IMAX Corporation Reports First-Quarter 2017 Results

March 31, 2017

Three Months

Ended March 31,

Theater Signings:

2017

2016

Full new sales and sales-type lease arrangements

36

28

New joint revenue sharing arrangements

2

7

Total new theaters

38

35

Upgrades of IMAX theater systems

1

1

Total Theater Signings

39

36

Three Months

Ended March 31,

Theater Installations:

2017

2016

Full new sales and sales-type lease arrangements

5

5

New joint revenue sharing arrangements

9

5

Total new theaters

14

10

Upgrades of IMAX theater systems

1

⁽¹⁾

9

⁽¹⁾⁽²⁾

Total Theater Installations

15

19

As of March 31,

Theater Backlogs:

2017

2016

New sales and sales-type lease arrangements

176

174

New joint revenue sharing arrangements

Hybrid arrangements

93

119

Traditional arrangements

255

95

Total new theaters

524

⁽³⁾

388

⁽⁴⁾

As of March 31,

Theater Network:

2017

2016

Commercial Multiplex Theaters:

Sales and sales-type lease arrangements

472

418

Joint revenue sharing arrangements

649

534

Total Commercial Multiplex Theaters

1,121

952

Commercial Destination Theaters

14

17

Institutional Theaters

91

97

Total Theater Installations

1,226

1,066

(1)

Includes one installation of an upgrade to a laser-based digital system under sales arrangement (2016 – eight laser-based digital systems under sales and sales-type lease arrangements).

(2)

Includes one installation of an upgrade to a xenon-based digital system under sales arrangement.

(3)

Includes 21 laser-based digital theater system configurations, including three upgrades. The Company continues to develop and roll out its laser-based digital projection system.

(4)

Includes 21 laser-based digital theater system configurations, including six upgrades (one xenon configuration and five laser configurations).

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)

Three Months

Ended March 31,

2017

2016

Revenues

Equipment and product sales

$

11,544

$

23,740

Services

38,844

44,273

Rentals

15,857

21,779

Finance income

2,412

2,336

68,657

92,128

Costs and expenses applicable to revenues

Equipment and product sales

7,464

17,791

Services

19,814

17,596

Rentals

5,608

4,565

32,886

39,952

Gross margin

35,771

52,176

Selling, general and administrative expenses

30,941

28,919

(including share-based compensation expense of $5.3 million for the three months ended March 31, 2017 (2016 — expense of $5.9 million))

Research and development

4,334

3,708

Amortization of intangibles

602

491

Receivable provisions, net of recoveries

185

126

(Loss) income from operations

(291)

18,932

Interest income

228

467

Interest expense

(455)

(398)

(Loss) income from operations before income taxes

(518)

19,001

Provision for income taxes

(114)

(4,608)

Loss from equity-accounted investments, net of tax

(255)

(441)

Net (loss) income

(887)

13,952

Less: net income attributable to non-controlling interests⁽¹⁾

962

(2,650)

Net income attributable to common shareholders

$

75

$

11,302

Net income per share attributable to common shareholders - basic & diluted:

Net income per share – basic

$

-

$

0.16

Net income per share – diluted

$

-

$

0.16

Weighted average number of shares outstanding (000's):

Basic

66,363

69,379

Fully Diluted

67,180

70,120

Additional Disclosure:

Depreciation and amortization⁽²⁾

$

12,088

$

10,438

(1)

For the three months ended March 31, 2017, includes an adjustment of $1.9 million related to the Documentary Film Fund's non-controlling shareholder's portion of the impairment

(2)

Includes $0.1 million of amortization of deferred financing costs charged to interest expense for the three months ended March 31, 2017 (2016 - $0.1 million)

IMAX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)

March 31,

December 31,

2017

2016

Assets

Cash and cash equivalents

$

190,481

$

204,759

Accounts receivable, net of allowance for doubtful accounts of $1,282 (December 31, 2016 — $1,250)

96,113

96,349

Financing receivables

120,490

122,125

Inventories

45,433

42,121

Prepaid expenses

8,047

6,626

Film assets

13,413

16,522

Property, plant and equipment

248,228

245,415

Other assets

19,660

33,195

Deferred income taxes

29,491

20,779

Other intangible assets

31,106

30,416

Goodwill

39,027

39,027

Total assets

$

841,489

$

857,334

Liabilities

Bank indebtedness

$

26,826

$

27,316

Accounts payable

13,935

19,990

Accrued and other liabilities

75,424

93,208

Deferred revenue

100,901

90,266

Total liabilities

217,086

230,780

Commitments and contingencies

Non-controlling interests

2,555

4,980

Shareholders' equity

Capital stock common shares — no par value. Authorized — unlimited number.

66,596,784 issued and 66,573,078 outstanding (December 31, 2016 — 66,224,467 issued and 66,159,902 outstanding)

455,838

439,213

Less: Treasury stock, 23,706 shares at cost (December 31, 2016 — 64,565)

(779)

(1,939)

Other equity

165,670

177,304

Accumulated deficit

(55,605)

(47,366)

Accumulated other comprehensive loss

(4,447)

(5,200)

Total shareholders' equity attributable to common shareholders

560,677

562,012

Non-controlling interests

61,171

59,562

Total shareholders' equity

621,848

621,574

Total liabilities and shareholders' equity

$

841,489

$

857,334

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

Three Months Ended March 31,

2017

2016

Cash provided by (used in):

Operating Activities

Net (loss) income

$

(887)

$

13,952

Adjustments to reconcile net (loss) income to cash from operations:

Depreciation and amortization

12,088

10,438

Write-downs, net of recoveries

4,010

648

Change in deferred income taxes

(958)

(185)

Stock and other non-cash compensation

5,660

6,002

Unrealized foreign currency exchange gain

(171)

(557)

Loss from equity-accounted investments

156

818

Loss (gain) on non-cash contribution to equity-accounted investees

99

(377)

Investment in film assets

(3,334)

(3,919)

Changes in other non-cash operating assets and liabilities

(17,280)

(21,783)

Net cash (used in) provided by operating activities

(617)

5,037

Investing Activities

Purchase of property, plant and equipment

(4,068)

(4,585)

Investment in joint revenue sharing equipment

(7,547)

(3,988)

Investment in new business ventures

(1,000)

-

Acquisition of other intangible assets

(1,591)

(770)

Net cash used in investing activities

(14,206)

(9,343)

Financing Activities

Repayment of bank indebtedness

(500)

(500)

Settlement of restricted share units and options

(11,158)

(5,849)

Common shares issued - stock options exercised

13,082

740

Treasury stock purchased for future settlement of restricted share units

(779)

-

Taxes withheld and paid on employee stock awards vested

(146)

(73)

Repurchase of common shares

-

(44,618)

Taxes paid on secondary sale and repatriation dividend

-

(2,991)

Net cash provided by (used in) financing activities

499

(53,291)

Effects of exchange rate changes on cash

46

(100)

Decrease in cash and cash equivalents during period

(14,278)

(57,697)

Cash and cash equivalents, beginning of period

204,759

317,449

Cash and cash equivalents, end of period

$

190,481

$

259,752

IMAX CORPORATION

SELECTED FINANCIAL DATA

In accordance with United States Generally Accepted Accounting Principles

(in thousands of U.S. dollars)

The Company has four primary groups identified by nature of product sold or service provided: (1) Network Business, representing variable revenue generated by box-office results and which includes the reportable segments of IMAX DMR and contingent rent from the JRSAs and IMAX systems segments; (2) Theater Business, representing revenue generated by the sale and installation of theater systems and maintenance services, primarily related to the IMAX Systems and Theater System Maintenance reportable segments, and also includes fixed hybrid revenues and upfront installation costs from the JRSA segment and after-market sales of projection system parts and 3D glasses from the other segment; (3) New Business, which includes content licensing and distribution fees associated with the Company's original content investments, virtual reality initiatives, IMAX Home Entertainment, and other business initiatives that are in the development and/or start-up phase, and (4) Other; which includes the film post-production and distribution segments and certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items from the other segment.

Three Months

Ended March 31,

2017

2016

Revenue

Network Business

IMAX DMR

$

23,408

$

29,805

Joint revenue sharing arrangements – contingent rent

15,233

21,315

IMAX systems - contingent rent

688

1,187

39,329

52,307

Theater Business

IMAX systems

Sales and sales-type leases

6,942

17,999

Ongoing fees and finance income

2,585

2,675

Joint revenue sharing arrangements – fixed fees

470

2,070

Theater system maintenance

11,045

9,826

Other theater

2,165

2,487

23,207

35,057

New Business

1,280

-

Other

Film distribution and post-production

3,584

2,770

Other

1,257

1,994

4,841

4,764

Total

$

68,657

$

92,128

Gross margins

Network Business

IMAX DMR⁽¹⁾

$

17,467

$

22,823

Joint revenue sharing arrangements – contingent rent⁽¹⁾

10,250

17,487

IMAX systems - contingent rent

688

1,187

28,405

41,497

Theater Business

IMAX systems

Sales and sales-type leases⁽¹⁾

3,220

4,320

Ongoing fees and finance income

2,521

2,328

Joint revenue sharing arrangements – fixed fees⁽¹⁾

88

504

Theater system maintenance

4,249

3,439

Other theater

430

(32)

10,508

10,559

New Business

(337)

(225)

Other

Film distribution and post-production⁽¹⁾

(2,663)

570

Other

(142)

(225)

(2,805)

345

Total

$

35,771

$

52,176

(1)

IMAX DMR segment margins include marketing costs of $2.6 million for the three months ended March 31, 2017 (2016 - $2.3 million). Joint revenue sharing arrangements segment margins include advertising, marketing and commission costs of $0.4 million for the three months ended March 31, 2017 (2016 - $0.1 million). IMAX systems segment margins include marketing and commission costs of $0.4 million for the three months ended March 31, 2017 (2016 - $0.5 million). Film distribution and post production segment margins include a marketing recovery of $0.2 million for the three months ended March 31, 2017 (2016 – expense of $0.7 million) and an asset impairment charge of $3.4 million related to a write-down within the film distribution business.

IMAX CORPORATION

OTHER INFORMATION

(in thousands of U.S. dollars)

Non-GAAP Financial Measures:

In this release, the Company presents adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share, EBITDA and adjusted EBITDA as supplemental measures of performance of the Company, which are not recognized under U.S. GAAP. The Company presents adjusted net income and adjusted net income per diluted share because it believes that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) on net income. In addition, the Company presents adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results and could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable to non-controlling interests and its stock-based compensation (net of any related tax impact) in determining net income attributable to common shareholders. Management uses these measures to review operating performance on a comparable basis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share should be considered in addition to, and not as a substitute for, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP.

The Company is required to maintain a minimum level of "EBITDA", as such term is defined in the Company's credit agreement (and which is referred to herein as "Adjusted EBITDA", as the credit agreement includes additional adjustments beyond interest, taxes, depreciation and amortization). EBITDA and Adjusted EBITDA (each as defined below) should not be construed as substitutes for net income or as better measures of liquidity as determined in accordance with U.S. GAAP.  The Company believes that EBITDA and Adjusted EBITDA are relevant and useful information widely used by analysts, investors and other interested parties in the Company's industry.

For the

For the

3 months ended

12 months ended

March 31, 2017

March 31, 2017⁽¹⁾

(In thousands of U.S. Dollars)

Net (loss) income

$

(887)

$

26,256

Add (subtract):

Provision for income taxes

114

12,608

Interest expense, net of interest income

227

611

Depreciation and amortization, including film asset amortization

11,957

47,613

EBITDA

$

11,411

$

87,088

Write-downs, net of recoveries including asset impairments and

receivable provisions

4,010

9,302

Loss from equity accounted investments

255

2,135

Stock and other non-cash compensation

5,660

28,579

Adjusted EBITDA before non-controlling interests

21,336

127,104

Adjusted EBITDA attributable to non-controlling interests⁽²⁾

(2,845)

(18,211)

Adjusted EBITDA attributable to common shareholders

$

18,491

$

108,893

Adjusted revenues attributable to common shareholders⁽³⁾

$

62,749

$

318,355

Adjusted EBITDA margin

29.5

%

34.2

%

(1)

Ratio of funded debt calculated using twelve months ended Adjusted EBITDA.

(2)

The Adjusted EBITDA calculation specified for purpose of the minimum Adjusted EBITDA covenant excludes the reduction in Adjusted EBITDA from the Company's non-controlling interests.

(3)

3 months ended March 31, 2017

12 months ended March 31, 2017

Total revenues

$

68,657

$

353,863

Greater China revenues

$

18,590

$

112,183

Non-controlling interest ownership percentage⁽⁴⁾

31.78%

31.65%

Deduction for non-controlling interest share of revenues

(5,908)

(35,508)

Adjusted revenues attributable to common shareholders

$

62,749

$

318,355

(4)

Weighted average ownership percentage for change in non-controlling interest share

IMAX CORPORATION

OTHER INFORMATION

(in thousands of U.S. dollars)

Adjusted Net Income and Adjusted Diluted Per Share Calculations – Quarter Ended March 31, 2017 vs. 2016:

The Company reported a net loss of $0.9 million, or a loss of $0.01 per basic and diluted share for the first quarter of 2017, as compared to net income of $14.0 million or $0.20 per basic share and diluted share for the first quarter of 2016. Net income for the first quarter of 2017 includes a $5.3 million charge or $0.08 per diluted share (2016 — $5.9 million or $0.09 per diluted share) for stock-based compensation. Adjusted net income, which consists of net income excluding the impact of stock-based compensation and the related tax impact, was $3.0 million or $0.05 per diluted share for the first quarter of 2017, as compared to adjusted net income of $18.0 million or $0.26 per diluted share for the first quarter of 2016. The Company reported net income attributable to common shareholders of $0.1 million, or $nil per basic and diluted share for the first quarter of 2017 (2016 — $11.3 million, or $0.16 per basic and diluted share). Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation and the related tax impact, was $3.9 million or $0.06 per diluted share for the first quarter of 2017, as compared to adjusted net income attributable to common shareholders of $15.3 million or $0.22 per diluted share for the first quarter of 2016. A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below:

(In thousands of U.S. dollars, except per share amounts)

Quarter Ended March 31,

2017

2016

Net Income

Diluted EPS

Net Income

Diluted EPS

Reported net (loss) income

$

(887)

$

(0.01)

$

13,952

$

0.20

Adjustments:

Stock-based compensation

5,264

0.08

5,873

0.09

Tax impact on items listed above

(1,341)

(0.02)

(1,800)

(0.03)

Adjusted net income

3,036

0.05

18,025

0.26

Net loss (income) attributable to non-controlling interests

962

0.01

(2,650)

(0.04)

Stock-based compensation (net of tax of less than

$0.1 million and less than $0.1 million, respectively) attributable to non-controlling interests

(128)

-

(125)

-

Adjusted net income attributable to common shareholders

$

3,870

$

0.06

$

15,250

$

0.22

Weighted average diluted shares outstanding

67,180

70,120

Free Cash Flow:

Free cash flow is defined as cash provided by operating activities minus cash used in investing activities (from the consolidated statements of cash flows). Cash provided by operating activities consist of net income, plus depreciation and amortization, plus the change in deferred income taxes, plus other non-cash items, plus changes in working capital, less investment in film assets, plus other changes in operating assets and liabilities. Cash used in investing activities includes capital expenditures, acquisitions and other cash used in investing activities. Management views free cash flow, a non-GAAP measure, as a measure of the Company's after-tax cash flow available to reduce debt, add to cash balances, and fund other financing activities. Free cash flow does not represent residual cash flow available for discretionary expenditures. A reconciliation of cash provided by operating activities to free cash flow is presented in the table below:

For the

Three months ended

March 31, 2017

(In thousands of U.S. Dollars)

Net cash used in operating activities

$

(617)

Net cash used in investing activities

(14,206)

     Net cash flow

$