Tuesday morning's quarterly report from IMAX (NASDAQ:IMAX) was truly mixed -- the company came up short for the quarter ended in March but guided for better-than-expected results in the current one. We'll dig into those numbers shortly, but it's probably best to lead off with an update on the company's pursuit of "strategic alternatives" and its plans to step boldly into the future -- with or without a partner -- through its IMAX Digital initiative.
Ever since the company announced that it was putting itself on the block two months ago, speculation has revolved around likely suitors and a potential buyout price. Investors didn't get any clarity out of the company on either front this morning, but it did indicate that it has received several "preliminary proposals" and is now evaluating them to see which ones deserve some deeper exploration. There is no time frame here, though it's encouraging to know that there's more than just one potential buyer here. That should provide IMAX a little leverage in the negotiations.
If IMAX decides to go it alone, one of the more exciting things discussed during this morning's conference call was the company's decision to go digital. Companies like Thomson (NYSE:TMS) and a partnership between AccessIT (NASDAQ:AIXD) and subsidiary Christie/AIX are driving to transform old-school movie-theater projectors into digital ones. The allure is obvious, given the printing, shipping, and inventory costs that digitally delivered prints avoid. The rub lies in the cost of the projectors and the reluctance of movie chains to upgrade. By IMAX's estimates, its projectors run about $100,000, and each film print is about $1,000.
IMAX smells opportunity here. Because of the nature of its larger -- and more expensive -- prints, IMAX estimates that it can make digital projection work on a more modest 15-to-1 ratio, rather than the more daunting 100-to-1 mark. In other words, an IMAX theater owner will be able to recoup installation costs in just 15 films. That's a pretty strong potential driver for IMAX in the future, because new theater installations remain the largest contributor to the company's business.
That explains why the first quarter was so soft. The company had just one new theater installation and a pair of lease renewals take place during the period. With Time Warner's (NYSE:TWX) V For Vendetta flopping on the big screen -- and on the IMAX bigger screen -- IMAX didn't get enough help from the film side to offset the shortcoming in installations.
Revenue fell by 34.9% to $20.4 million as the company posted a loss of $0.14 a share. Analysts had been expecting a loss of only $0.07 a share on $26 million in revenue. The good news is that the second quarter will help balance things out a bit. The company is looking to complete 10 installations during the period, and it expects film revenue to nearly double sequentially. IMAX expects to earn between $0.05 a share to $0.08 a share on $40 million in revenue. Wall Street was banking on $0.04 per share in profitability on top-line production of $36.4 million.
Thanks to a backlog of 69 potential installations valued at $111 million, the next few quarters should be far more active than this past quarter. There is also a fair deal of buzz building around the 3-D footage that will be inserted into Superman Returns exclusively for IMAX audiences this summer. IMAX and Time Warner had a hit when they took Polar Express and gave it a 3-D makeover for IMAX patrons, and this will be their first shot at making it fly in a live-action film. If it succeeds in growing the audience for the likely summer blockbuster and gives filmgoers a reason to see the movie again, things will bode well for the film industry in general and IMAX in particular.
IMAX may be coming off a bad quarter, but it's in a pretty sweet place right now. It's got interested parties that may result in buyout offers for a near-term exit strategy, and the company's got new technology, like live-action 3-D and digital projecting, that will serve it well in the long-run.
IMAX was singled out last year to Motley Fool Rule Breakers newsletter subscribers as a potential growth stock with the ability to reshape the cinematic experience. The way the stars are aligning at the moment, it may reshape some portfolios for the better, too.
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Longtime Fool contributor Rick Munarriz loves to spot great things early. That's why he's been with The Motley Fool since 1995. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
