The disparity in the CEO’s compensation vs last year appears to be due to a judgement call that resulted in no option awards, which came to $3.2M last year. In a year when IMAX shares were up 18.7%, Gelfond‘s package included $750,000 salary, $1M bonus, $1.7M change in pension value, and $126,275 in other compensation. The “other” category included $26,865 for personal use of a company car, according to the company proxy filed at the SEC today. Gelfond’s package was 2.3 times the median for IMAX’s four other top execs, comfortably below the level (3 times) that worries analysts and academics who are suspicious of concentrated CEO power. Last year Gelfond’s pay was 4.3 times higher than his colleagues’ which put him on our out-of-whack list. Shareholders at the annual meeting, to be held June 11 in New York, can register their opinion about this year’s compensation in an advisory say-on-pay vote.
The large screen theater company set a high bar for itself this morning when it reported a 55.7% jump in the gross box office for its films in Q4. But CEO Rich Gelfond will try to beat that in 2013 by taking more control over the films IMAX theaters show. One initiative, unveiled this morning, will deploy digital projectors in about 30 of the company’s most popular theaters which currently use conventional film — including Regal’s IMAX theaters in Irvine, Cal.; Ontario, Cal.; and Orlando, Fla. The change is needed because film stock is “disappearing faster than we had anticipated” and the cost of processing it is rising. “With a digital projector we can show 25 films a year because each hard drive costs $150,” he tells me. “You can swap it in or out, no big deal. In a film theater each print costs $30,000. They’re big, bulky, and expensive.” But the digital projectors aren’t powerful enough to light some of the largest screens including theaters in New York’s Lincoln Square, Los Angeles’ Howard Hughes Center, and the Universal CityWalk. That’s one reason why the digital projectors are merely an “interim solution” until late 2014 when IMAX will roll out its more powerful laser projectors.
The large-screen theater company says it generated $8.39M in net income for 3Q, up 24.6% vs the period last year, on revenues of $67.5M, up 32.2%. That translated into adjusted earnings of 16 cents a share, light of the 20 cents that the Street expected. But IMAX says it took a 6 cent hit due to “a sudden decrease of the Canadian Dollar against the U.S. Dollar at the end of the third quarter.” Most of IMAX’s revenues are in U.S. dollars, but most of its expenses are in Canadian dollars. Since the end of September the Canadian dollar has strengthened, leading IMAX to project a $3.4M gain in 4Q. CEO Rich Gelfond says he’s optimistic about upcoming films led by Paramount’s Mission: Impossible — Ghost Protocol: The IMAX Experience as well as revenues from new theaters being built overseas. Gelfond says that 3Q was the first time that IMAX saw more gross revenues from overseas theaters than from domestic. The company increased its international growth plans by 25% and says those markets will account for about 75% of the new IMAX venues planned for the next 15 months.
Many investors think so this morning; RealD shares are down more than 7.7% in early trading. There’s no immediate danger: RealD has a few years left on its exclusive deals with major theater owners to supply their 3D-projection technology. Still, BTIG analyst Rich Greenfield warns today that over time “IMAX could utilize/license the Kodak technology to offer a superior 2D/3D projection system for traditional (non-IMAX) movie theaters worldwide.” For now, IMAX says it just plans to use the Kodak technology to improve images for its films on screens larger than 80 feet and in dome theaters beginning in late 2013. The company has been working with tech company Laser Light Engines to develop a similar projection process. But IMAX says that Kodak’s will “consume less power, last longer and have a wider color gamut.” Blending its current work with Kodak’s patents “puts us at the forefront of laser-based projection,” IMAX CEO Rich Gelfond says. The companies didn’t disclose how much IMAX will pay to license the patents from Kodak, which is struggling to shift its focus from cameras to printing. Kodak shares are up 6.5% so far today, while IMAX is down 3.1%. Still, with Kodak so desperate for cash, Greenfield wants RealD to explain “why did they not license/acquire the Kodak technology themselves”?
Imax says in an SEC filing that COO Gary Moss will leave at the end of this month and not be replaced. Imax created the COO job, reporting to CEO Rich Gelfond, in 2009 when Moss joined. He had been a consultant and an executive at a concert promotion subsidiary of Live Nation and at EMI Group Canada. An Imax insider says that the company believes it doesn’t need a COO anymore. Over the last six months the large screen theater firm has bulked up its management ranks — for example adding a new chief marketing officer, SVP for human resources, head of strategy, head of business development, and CEO for Imax China. Moss was not listed as one of Imax’s five highest paid employees in its latest proxy statement.
UPDATE, 6:40 AM: In a conference call with analysts, CEO Rich Gelfond continued to talk up future opportunities while acknowledging that “like you we’re not happy” with recent box office sales. He’s talking to studios about making films available to IMAX venues before they open elsewhere and is “optimistic about obtaining a title in the not-too-distant future.” He’s also considering making a bigger bet on potential blockbusters by reducing the number of films IMAX shows each year. No decision has been made but “my own vote is for less (films) with longer lead times.” Gelfond also will change the mix of films IMAX runs: “Our audience is more of a fanboy-driven audience than a family-driven audience, so we are going to make an adjustment.” Gelfond says he’s excited about a new digital laser projection technology he hopes to introduce in 2013 that would brighten screen images and reduce costs on bulbs. He’s not sure, though, whether he’ll accomodate director Peter Jackson’s effort to have his upcoming film The Hobbit shown at 48 frames per second vs the industry average of 24 fps. “We’re in discussions with Warner as to whether it makes sense,” he says.
PREVIOUS, 4:55 AM: Not a happy quarter for IMAX. The large-screen theater company reported 2Q net income of $1.8M, down 86.5% vs the same period last year, on revenues of $57.2M, up 3%. After adjusting for stock compensation and deferred taxes, earnings came in at …
Wall Street’s backlash against 3D movies is growing serious. Just weeks after movie executives and investors wondered how well 3D films would do this summer, they’ve begun to ask much tougher questions including: When will movie theater chains begin to cancel orders for 3D projection equipment? And could continued weakening in ticket sales force AMC Entertainment to shelve its plan to go public and raise as much as $450 million?
Defenders of the technology are urging everyone to wait and see whether there’s an uptick in 3D ticket sales for Paramount’s Transformers: Dark Of The Moon, which opens July 1, and Warner Bros’ Harry Potter And The Deathly Hallows, Part II, which opens July 15. The films should “help provide for a more positive outlook” for 3D in general and particularly for 3D technology company RealD, says Merriman Capital analyst Eric Wold.
But investors didn’t appear to agree on Friday. RealD’s stock price fell 13.2% to $20.90 the day after executives responded to the Street’s concerns with talking points that simply urged people not to read too much into disappointing 3D sales for just a few films. RealD shares now have lost 41.3% of their value since May 19. “While management dismisses a change in consumer enthusiasm toward 3D, the public is speaking and 3D is simply being overused with ticket premiums far too high,” says BTIG analyst Rich Greenfield — who has a “sell” rating on RealD.
Here’s the strange thing about IMAX these days: the large screen exhibitor reported terrible financial results for the first quarter although analysts were projecting it would continue to report a profit. Yet its stock price closed up 6% at $34.24, for a more than 60% gain over the past year. Even this morning, Wall Street was reassured by the IMAX upbeat projections for ticket sales and global expansion plans. Which is why CEO Richard Gelfond today tells me that 1st quarter financial results are not nearly as terrible as they look.
GELFOND: If you strip out nonrecurring things, it really shows up as a 4 cent (earnings per share) number. That was a little short of expectations among analysts. And I think frankly some of that happened because we incurred expenses in China in building our business there. Some in R&D, and reinvesting in our business. And I think people didn’t understand that the first quarter was devoid of any blockbuster films. For us, if the box office drops 25% — as it did — as long as there are blockbuster films that doesn’t matter. We don’t play a full film slate. We play just a couple of films. But what made the quarter noteworthy was that there were no blockbuster films. That has a big impact on us. Fortunately, starting tonight at midnight, we have Fast Five domestically and Thor internationally. So the blockbuster season …
The box office’s poor performance during the first part of the year has impacted IMAX, too. The giant-screen exhibitor reported first-quarter results this morning that saw revenue and earnings down. “The first quarter lacked event films, particularly compared to the phenomenal strength of last year’s Avatar, and our financial results as compared to last year reflect this,” IMAX CEO Richard Gelfond said. Imax reported a net loss for the first quarter of $1 million, or $0.02 per diluted share, down from $26.6 million last year. Revenue slid from $72.8 million a year ago to $45.2 million.
Imax did boost its outlook for theater installations after saying it signed agreements for 101 theater systems during the first quarter. It also announced that it will expand its credit facility to as much as $110 million, extending the maturity to October 2015.