get a special premiere in advance of the film, which could not only increase box office but sets us apart from everybody else before the movie opened. It also signals to audiences that this is a premium and even more immersive experience than the film itself, and audiences are really responding to it.On the music level, we're dealing with artists all the time. We have artists coming through our offices and into our theaters, experiencing the technology, understanding how they can utilize that technology.

And I can only say that there's going to be a wide breadth of experiences that will be started up over the course of the next year because when you're dealing with the sound system, you're dealing with the screen, the capability to utilize both filmed content and live content and be able to use that Intermex creatively whether you're launching an album, whether you're using it to deploy against catalog content, whether you're using it to scale a concert, there's a lot of opportunity there, and artists are very interested in how this can be utilized in new fresh ways. So we've had a tremendous success both on the artist side, but also, I think the reception that we have received when we've done concerts and certainly, you can go online and see the reaction to the Kanye concert to understand how much people enjoy the experience of being in an IMAX theater and watching an artist that they really love.

Unknown speaker

Great. We'll keep an eye out for some of those experiences going forward. I think that's pretty much it for me. Thanks, guys.

Megan Colligan -- President of IMAX Entertainment

Thank you, John.

Operator

Next question will be from Jim Goss from Barrington Research. Your line is open. Please go ahead.

Jim Goss -- Barrington Research -- Analyst

OK. Thanks. I've got a couple also. First, there's usually a pretty big role between, say, August and September or into October.

This year is no exception, as outlined in your Page 11 slide. And I know you've indicated you're bringing Top Gun back, and that's had tremendous resilience. Do you have other plans to fill in both in the domestic market and in rest of the world ex-China because you talked about China quite a bit. So I just wondered about the other parts.

Rich Gelfond -- Chief Executive Officer

Yes. I think I mentioned, Jim, now we have 15 foreign language films in the third quarter. I think like four or five are from China, and the other 10 are from other territories. In addition to that, and you mentioned Topcon, no has only played in North America.

So we're playing that in the rest of the world starting in a couple of weeks, and I think that will do pretty decent box office. Then we're also -- we DMR-ed, meaning converted in Timex of Jaws and ET. I can tell you that particularly jaws because I've seen the other one, look spectacular, but we'll see what the appetite is to come back and see it. I hope it's a lot.

I don't think it's ever been released in IMAX. And I don't think you have to be sort of a genius to make the brand association that Big Shark, IMAX summer. So we have some hopes around that. We're bringing Avatar in.

And I think given the promotion around the opening of Avatar: The Way of Water, there should be a decent interest in people in reseeing Avatar. Megan said there are a couple of live events we're looking at during that period of time. So between all of that, I think we'll -- it's not like the last quarter, but I think we have lots of opportunities.

Jim Goss -- Barrington Research -- Analyst

OK. And you've been perhaps the biggest beneficiary of this premium preference as the tenants has resumed. I was wondering if you have any concern as to risk of loss of customers back to some of the non-MX films as things normalize to a greater extent? Or do you think you're establishing some new IMAX favorable habits that you think you can sustain?

Rich Gelfond -- Chief Executive Officer

Well, I mean the market share numbers suggest that the preference is growing to go to IMAX rather than alternative ways of seeing it. And anecdotally, you look at the conversation, the cultural events, we created around a number of these movies coming out over the last period of time. And again, the global nature of the numbers coming out. So I don't have a crystal ball, Jim, on where that's going.

But looking at the numbers that I've looked at and looking at our brand recognition, I mean, I should also add that we put in place some more digital marketing efforts and different ways to promote the films not only through live, which we just talked about, but the other ways in the ecosystem on a global basis. And given the way looking forward in the film slate, again, without going through it again, but you have films shot by Christopher Nolan, who typically index very well. You have Marvel films, DC Comics films, the 23 slate is very IMAX friendly. So I would like to think that these trends are staying power.

Jim Goss -- Barrington Research -- Analyst

OK. Maybe one last quick one. Your DMR process benefits from more films for the efficiency you create. And now you're also doing it domestically and internationally, which I assume has some different staffing.

How is that process working in terms of the efficiency of creating product and accounting for those costs?

Rich Gelfond -- Chief Executive Officer

Well, it's always worked well, Jim. And actually, we're in the process of moving a bunch of that to the cloud. to make it more efficient and make it more user-friendly on a global basis. So as you know, we're always ahead of the curve and trying to think of the next thing.

So it's worked well, and I think it will get more efficient.

Jim Goss -- Barrington Research -- Analyst

All right. Thank you very much.

Operator

We will take the next question from Chad Beynon from Macquarie. Your line is open. Please go ahead.

Chad Beynon -- Macquarie Group -- Analyst

Good afternoon. Thanks for taking my question. Just one for me, kind of a follow-up on gross margins or EBITDA margins, I guess, in line with the last comment. But this one is more directed for the SPLs and the installations that you said should expand in the back half of the year and into '23.

Given everything that we've seen with inflation and supply chain, should there be pressures on the margins when you install these? Or can we start to see some gross margin on those installs closer to what we saw back in '19 and '20 -- or '18 and '19 when things were really humming along? Thank you.

Rich Gelfond -- Chief Executive Officer

Well, we have inventory, and we were concerned about some of the supply chain issues. So we filled pretty much a lot of what we have to install this year. We bought it into backlog. We bought it against our backlog.

So I don't think we have a lot of pressure on the cost side. Again, the margin is always a mix of which installs you have and what parts of the world. So I can't answer that question, but I can tell you that we haven't really left ourselves vulnerable this year to the supply chain issues.

Chad Beynon -- Macquarie Group -- Analyst

Appreciate it. Thank you very much.

Rich Gelfond -- Chief Executive Officer

Thanks, Chad.

Operator

It looks like there are no more for the question at this time. I would like to turn the call back to our speakers for any additional or closing remarks.

Rich Gelfond -- Chief Executive Officer

Yes. Thanks, operator, and thanks, everybody, for joining our call. I mean if you just go out to a very high level, some part of our network, almost half, has either been closed or operating at limited capacity when you add China and Russia, so literally do the math. And we managed to be almost identical to 2019, the best year in IMAX' history.

So I mean life isn't perfect. But I think if you're sitting where IMAX is and with the macro trends and the win that you've back, I'm quite pleased with where we ended up for the quarter. And I'm pretty pleased with where we are for the year. So we'll be back to you at the end of the next quarter, and appreciate your taking the time to answer all those very well thought out questions, to ask all those thought out questions.

Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Heather Anthony -- Senior Vice President, Head, Global Financial Planning & Analysis

Rich Gelfond -- Chief Executive Officer

Natasha Fernandes -- Chief Financial Officer

Eric Handler -- MKM Partners -- Analyst

Megan Colligan -- President of IMAX Entertainment

Mike Ng -- Goldman Sachs -- Analyst

Eric Wold -- B. Riley Securities -- Analyst

Steven Cahall -- Wells Fargo Securities -- Analyst

Mike Hickey -- The Benchmark Company -- Analyst

Unknown speaker

Jim Goss -- Barrington Research -- Analyst

Chad Beynon -- Macquarie Group -- Analyst

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