Quarterly Earnings: Regal, Imax and Dolby

By Patrick von Sychowski | July 25, 2014 1:41 am PDT

Quarterly figures have been arriving thick and fast this week. We look at three key cinema companies: Regal Entertainment, Imax Corporation and Dolby Laboratories.

The world’s largest cinema operator announced its quarterly figures and they were not what the analysts had hoped for, with revenue of USD $770.3 million, down 8.5% year-on-year and misses expectations by USD $41.41 million. There was a dividend of USD $0.22 per share. The CEO put a brave face on the drop and found a silver lining to highlight, though I’m not sure about her positive take on this year’s BO potential.

In a challenging summer box office environment, the growth in our average concession sales per patron and our focus on controlling variable costs helped drive Adjusted EBITDA margin of over 19%, stated Amy Miles, CEO of Regal Entertainment Group. With year-to-date industry box office results on par with last years record setting pace and an exciting film slate in the back half of the year, we are optimistic regarding the potential for further box office success in 2014.  LINK

In the earnings call that followed there was an acknowledgment of the harsher realities faced this summer but also some historical perspective by Ms Miles.

When viewed from a broader perspective, this year’s second quarter industry box office revenue was in line with the historical average for the last 5 years. On — one other item of note as it relates to the second quarter box office performance, we were again encouraged by the studios’ willingness to expand the summer box office season by delivering high-profile films throughout the quarter. Difficult comparisons aside, we continue to believe that a diverse film slate and a well-spaced release calendar increase the long-term potential for box office success for us and our studio partners.  LINK

Concessions, better consumer amenities, premium seats as well as Imax/RPX (premium large format) screens are the key to riding out the financial troughs.

And finally, the early returns on our initial investments in luxury, reclining seats are very promising, and in most cases, ahead of our expectations. We have fully converted 5 locations with 46 screens and are on track to complete 25 locations with 275 screens by the end of the year. As a reminder, this concept is not right for every location. Many of our theaters are simply too busy to sustain the seat loss that results from the installation of the larger recliners.

But in some situations, where the theater has been impacted by competition or simply nearing the end of its useful life, a return-minded investment in reclining seats can rejuvenate and potentially even extend the life of an existing theater. Based on the early success of these auditoriums, we believe we will have further opportunities to invest in our asset base in both 2015 and ’16. We remain excited about the potential for growth and financial returns associated with these initiatives and look forward to updating you as they progress.  LINK

Other insights: average ticket price was up by USD $0.05, premium screens attract 17% of box office, operating expenses were down by 1% (“due primarily to decreases in attendance-driven theater-level cost and lower payments associated with premium format revenue”), New York City and Washington D.C. were down by more than the market average, while alcoholic beverage serving was up from 31 to 39 locations. Interestingly the company doesn’t think it is possible to cut staffing levels any more than they already have.

Obviously, we’ll always look to reduce costs where we can in a low-attendance environment, and I think our managers and our field personnel will continue to do a great job doing that. But to ask them to do a lot more than that I think is going to be tough for us.  LINK


For the premium large format operator earnings were up even though revenues were down in the second quarter of 2014 (same quarter as Regal and Dolby but different counting). The press release detailed.

Imax today reported second quarter 2014 revenues of $79.1 million, adjusted EBITDA as calculated in accordance with the Company’s credit facility of $32.8 million, adjusted net income, after non-controlling interest, of $17.2 million, or $0.25 per diluted share, and reported net income, after non-controlling interest, of $13.3 million, or $0.19 per diluted share.

“During the second quarter, we showed operating leverage, delivering strong growth in net earnings, which translated to operating cash flow growth in the period. Our bottom line financials reflected expanding margins and continued cost controls,” stated Richard L. Gelfond, Chief Executive Officer of IMAX Corporation.  LINK

China is now so important for Imax that it the market got its own (long) paragraph in the press release.

“The IMAX network has grown significantly in China over the past several years, from just 9 theaters in 2008 to over 160 today, and just this week we announced another deal for 19 theaters in China with Shanghai Film Company,” Gelfond continued.  “Couple this with stellar box office performances from films such as Transformers 4, which has become our biggest grossing film ever in China, and I believe it is clear how strong our business and brand have become in China.  It is with this in mind that we announced earlier in the quarter the strategic investment by two Chinese investors for 20% of our IMAX China business, which we believe can help us further grow that business and unlock significant value for our IMAX shareholders.”

No transcript of the earnings conference call, but the trades weighed in after listening to it. THR noted that unrest in Russia and Ukraine had not (yet) had an impact on the company’s business there.

Asked about the recent box-office weakness in the U.S., the CEO said that some films have simply not been working as hoped, and maybe some people are feeling sequel fatigue. He also suggested increased interest in the soccer World Cup in the U.S. as a possible reason. But overall, Gelfond emphasized that he doesn’t think the recent box-office performance is a sign of a permanent downward trend. He predicted that Guardians of the Galaxy and Interstellar would do well and emphasized that 2015 and 2016 are shaping up as among the strongest years in recent memory in terms of release slates. He mentioned such planned releases as Fast & Furious 7, Tomorrowland, the next James Bond film and Star Wars: Episode VII.  LINK

Variety meanwhile picked up on Imax’s overall expansion plans.

Imax had 24 new theater signings and revenue share arrangements, ten fewer than the year ago period. Its network of theater chains now stands at 868, counting both commercial multiplexes and institutional theaters, up from 767 in the same quarter the previous year.

The company said it has announced 26 titles that it will release in 2014, the usual suspects include such tentpole films as “Godzilla” and “Transformers: Age of Extinction.” It expects to come close to matching the 38 titles it fielded in 2013.  LINK

Imax’s shares were down 2.3% on Wednesday at CAN $24.69.

Dolby Logo

Third quarter (Q3) figures for Dolby Laboratories have been announced and things are looking good, with revenue of USD $223.4 million, up from USD $207.1 million for Q3 FY 2013. Remember that Dolby’s money primarily comes from licensing: broadcasting (43%), PCs (19%), consumer electronics (14%) and mobile (13%), so cinema is really ‘other’ income. That said, it did get mentioned in the conference call:

Year-over-year, other markets was down about 3% due to a onetime license fee for imaging technologies in Q3 of last year that didn’t repeat this year. Product and services revenue was $17.8 million in Q3, which was down $2.2 million sequentially from Q2 and down $4.6 million year-over-year, as we continue to work through the maturing phase of the digital equipment cycle that’s not fully offset yet by adoption of newer solutions, such as our Dolby Atmos.

On a related topic, we continue to work towards closing the acquisition of Doremi Labs, which we announced a definitive agreement near the end of Q2, and we currently estimate that the deal could close in calendar — or should close in calendar Q4, perhaps in October. And that’s, of course, dependent on regulatory approvals, along with other customary closing conditions.  LINK

No mention of Atmos (for the cinema or home), but we did learn that Dolby “expect to see televisions with Dolby Vision shipping by the end of the year.”

Patrick von Sychowski
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