The movie business is seasonal, with summer blockbusters generating huge amounts of publicity and box office receipts for Hollywood players. The fall and winter months often can't live up to the hype from busier periods, and that makes quarterly performance for theater operator IMAX (NYSE:IMAX) prone to wild fluctuations. Moreover, because of the timing of releases of certain blockbuster films, IMAX can see big changes from year to year as well.
Coming into Tuesday's fourth-quarter financial report, IMAX investors were fully prepared to see weaker results. In the end, IMAX held up better than expected, and even with some deterioration in its key financial metrics, the big-screen giant set the stage for what it hopes will be a blockbuster year in 2019.
IMAX puts on a show
IMAX's fourth-quarter results showed the difficulties that the industry has in maintaining consistent results. Revenue came in at $109 million for the quarter, and even though that was down 13% from year-ago figures, it was still better than the 18% top-line drop that most of those following the stock were expecting. Adjusted net income was $16.4 million, off 25% from the fourth quarter of 2017, and that produced adjusted earnings of $0.26 per share. That last figure was down from year-earlier levels as well, but it surpassed the consensus forecast among investors for $0.24 per share.
Harsh results from the box office had a huge blow to the business. IMAX said that gross box office for the quarter amounted to $236.7 million, down 15% from the previous year. The company blamed a weaker lineup of films recently, with the 2017 quarter including the eighth installment of the Star Wars movie franchise. IMAX tried to make up for the shortfall by showing 29 different films during the period, up from 26 a year ago, but the weaker draw reflected reduced interest in those offerings.
From a network standpoint, IMAX's expansion efforts continued unchecked. The company installed 88 theater systems, pushing the size of the network above the 1,500 system mark. Yet in part because of contracts for 12 new theaters and two upgrades during the fourth quarter, backlog levels were still higher than they were at the end of 2017, at 564 compared with 499 a year ago.
That helped explain some disparities across IMAX's segments. The theater business division took the brunt of the pain, with a 22% hit to revenue on weakness in both digital media remastering and joint revenue-sharing arrangements. Yet the theater business segment saw double-digit percentage revenue growth during the period, albeit partially because of changes in accounting standards.
What's ahead for IMAX?
CEO Richard Gelfond put 2018 into a broader context. "We believe our achievements last year set the stage for IMAX to have a blockbuster year in 2019," Gelfond said, as "we further differentiated the IMAX Experience, increased awareness of the IMAX brand, and tackled key challenges in China, where we delivered our strongest box office year ever and doubled the industry growth rate."
The CEO also pointed to new opportunities for the coming year. Between multiple films from Marvel, the final episode of the Star Wars saga, and a remake of The Lion King, Gelfond has high hopes for the future. Moreover, China is already seeing a big turnaround, with IMAX's box office figures year to date there up more than 60% from this time in 2018.
IMAX shareholders didn't have a huge immediate reaction to the news, and the stock climbed less than 1% in after-hours trading following the announcement. Even so, long-term investors should look favorably on IMAX's prospects for 2019, especially as Hollywood delivers some long-awaited titles that should help the theater industry fill seats across the globe.