IMAX Expands

The king of multistory cinemas, IMAX (NASDAQ:IMAX), has just hit a growth spurt. The company announced this morning that concurrent deals have been signed with two of the nation's premier movie theater chains -- arrangements that will increase by 23% the number of IMAX theaters installed in traditional multiplexes.

National Amusements has inked a deal for six IMAX screens, with the option for as many 18. The first four theaters will be introduced in White Plains, N.Y.; Hartford, Conn.; Louisville, Ky.; and Cincinnati. Each is expected to be up and running in time for Thanksgiving. Separately, Cinemark furthered its partnership with IMAX. The No. 3 theater chain, which already has a handful of IMAX screens in place, signed a deal for two more.

Last quarter IMAX signed contracts for four theater systems worth $7.3 million, and it has finalized agreements for 19 so far this year. The company is easily on pace to exceed the 25 theaters that were contracted for last year. Compared with thousands of traditional screens, the relatively small number in IMAX format may seem inconsequential, but the growing acceptance by commercial movie exhibitors to give IMAX a try is an encouraging sign.

Future growth at the company hinges on the continued installation of IMAX screens in multiplex theaters. This new focus would not be possible without two innovations. First is the IMAX MPX technology, which allows traditional 35mm theaters a relatively inexpensive way to convert traditional auditoriums to IMAX screens. Equally important is the fact that major Hollywood studios have been releasing more films in both traditional and digitally remastered IMAX-DMR format.

IMAX DMR films such as Time Warner's (NYSE:TWX) Harry Potter and the Prisoner of Azkaban, which grossed $10 million domestically, and The Matrix Reloaded, which grossed $12 million, have been a major step forward in the firm's strategy. While these box-office receipts seem modest, keep in mind that the movies were released on only 50 to 75 screens. With the release of the blockbuster Spider-Man 2, Sony's (NYSE:SNE) Columbia Pictures recently became the fourth studio to distribute an IMAX DMR film.

Second-quarter financials were also announced this morning. Backing out one-time items from discontinued operations, net income rose 32% to $1.3 million. Earnings of $0.03 were essentially flat from last year but a penny ahead of estimates. Overall revenues fell 8% to $31.7 million, as a 5.5% increase in theater operations was offset by declines of 7.2% in systems revenue and 12.0% in film revenue.

These mixed numbers are less than inspiring, but they are nonetheless a marked improvement over the first quarter. The bigger story, though, is the fact that more theater operators are deciding to test-drive IMAX technology. With good early results and a terrific viewing experience, expect to see contracts for more IMAX MPX theaters going forward.

Did you think Spider-Man 2 topped its predecessor? Share your views in theGreat Moviesdiscussion board -- only on Fool.com.

Fool contributor Nathan Slaughter enjoys watching IMAX films, but doesn't own the stock, or that of any other company mentioned.