TORONTO -- IMAX Corporation (Nasdaq:IMAX) (TSX:IMX) today reported that revenues for the second quarter ended June 30, 2010 increased 38% to $55.6 million, compared to $40.4 million in the same period last year. Second quarter 2010 reported net income increased to $13.3 million, or $0.20 per diluted share, compared to reported second quarter 2009 net income of $2.6 million, or $0.05 per diluted share. Adjusted net income, which excludes the impact of variable stock compensation, increased 35% to $8.4 million, or $0.13 per diluted share, compared to adjusted net income of $6.2 million, also $0.13 per diluted share, on the same basis in last year's quarter, reflecting the year-over-year increase in weighted average shares outstanding. A foreign exchange loss related to the Canadian dollar and expenses associated with the increase in global sales activity and new business initiatives negatively impacted the quarter by approximately $0.03 per share.
Theatre System Signings
During the second quarter, the Company signed contracts for 57 theatre systems (18 joint venture systems, 31 sales/sales-type lease systems and eight digital upgrades), compared to contracts for seven theatre systems (four sales/sales-type lease systems and three digital upgrades) in the second quarter of 2009. Through the first six months, the Company has signed contracts for 98 theatre systems (37 joint venture systems, 39 sales/sales-type lease systems and 22 digital upgrades), compared to 10 theatre systems for the same period in 2009. Since quarter end, the Company has signed contracts for an additional 20 theatre deals, bringing the total number of theatre system signings to 118 year-to-date. IMAX signed contracts for 35 theatre systems during the full year of 2009.
Total revenue for the six month period ended June 30, 2010 increased 75% to $128.4 million, compared to $73.5 million for the same period last year. Reported net income for the six-month period increased to $39.9 million, or $0.60 per diluted share, compared to a loss of $0.1 million, or nil per share in the same period in 2009. Adjusted net income, which excludes the impact of variable stock compensation, increased to $43.7 million, or $0.66 per diluted share for the six month period ended June 30, 2010, compared to adjusted net income of $3.7 million, or $0.08 per share on the same basis last year. For a reconciliation of adjusted net income to reported net income, please see the end of this press release. Adjusted EBITDA (as defined by the Company's credit facility) was $16.3 million and $92.7 million for the second quarter 2010 and last twelve months ended June 30, 2010, respectively, compared to $17.0 million and $34.0 million for the second quarter 2009 and last twelve months ended June 30, 2009, respectively.
"We are pleased with our second quarter results, which reflect not only solid performance and revenue growth across our key business segments, but also our ability to leverage strong film performance into significant network expansion," said IMAX Chief Executive Officer Richard L. Gelfond. "The level of signings activity we have seen during the first half of the year from all around the world is giving us increased visibility into our business and positioning us for commercial network expansion of approximately 26% in 2010. We believe our signings momentum combined with the recurring revenue nature of our model will serve as a catalyst for EBITDA growth."
Mr. Gelfond continued, "In addition, as a result of new signings announcements to date, our continued discussions with exhibitors throughout the world and significant exhibition industry expansion in emerging markets such as China, we believe the worldwide market opportunity for IMAX(R) theatres is potentially closer to 1,200 to 1,250 instead of our previous outlook of 1,000 worldwide theatres."
Second Quarter Segment Results
Second quarter IMAX systems revenue increased 108% to $17.3 million from $8.3 million the second quarter of 2009. The Company installed and recognized revenue on six full, new theatre systems with an average value of $1.6 million in the second quarter of 2010, compared to three with an average value of $1.4 million in the second quarter of 2009. The Company also installed 11 digital system upgrades in the second quarter of 2010 compared to two in the same year-ago period.
For the second quarter of 2010, total film revenue increased 28% to $20.7 million, compared to $16.1 million in the second quarter of 2009. Production and IMAX DMR(R) revenues increased 20% to $14.5 million, compared to $12.1 million in the year ago period. Second quarter DMR revenues were driven by a broader film slate in 2010 versus the same quarter in 2009, including Iron Man 2, the Company's first Marvel title, and Toy Story 3, its first title from Disney's Pixar, as well as by the increased number of IMAX theatres in operation as compared to a year ago.
Gross box office from DMR titles increased 36% to $114.6 million in the second quarter of 2010, compared to $84.3 million in the second quarter of 2009. The per screen average for IMAX DMR titles in the second quarter was $487,400 ($390,300 domestic, $612,700 international) versus $410,400 ($413,400 domestic, $359,900 international) in the second quarter of 2009. For title by title detail, please see the end of this press release. Third quarter gross box office to date is $41.8 million, compared to $29.8 million during the same period last year. For the entire third quarter of 2009, IMAX DMR gross box office totaled $57.6 million.
"We delivered solid gross box office results in the second quarter and are pleased with the initial start to the third quarter, which is being driven by Inception, the international releases of Toy Story 3 and Shrek, and the Chinese blockbuster, Aftershock," Mr. Gelfond stated. "The growth of our theatre network and success of Hollywood films released in the IMAX theater network continues to attract Hollywood studios, as best evidenced by our multi-picture deals signed in the quarter with Warner Bros. and Disney, and we are pleased to have launched Aftershock in greater China, an important milestone for our Company as our brand becomes more global in nature. The increased visibility into our film slate is an added impetus for commercial theatre operators to add IMAX theatres to their multiplexes in locations around the world."
Revenue from joint revenue sharing arrangements increased 18% to $8.5 million in the second quarter of 2010, compared to $7.2 million in the prior year period, reflecting an increase in the number of joint revenue sharing theatres in operation as well as higher year-over-year gross box office per screen averages. In the second quarter of 2010, the Company installed a total of four full, new theatre systems under joint revenue sharing arrangements, compared to 22 such installations, and two digital upgrades, in the second quarter of 2009. As of June 30, 2010, a total of 126 theatres under joint revenue sharing arrangements were in operation, compared to 91 joint revenue sharing theatres as of June 30, 2009. Joint revenue sharing theatres generated gross box office per screen averages of approximately $382,000 for the quarter, a 12% increase compared to $342,000 last year's period.
Second quarter 2010 gross margin increased to $27.0 million from $20.7 million in the second quarter of 2009. As a percentage of sales, higher year-over-year joint revenue share and sales-type lease gross margins were offset by lower DMR margins primarily due to additional costs, including costs associated with the exhibition of eight titles throughout the IMAX network in the second quarter as compared to four titles in last year's comparable period.
Second quarter 2010 selling, general and administrative expense was $11.1 million, compared to $12.3 million in the second quarter of 2009. Selling, general and administrative expense, excluding variable stock compensation, in the second quarter of 2010 was $16.0 million compared to $8.6 million on the same basis in the second quarter of 2009. Selling, general and administrative expense was higher in the second quarter due in part to: a $3.4 million variance from foreign exchange resulting from a $0.9 million loss at the end of the second quarter in comparison to a foreign exchange gain of $2.5 million last year; a $0.7 million increase in professional fees, which includes work relating to new strategic business initiatives and a $0.6 million increase in travel-related costs commensurate with the higher level of theatre system deals signed to date.
Theatre System Backlog
As of June 30, 2010, the Company's backlog consisted of 187 theatre systems, compared to 171 theatre systems in backlog as of June 30, 2009. Included in the 2010 and 2009 system backlog totals were 70 and 67 theatres, respectively, under joint revenue sharing arrangements and 117 and 104 theatres, respectively, under sales and sales-type lease arrangements. As of June 30, 2010, 190 digital systems were in operation, compared to 102 as of June 30, 2009.
System Installation Outlook
Based on current backlog, the Company's current expectation is to install 6 to 8 new sales-type lease systems and 15 to 20 joint revenue sharing systems during the third quarter of 2010. Four of these joint revenue sharing systems have already opened in July. For the fourth quarter of 2010, the Company's current expectation is to install 12 to 15 new sales-type lease systems and 16 to 20 joint revenue sharing systems.
For the full year of 2010, the Company now expects to install between 68 and 82 systems, including 40 to 49 joint revenue sharing theatres and 28 to 33 new sales and sales-type lease systems (excluding upgrades), representing a 25% increase in previous annual installation guidance, which implies year-over-year commercial multiplex network growth of approximately 26%.
The Company also noted that, to date, it has announced eight DMR titles for release in 2011, compared to four DMR titles announced for release in 2010 at the same point last year. The Company remains in active negotiations with virtually every studio regarding future titles.