Leave it to IMAX (NASDAQ:IMAX) to make the world's biggest movie release look like bad news.
Yet, that's exactly what happened. Matrix: Revolutions, the third of the Matrix series, opened this weekend in more than 100 countries in simultaneous release. A film so visually stunning would seem an ideal fit for IMAX's large-screen formats. Producers agreed, and this week marks the first time a major movie's release included IMAX. The movie garnered more than $204 million in its first weekend, shattering previous records.
So naturally, IMAX stock is off more than 10% today.
This was supposed to be a watershed event for IMAX, confirmation that movie studios would be well served to spend extra to produce their feature films in IMAX format. Granted IMAX's share of the first weekend's box exceeded $3 million, well above any one-weekend release ever for the company. But one cannot simply look at the opening weekend for Revolutions and say that good things betide IMAX or any other of the companies heavily invested in its success.
Matrix: Reloaded, the May installment of the series, generated more than $98 million in the U.S. its first weekend, compared to just $50 million for Revolutions. Since the film has opened worldwide, you can't expect a strong opening in the US will translate into big momentum in other markets -- all systems are already go.
For IMAX, such numbers can be looked on as a failure only because Revolutions is a big part of the revenues the company hoped to haul in this year. So, despite the fact that IMAX's results for the most recent quarter were slightly below expectations -- a loss of $0.07 vs. an expected $0.06 -- the real issue contributing to the stock's weakness is the concern that its blockbuster for the coming quarters could be anything but.
The company's Co-CEOs trumpeted the fact that IMAX theatres were sold out throughout the weekend, but the real issue lies in that expectations for packed theatres for the next several months may prove unfounded given the "didn't-love-it-so-much" reaction to the film.
Meanwhile, IMAX announced that it would refinance all of its existing outstanding debt, an amount of some $153 million, replacing notes due in 2005 at 7 7/8% with senior debt due in 2010 with as-of-yet unannounced coupons. This has the effect of pushing out a fairly big risk for the company -- that it cannot repay the principal -- 5 more years, at what should be a lower rate.
It would be nice to see IMAX likewise restructure the asset side of its ledger. It has financing receivables equal to 2 1/2 times quarterly revenues, and revenues that represent nearly 2 times cost of goods sold. Both amounts seem absurdly high for a company that generates its cash flows from a series of one-time events.
Discuss IMAX, the Matrix, and all the rest at our Great Movies discussion board. Bill Mann appreciates feedback at [email protected].
