IMAX CORP (IMAX) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

IMAX Corporation, together with its consolidated subsidiaries (the “Company” or “IMAX”) is a Canadian corporation that was formed in March 1994 as a result of an amalgamation between WGIM Acquisition Corp. and the former IMAX Corporation (“Predecessor IMAX”). Predecessor IMAX was incorporated in 1967.

IMAX is a premier global technology platform for entertainment and events. Through its proprietary software, auditorium architecture, patented intellectual property, and specialized equipment, IMAX offers a unique end-to-end solution to create superior, awe-inspiring immersive content experiences for which the IMAX® brand is globally renowned. Top filmmakers, movie studios, artists, and creators utilize the cutting-edge visual and sound technology of IMAX to connect with audiences in innovative ways. As a result, IMAX is among the most important and successful global distribution platforms. The Company’s global content portfolio includes blockbuster films, both from Hollywood and local language film industries worldwide; IMAX documentaries, both original and acquired (“IMAX Documentaries”); and IMAX events and experiences in emerging verticals including music, gaming, and sports.

The Company leverages its proprietary technology and engineering in all aspects of its business, which principally consists of the IMAX film remastering (“IMAX Film Remastering” and formerly known as “IMAX DMR”) and the sale or lease of premium IMAX theater systems (“IMAX System(s)”).

IMAX Systems are based on proprietary and patented image, audio and other technology developed over the course of the Company’s history since its founding in 1967. The customers for IMAX Systems are principally theatrical exhibitors that operate commercial multiplex theaters, and, to a much lesser extent, museums, science centers and destination entertainment sites. The Company does not own the locations in the IMAX network, except for one, and is not an exhibitor, but instead sells or leases the IMAX System to exhibitor customers along with a license to use its trademarks and ongoing maintenance services for which there is an annual payment by the exhibitor to IMAX.

IMAX has the largest global premium format network, more than double the size of its nearest competitor. As of December 31, 2023, there were 1,772 IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplexes, 12 commercial destinations, and 67 institutional locations in the Company’s global network. This compares to 1,716 IMAX Systems in 87 countries and territories as of December 31, 2022, including 1,633 commercial multiplexes, 12 commercial destinations, and 71 institutional locations in the Company’s global network. Additional information on the composition of the IMAX network is provided in the discussion of IMAX Network and Backlog.

IMAX Systems provide the Company’s exhibitor customers with a combination of the following benefits:

•
the ability to exhibit content that has been enhanced through the IMAX Film Remastering, which results in higher image and sound fidelity than conventional cinema experiences;

•
advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrast and brightness than conventional theater systems;

•
large screens and proprietary auditorium geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’s peripheral vision and creates more realistic images;

•
advanced sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an auditorium equipped with an IMAX System;

•
specialized theater acoustics, which result in a four-fold reduction in background noise;

•
ongoing maintenance and extended warranty services; and

•
a license to the globally recognized IMAX brand as well as benefits from IMAX marketing of films being shown in its network and IMAX’s growing social media followership.

In addition, select movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which offer filmmakers customized guidance and a workflow process to provide further enhanced and differentiated image quality and an IMAX-exclusive film aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen. In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, with up to 67% more image.

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Together, these components cause audiences in IMAX locations to feel as if they are a part of the on-screen action, creating a more intense, immersive, and exciting experience than a conventional cinematic format.

As a result of the engineering and scientific achievements that are a hallmark of The IMAX Experience®, the Company’s exhibitor customers typically charge a premium for films released in IMAX’s format versus films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associated with IMAX films, generates incremental box office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAX network. The incremental box office generated by IMAX films combined with IMAX’s unmatched global network footprint and scale has helped establish IMAX as the key premium distribution and marketing platform for Hollywood and foreign local language movie studios.

The Company achieved its second highest grossing year at the global box office (“GBO”) and its highest grossing year at the Domestic, United States and Canada combined, box office in 2023. The year was highlighted by the Company’s highest grossing year for local language films, the $180.4 million in IMAX box office generated by Christopher Nolan’s Oppenheimer, and strong indexing across titles including Super Mario Bros., Guardians of the Galaxy Vol. 3, Spider-Man: Across the Spider-Verse, and Mission Impossible: Dead Reckoning.

A cornerstone of the IMAX brand for more than 50 years, IMAX recently relaunched its IMAX Documentaries unit to focus on a new generation of narrative-driven original and acquired documentary films, as well as downstream revenue opportunities through partnerships with leading streaming platforms. Additional forthcoming IMAX original documentaries include The Blue Angels and The Elephant Odyssey.

The Company also continues to evolve its platform to bring new, innovative events and experiences to audiences worldwide. During the year, the Company partnered with A24 for the IMAX LiveTM 40th anniversary screening of Jonathan Demme’s Stop Making Sense at the Toronto International Film Festival, which became the highest grossing IMAX Live event of all time. In January 2024, the Company and Pathé Live in partnership with Mercury Studios and Queen Films released Queen Rock Montreal, a concert from 1981, exclusively in 450 IMAX locations globally.

As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across North America, Europe, and Asia were configured with connectivity to deliver live and interactive content with low latency and superior sight and sound.

As a premier global technology platform for entertainment and events, the Company strives to remain at the forefront of advancements in entertainment technology. The Company offers a suite of laser-based digital projection systems (“IMAX Laser Systems”), which deliver increased resolution, sharper and brighter images, deeper contrast, and the widest range of colors available to filmmakers today. The Company further believes that its suite of IMAX Laser Systems are helping facilitate the next major renewal and upgrade cycle for the global IMAX network.

In September 2022, the Company acquired SSIMWAVE Inc. (“SSIMWAVE”), a leader in artificial intelligence (“AI”)-driven video quality solutions for media and entertainment companies. The acquisition of SSIMWAVE marks a significant expansion of the Company’s streaming and consumer technology strategy to deliver the highest quality images on any screen, while also creating cost efficiencies to streaming companies, broadcasters and other companies that transmit visual data to drive new, recurring revenue and grow its global leadership in entertainment technology. In 2023, the Company formed a new business unit, Streaming and Consumer Technology to focus on in-home entertainment technology. The business unit includes the streaming technology acquired in the SSIMWAVE acquisition as well as IMAX Enhanced® products and services.

The Company utilizes AI for image enhancement, streaming technology, and data analysis to improve various aspects of its business. It is actively exploring other global use cases for AI to improve its products, operations, and efficiency.

Commencing in March 2022, in response to numerous sanctions imposed by the United States, Canada and the European Union on companies transacting in Russia and Belarus resulting from ongoing conflict between Russia and Ukraine, the Company suspended its operations in Russia and Belarus. As of December 31, 2023, the IMAX network includes 54 systems in Russia, eight systems in Ukraine, and one system in Belarus, and the Company’s backlog includes 14 systems in Russia, one system in Ukraine, and five systems in Belarus with a total fixed contracted value of $22.9 million. In 2022, the Company recorded provisions for potential credit losses against substantially all of its receivables in Russia due to uncertainties associated with the ongoing conflict. These receivables relate to existing sale agreements as the Company is not party to any joint revenue sharing arrangements in these countries. In addition, exhibitors in Russia, Ukraine, and Belarus were placed on nonaccrual status for maintenance revenue and finance income. In 2023, due to the resumption of operations throughout Ukraine’s theatrical exhibition industry, as evidenced by the reopening of all IMAX Systems in Ukraine and payments received from exhibitor customers therein, the Company recognized maintenance revenue and finance income in connection with those theaters. The Company closely monitors geopolitical conflicts (including any government sanctions imposed in response thereto) and its effects on the global economy and the Company. (Refer to “Risk Factors — The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales, and future growth prospects.” in Part I, Item 1A, and Note 2(b) to Consolidated Financial Statements in Part II, Item 8.)

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On September 7, 2022, Cineworld Group plc (“Cineworld”), the parent company of Regal, and certain of its subsidiaries and Regal CineMedia Holdings, LLC, filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas. The Court approved Cineworld’s Plan of Reorganization (the “Plan”) on June 28, 2023, in which Cineworld disclosed that it plans to emerge from the Chapter 11 proceedings on or about July 28, 2023. On August 30, 2023, the Company and Cineworld entered into a Joint Stipulation and Agreed Order which was entered by the Court on September 21, 2023 (the “Stipulation”) pursuant to which Cineworld assumed its global agreement with IMAX (the “Global Agreement”). The Stipulation provides that all amounts owed to IMAX will be paid by Cineworld and set out a revised timetable for all systems installations required of Cineworld under the Global Agreement. Cineworld has emerged from the Chapter 11 proceedings and the Stipulation finalizes all matters between IMAX and Cineworld as a result of the restructuring. The Company has determined that no additional provision for expected credit losses is required.

SOURCES OF REVENUE

The Company has organized its operating segments into the following two reportable segments: (i) Content Solutions, which principally includes content enhancement and distribution services, and (ii) Technology Products and Services, which principally includes the sale, lease, and maintenance of IMAX Systems. The Company’s activities that do not meet the criteria to be considered a reportable segment are disclosed within All Other. Additional information is provided in Note 21 to the Consolidated Financial Statements in Part II, Item 8.

Content Solutions

The Content Solutions segment earns revenue principally from the digital remastering of films and other content into IMAX formats for distribution across the IMAX network. To a lesser extent, the Content Solutions segment also earns revenue from the distribution of large-format documentary films and IMAX events and experiences including music, gaming, and sports, as well as the provision of film post-production services.

Film Remastering and Distribution

IMAX Film Remastering is a proprietary technology that digitally remasters films and other content into IMAX formats for distribution across the IMAX network. In a typical film remastering and distribution arrangement, the Company receives a percentage of the box office receipts from a movie studio in exchange for converting a commercial film into the IMAX format and distributing it across the IMAX network. The fee earned by the Company in a typical film remastering and distribution arrangement averages approximately 12.5% of box office receipts (i.e., GBO less applicable sales taxes), except for within Greater China, where the Company receives a lower percentage of net box office receipts for certain Hollywood films due to an import tax.

IMAX Film Remastering digitally enhances the image resolution of films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels for which The IMAX Experience is known. In addition, the original soundtrack of a film to be exhibited across the IMAX network is remastered for IMAX digital sound systems. IMAX remastered soundtracks are uncompressed for full fidelity. IMAX sound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every seat in an auditorium is an optimal listening position.

IMAX films also benefit from enhancements made by individual filmmakers exclusively for the IMAX release of the film. Collectively, the Company refers to these enhancements as “IMAX DNA.” Filmmakers and movie studios have sought IMAX-specific enhancements in recent years to generate interest in and excitement for their films. Such enhancements include shooting films with IMAX cameras to increase the audience’s immersion in the film and to take advantage of the unique dimensions of the IMAX screen by projecting the film in a larger aspect ratio that delivers up to 26% more image onto a standard IMAX movie screen. In select IMAX locations worldwide, movies filmed with IMAX cameras have an IMAX-exclusive 1.43 film aspect ratio, delivering up to 67% more image. The Company has a Filmed For IMAX® program for select films under which filmmakers craft films from their inception in numerous ways to optimize The IMAX Experience. The program includes incremental and bespoke marketing support, which box office metrics demonstrate audiences respond extremely favorably to, and drives higher market share for IMAX.

Management believes that growth in international box office remains an important driver of growth for the Company. To support continued growth in international markets, the Company is focused on the expansion of the IMAX network and has sought to elevate its international film strategy, supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, France and South Korea. More recently, the Company has further diversified its strategy by distributing local language films in both native and foreign markets.

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The following table provides detailed information about the films that were released to the Company’s global network during the years ended December 31, 2023 and 2022:

(1)
Includes one re-released film for the year ended December 31, 2023 (2022 — five).

(2)
For the year ended December 31, 2023, the films released to the Company’s global network include eight with IMAX DNA (2022 — 12).

(3)
Excludes three Alternative Content Experiences in 2023 (2022 — seven).

The films distributed through the Company’s global network during the year ended December 31, 2023 include Oppenheimer, The Super Mario Bros. Movie, The Wandering Earth 2, Guardians of the Galaxy Vol.3, Mission: Impossible - Dead Reckoning Part One, Ant-Man and the Wasp: Quantumania, Fast X, Creation of the Gods I: Kingdom of Storms, Spider-Man: Across the Spider-Verse, and Aquaman and the Lost Kingdom.

To date, in 2024, 18 titles have been released to the global IMAX network, including three re-releases, and the Company has announced the following additional 24 titles to be released in 2024:

(1)
The scheduled release dates in the table above are subject to change, may vary by territory, and may not reflect the date(s) of limited premiere events.

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The Company remains in active negotiations with studios for additional films to fill out its short- and long-term film slate for the IMAX network. The Company also expects to announce additional local language films and exclusive IMAX events and experiences to be released to its global network throughout 2024 with an expectation to exceed the 59 local language films released in 2023.

Other Content Solutions

The Company distributes large-format documentary films, primarily to institutional theaters. The Company receives as its distribution fee either a fixed amount or a fixed percentage of the box office receipts and, following the recoupment of its costs, is typically entitled to receive an additional percentage as participation revenues.

The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content. The ownership rights to such films may be held by the film sponsors, the film investors and/or the Company. As of December 31, 2023, the Company has distribution rights with respect to approximately 60 films, which cover subjects such as space, wildlife, music, sports, history and natural wonders.

In May 2023, the Company announced that Amazon Studios acquired worldwide rights to the Company’s original documentary, The Blue Angels, filmed with IMAX digital certified cameras, and produced in collaboration with Dolphin Entertainment, Bad Robot Productions, and Zipper Bros Films. The documentary is expected to be delivered in the second quarter of 2024. In October 2023, Deep Sky, a documentary on NASA’s Webb Telescope in collaboration with Crazy Boat Pictures Ltd. and filmmaker Nathaniel Kahn, was released to the IMAX network. In July 2023, the Company also announced the start of production of The Elephant Odyssey, a documentary in collaboration with Beach House Pictures Pte Ltd and China International Communications Group, which is expected to be released in 2025.

In addition, the Company continues to evolve its platform to bring new, innovative IMAX events and experiences to audiences worldwide. As of December 31, 2023, the Company has a footprint of 252 connected locations in the IMAX network across the United States, Canada, Europe, and Asia configured with connectivity to deliver live and interactive events with low latency and superior sight and sound.

In 2023, the Company partnered with Metro-Goldwyn-Studios Inc. (“MGM”) for an IMAX premiere event, consisting of red carpet interviews and behind the scenes footage, followed by a special advanced screening of Creed III, which was released across the IMAX global network. The Company also hosted a reunion of the iconic band Talking Heads at the Toronto International Film Festival, followed by a screening of Stop Making Sense, before the movie was released to the IMAX network more broadly. This became the highest grossing IMAX Live event of all time. These events were broadcast live to much of the IMAX Domestic connected network. In January 2024, the Company and Pathé Live in partnership with Mercury Studios and Queen Films released Queen Rock Montreal, a concert from 1981, exclusively in 450 IMAX locations globally.

The Company also provides film post-production and quality control services for large-format films, whether produced by IMAX or third parties, and digital post-production services. In addition, the Company also provides IMAX film and digital cameras to content creators under the IMAX certified camera program.

Technology Products and Services

The Technology Product and Services segment earns revenue principally from the sale or lease of IMAX Systems, as well as from the maintenance of IMAX Systems. To a lesser extent, the Technology Product and Services segment also earns revenue from certain ancillary theater business activities, including after-market sales of IMAX System parts and 3D glasses.

Sales Arrangements

The Company provides IMAX Systems to exhibitors through sale arrangements or long-term lease arrangements that for accounting purposes are classified as sales-type leases. Under these arrangements, in exchange for providing the IMAX System, the Company earns initial fees and ongoing consideration, which can include fixed annual minimum payments and contingent fees in excess of the minimum payments, as well as maintenance and extended warranty fees (see “IMAX Maintenance” below). The initial fees vary depending on the system configuration and location of the IMAX System. Initial fees are paid to the Company in installments typically between the time of signing the arrangement and the time of system installation. Once an IMAX System is installed, the initial fees and the present value of future annual minimum payments, which are financing fees, are recognized as revenue. In addition, in sale arrangements, the present value of the estimated contingent fees that may become due if certain annual minimum box office receipt thresholds are exceeded is recorded as revenue in the period when the sale is recognized and is adjusted in future periods based on actual results and changes in estimates. Such variable consideration is only recognized on sales transactions to the extent the Company believes there is not a risk of significant revenue reversal. Finance income is recognized over the term of a financed sale or sales-type lease arrangement.

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In sale arrangements, title to the IMAX System equipment generally transfers to the customer. However, in certain instances, the Company retains title or a security interest in the equipment until the customer has made all payments required by the agreement or until certain shipment events for the equipment have occurred. In a sales-type lease arrangement, title to the IMAX System equipment remains with the Company. The Company has the right to remove the equipment for non-payment or other defaults by the customer.

The revenue earned from customers under the Company’s IMAX System sale or sales-type lease agreements varies from quarter-to-quarter and year-to-year based on a number of factors, including the number and mix of IMAX System configurations sold or leased, the timing of installation of the IMAX Systems, the nature of the arrangement and other factors specific to individual contracts.

Joint Revenue Sharing Arrangements

The Company provides IMAX Systems to exhibitors through joint revenue sharing arrangements (“JRSA”). Under the traditional form of these arrangements, the Company provides the IMAX System under a long-term lease in which the Company assumes the majority of the equipment and installation costs. In exchange for its upfront investment, the Company, primarily, earns rent based on a percentage of contingent box office receipts rather than a fixed upfront fee or fixed annual minimum payments. Rental payments from the customer are required throughout the term of the arrangement and are typically due either monthly or quarterly. The Company retains title to the IMAX System equipment components throughout the lease term, and the equipment is returned to the Company at the conclusion of the arrangement.

Under certain other joint revenue sharing arrangements, known as hybrid arrangements, the customer is responsible for making fixed upfront payments prior to the delivery and installation of the IMAX System in an amount that is typically half of what the Company would receive from a typical sale transaction. As with a traditional joint revenue sharing arrangement, the customer also pays the Company a percentage of contingent box office receipts over the term of the arrangement, although this percentage is typically half that of a traditional joint revenue sharing arrangement. Hybrid joint revenue sharing arrangements take the form of a sale. The fixed upfront payment is recognized when the lease term commences and is recorded within Revenues – Technology Sales. The contingent rent is recognized as revenue over the lease term and is recorded within Revenues – Technology Rentals.

Under most joint revenue sharing arrangements (both traditional and hybrid), the initial non-cancellable term is 10 years or longer and is renewable by the customer for one to two additional terms of between three to five years. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts are non-cancellable by the customer unless the Company fails to perform its obligations.

The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter-to-quarter and year-to-year based on a number of factors that drive box office levels including film performance, the mix of IMAX System configurations, the timing of installation of IMAX Systems, the nature of the arrangement, the location, size and management of the theater and other factors specific to individual arrangements.

Joint revenue sharing arrangements also require IMAX to provide maintenance and extended warranty services to the customer over the term of the lease in exchange for a separate fixed annual fee. These fees are reported within IMAX Maintenance, as discussed below.

Joint revenue sharing arrangements have been an important factor in the expansion of the Company’s commercial system network. Joint revenue sharing arrangements allow commercial theater exhibitors to install IMAX Systems without the significant initial capital investment required in a sale or sales-type lease arrangement. Joint revenue sharing arrangements drive recurring cash flows and earnings for the Company as customers under these arrangements pay the Company a portion of their ongoing box office receipts. The Company funds its investment in equipment for joint revenue sharing arrangements through cash flows from operations. As of December 31, 2023, the Company had 924 locations under joint revenue sharing arrangements in its global commercial multiplex network. The Company also had contracts in backlog for 286 systems under joint revenue sharing arrangements as of December 31, 2023, including 234 new locations and 52 upgrades to existing locations.

IMAX Maintenance

IMAX System arrangements also include a requirement for the Company to provide maintenance services over the life of the arrangement in exchange for an extended warranty and annual maintenance fee paid by the exhibitor. Under these arrangements, the Company provides preventative and emergency maintenance services to ensure that each presentation is up to the highest IMAX quality standard. Annual maintenance fees are paid throughout the duration of the term of the system agreements.

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All Other

Streaming and Consumer Technology

Streaming and Consumer Technology includes the Company’s Streaming Technology software offerings and IMAX Enhanced product services. Streaming Technology consists of several software products including:

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IMAX Stream Smart – works within existing video compression workflows to reduce bitrates and retain picture quality across all devices and formats and deliver significant cost savings.

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IMAX StreamAware On-Demand – all-in-one quality assurance and quality control to automate and standardize checks for comprehensive content integrity and regulatory compliance for third-party content libraries, across an entire video compression workflow.

•
IMAX StreamAware On-Air – real-time monitoring software for live streams, which enables users to monitor video quality across their networks and to identify and address streaming issues.

These AI-powered products allow streaming platforms and broadcasters to automate workflows. The Company believes that these products allow users to deliver the highest quality viewing experiences to their subscribers while reducing costs.

IMAX Enhanced is a solution to bring The IMAX Experience into the home. IMAX Enhanced provides end-to-end premium technology across streaming content and best-in-class entertainment devices, offering consumers high-fidelity playback of image and sound in the home and beyond, including the following features:

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IMAX’s expanded aspect ratio, which is available on select titles and streaming platforms, including Disney+;

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IMAX’s proprietary remastering technology, which produces more vivid, higher-fidelity 4K HDR images on premium televisions; and

•
IMAX’s signature sound, which was specially recreated and calibrated for the home to unlock more immersive audio.

To be certified as IMAX Enhanced, leading consumer electronics manufacturers spanning 4K/8K televisions, projectors, A/V receivers, loudspeakers, soundbars, smartphones, personal computers, tablets, and more must meet a carefully prescribed set of audiovisual performance standards, set by a certification committee, along with some of Hollywood's leading technical specialist.

At present, certified global device partners include Sony Electronics, Hisense, TCL, LG, Phillips, Hewlett Packard, Xiaomi, Sound United and Honor, among others. As of December 31, 2023, more than 300 IMAX Enhanced titles have been released across five of the biggest streaming platforms worldwide: Disney+, Sony Bravia CORE, Tencent Video, iQiyi and Rakuten TV. Over 15 million IMAX Enhanced certified devices are estimated to be in the market today.

The Company's collaboration with Disney allows fans to stream 20 Disney titles in IMAX's expanded aspect ratio at home on Disney+. The presence of IMAX Enhanced on Disney+ provides strong brand exposure for IMAX by expanding the Company’s in-home entertainment footprint to Disney+ and most of its 150 million global subscribers. The Company believes that IMAX Enhanced enables an elevated end-to-end experience on Disney+, with IMAX signature sound coming to subscribers with IMAX Enhanced certified devices. IMAX Enhanced is part of the Company's next evolutionary step to extend the IMAX brand and technology further into new use cases, including streaming entertainment and the consumer electronics market.

(Refer to “Risk Factors ― Failure to respond adequately or in a timely fashion to changes and advancements in technology could negatively affect the Company’s business.”)

Other

All Other also includes revenues from sources including one owned and operated IMAX System in Sacramento, California; a commercial arrangement with one theater resulting in the sharing of profits and losses; the provision of management services to three other theaters; renting the Company’s proprietary 2D and 3D large-format film cameras; and also offering production advice and technical assistance to both documentary and Hollywood filmmakers.

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IMAX NETWORK AND BACKLOG

IMAX Network

The following table provides detailed information about the IMAX network by system type and geographic location as of December 31, 2023 and 2022:

(1)
Greater China includes China, Hong Kong, Taiwan, and Macau.

(2)
Latin America includes South America, Central America, and Mexico.

(3)
Period-to-period changes in the table above are reported net of the effect of permanently closed locations.

IMAX currently estimates a worldwide commercial multiplex addressable market of 3,619 locations, of which there are 1,693 IMAX Systems operating as of December 31, 2023, representing a market penetration of only 46.8%. The Company believes that the majority of its future growth will come from international markets. As of December 31, 2023, 76% of IMAX Systems in operation were located within international markets (defined as all countries other than the United States and Canada) (2022 ― 74%). Revenues and GBO derived from international markets continue to exceed revenues and GBO from the United States and Canada.

For the year ended December 31, 2023, the Company’s revenues generated from its Greater China operations represents 25% of consolidated revenue, compared to 24% in 2022 and 44% in 2021. Restrictions resulting from the COVID-19 pandemic significantly impacted operations in China in 2022 and 2023. As of December 31, 2023, the Company had 807 IMAX Systems operating in Greater China with an additional 206 systems in backlog. The Company’s backlog in Greater China represents 46% of its total current backlog, including system upgrades.

The following tables provide detailed information about the commercial multiplex locations in operation within the IMAX network by arrangement type and geographic location as of December 31, 2023 and 2022:

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(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.

(2)
Period-to-period changes in the tables above are reported net of permanently closed systems.

Backlog

The following table provides detailed information about the Company’s system backlog as of December 31, 2023 and 2022:

(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.

(2)
The consideration owed under traditional joint revenue sharing arrangements is typically a percentage of contingent box office receipts rather than a fixed upfront fee or fixed annual minimum payments. Accordingly, such arrangements do not usually have a dollar value in backlog; however, hybrid joint revenue sharing arrangements typically provide for contracted upfront payments and therefore carry a backlog value based on those payments.

(3)
Includes 30 IMAX Systems (2022 ― 38) where certain of the Company’s contracts contain options for the customer to elect to upgrade system type or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. Current backlog information reflects all known elections.

The backlog reflects the minimum number of commitments for IMAX Systems according to the signed contracts. The dollar value fluctuates depending on the number of new arrangements signed from year-to-year, which adds to backlog and the installation and acceptance of IMAX Systems and the settlement of contracts, both of which reduce backlog. The dollar value of backlog typically represents the fixed contracted revenue according to the signed IMAX System sale and lease agreements that the Company expects to recognize as revenue upon installation and acceptance of the associated system, as well as an estimate of variable consideration in sales arrangements. The value of backlog does not include amounts allocated to maintenance and extended warranty revenues or revenue from systems in which the Company has an equity interest, operating leases, and long-term conditional theater commitments. The Company believes that the contractual obligations for IMAX System installations that are listed in backlog are valid and binding commitments.

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From time to time, in the normal course of its business, the Company will have customers who are unable to proceed with an IMAX System installation for a variety of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer are released from all their future obligations under the agreement, all or a portion of the initial rents or fees that the customer previously made to the Company are recognized as revenue. (Refer to “Risk Factors ― The Company may not convert all of its backlog into revenue and cash flows.” in Part I, Item 1A.)

Certain of the Company’s contracts contain options for the customer to elect to upgrade system type during the term or to alter the contract structure (for example, from a joint revenue sharing arrangement to a sale) after signing, but before installation. Current backlog information reflects all known elections.

The following tables provide detailed information about the Company’s system backlog by arrangement type and geographic location as of December 31, 2023 and 2022:

(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.

(2)
Includes 239 new IMAX Laser Systems and 73 upgrades of existing locations to IMAX Laser Systems.

(3)
Includes 200 new IMAX Laser Systems and 89 upgrades of existing locations to IMAX Laser Systems.

Approximately 79% of IMAX System arrangements in backlog as of December 31, 2023 are scheduled to be installed in international markets (2022 ― 75%).

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Signings and Installations

The following tables provide detailed information about IMAX System signings and installations for the years ended December 31, 2023 and 2022:

(1)
Includes Sales, Hybrid Sales and Sales-Type Lease deal types.

(2)
Includes 21 IMAX System upgrades (2022 ― 17 upgrades).

(3)
Three IMAX Xenon Systems were relocated from their original location (2022 ― 12). When a system under a sale or sales-type lease arrangement is relocated, the amount of revenue earned by the Company may vary from transaction-to-transaction and is usually less than the amount earned for a new sale. In certain situations when a system is relocated, the original location is upgraded to an IMAX Laser System.

(4)
Includes 42 IMAX System upgrades (2022 ― 36 upgrades).

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make judgments, assumptions, and estimates that affect the amounts reported in the Company’s Consolidated Financial Statements and accompanying notes. Management’s judgments, assumptions, and estimates are based on historical experience, future expectations, and other factors that are believed to be reasonable as of the date of the Company’s Consolidated Financial Statements. Actual results may ultimately differ from the Company’s original estimates, as future events and circumstances sometimes do not develop as expected, and the differences may be material. Management believes that the following are the Company’s most critical accounting estimates, which are not ranked in any particular order, that may affect the Company’s reported results of operations and/or financial condition. The Company’s significant accounting policies are described in Note 2 to Consolidated Financial Statements in Part II, Item 8.

Revenue Recognition

The application of U.S. GAAP related to the measurement and recognition of revenue requires management to make judgments and estimates. In addition, revenue contracts with nonstandard terms and conditions may require significant interpretation to determine the appropriate accounting.

IMAX Systems

The Company evaluates each of the performance obligations in an IMAX System arrangement to determine which are considered distinct, either individually or in a group, for accounting purposes and which of the deliverables represent separate performance obligations. The transaction price in an IMAX System arrangement is allocated to each good or service that is identified as a separate performance obligation based on estimated standalone selling prices. This allocation is based on observable prices when the Company sells the good or service separately.

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The Company’s “System Obligation” consists of the following: (i) an IMAX System, which includes the projector, sound system, screen system and, if applicable, a 3D glasses cleaning machine; (ii) services associated with the IMAX System, including theater design support, the supervision of installation services, and projectionist training; and (iii) a license to use the IMAX brand to market the location. The System Obligation, as a group, is a distinct performance obligation. The Company is not responsible for the physical installation of the equipment in the customer’s facility; however, it supervises the installation by the customer. The customer has the right to use the IMAX brand from the date the Company and the customer enter into an arrangement.

The Company has established standalone prices for the System Obligation and maintenance and extended warranty services, as well as for film license arrangements. The Company uses an adjusted market assessment approach for separate performance obligations that do not have standalone selling prices or third-party evidence of estimated standalone selling prices. The Company considers multiple factors including its historical pricing practices, product class, market competition and geography.

Constraints on the Recognition of Variable Consideration

The transaction price for the System Obligation, other than for IMAX Systems delivered pursuant to joint revenue sharing arrangements, consists of upfront or initial payments made before and after the final installation of the system and ongoing payments throughout the term of the arrangement. The Company estimates the transaction price, including an estimate of future variable consideration, received in exchange for the goods delivered or services rendered. The arrangement for the sale of an IMAX System includes indexed minimum payment increases over the term of the arrangement, as well as the potential for additional payments owed by the customer if certain minimum box office receipt thresholds are exceeded. In addition, hybrid sales arrangements include amounts owed by the customer based on a percentage of their box office receipts over the term of the arrangement. These contract provisions are considered to be variable consideration. An estimate of the present value of such variable consideration is recognized as revenue upon the transfer of control of the System Obligation to the customer, subject to constraints to ensure that there is not a risk of significant revenue reversal.

Variable consideration related to indexed minimum payment increases is outside of the Company’s control, but the movement in the rates is historically well documented and economic trends in inflation are easily accessible. Accordingly, for each contract subject to an indexed minimum payment increase, the Company estimates the most likely amount using published indices. The amount of the estimated minimum payment increase is then recorded at its present value as of the date of recognition using the customer’s implied borrowing rate.

Variable consideration related to the level of the customer’s box office receipts is outside of the Company’s control as it is dependent upon the future commercial success of the films released to the IMAX network. The estimated variable consideration initially recognized by the Company is based on management’s box office projections for the location, which are developed using historical box office data for that location and, if necessary, comparable locations and territories. Using this data, management applies its understanding of these location markets to estimate the most likely amount of variable consideration to be earned over the term of the arrangement. Management then applies a constraint to this estimate by reducing the projection by a percentage factor for theaters or markets with no or limited historical box office experience. In cases where direct historical experience can be observed, average historical box office results, eliminating significant outliers, are used. The resulting amount of variable consideration is then recorded at its present value as of the date of recognition using a risk-weighted discount rate. The Company reviews its variable consideration assets on at least a quarterly basis considering recent box office performance and, when applicable, updated box office projections for future periods.

Current Expected Credit Losses

The ability of the Company to collect its accounts receivable, financing receivables, and variable consideration receivables is dependent on the viability and solvency of individual theater operators which is significantly influenced by consumer behavior and general economic conditions. Theater operators and, in certain situations, movie studios, may experience financial difficulties that could cause them to be unable to fulfill their payment obligations to the Company.

The Company develops its estimate of credit losses by class of receivable and customer type through a calculation that utilizes historical loss rates which are then adjusted for specific receivables that are judged to have a higher-than-normal risk profile after taking into account management’s internal credit quality classifications, as well as macro-economic and industry risk factors.

Judgments regarding the collectability of accounts receivable, financing receivables, and variable consideration receivables, and the amount of any required allowance for credit losses, are based on management’s initial credit evaluation of the customer and the regular ongoing monitoring of the credit quality of each customer. This monitoring process includes an analysis of collections history and aging for each customer, as well as meetings on at least a monthly basis to identify credit concerns and potential changes in credit quality classification. A customer may improve their credit quality classification once a substantial payment is made on an overdue balance or when the customer has agreed to a payment plan and payments have commenced in accordance with that plan. Changes in credit quality classification are dependent upon management approval.

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Management’s judgments regarding expected credit losses are based on the facts available to management at the time that the Consolidated Financial Statements are prepared and involve estimates about the future. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect.

Inventories

The Company records write-downs for excess and obsolete inventory based upon management’s judgments regarding future events and business conditions, including the anticipated installation dates for the current backlog of theater system contracts, contracts in negotiation, technological developments, growth prospects within the customers’ ultimate marketplace, and anticipated market acceptance of the Company’s current and pending IMAX Systems.

(Refer to Note 8 to Consolidated Financial Statements in Part II, Item 8.)

Asset Impairments

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination. Goodwill is not amortized but is tested annually for impairment at the reporting unit level in the fourth quarter of the year and between annual tests if indicators of potential impairment exist. These indicators could include a decline in the Company’s stock price and market capitalization, a significant change in the outlook for the reporting unit’s business, including projections of future box office results and IMAX System installations, lower than expected operating results, increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit. For reporting units with goodwill, an impairment loss is recognized for the amount by which the reporting unit’s carrying value, including goodwill, exceeds its fair value. The carrying value of each reporting unit is based on a systematic and rational allocation of certain assets and liabilities. The fair value of each reporting unit is assessed using a discounted cash flow model based on management’s current short-term forecast and estimated long-term projections, against which various sensitivity analyses are performed. The discount rates used in the cash flow model are derived based on the Company’s estimated weighted average cost of capital. These estimates and the likelihood of future changes in these estimates depend on a number of underlying variables and a range of possible outcomes. Actual results may materially differ from management’s estimates.

Long-Lived Assets

Long-lived assets are grouped and reviewed for impairment at the lowest level for which identifiable cash flows are largely independent whenever events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. In such situations, long-lived assets are considered impaired when estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset (or asset group) and its eventual disposition are less than the carrying value of the asset (or asset group). In such situations, the asset (or asset group) is written down to its fair value, which is the present value of the estimated future cash flows. Factors that are considered when evaluating long-lived assets for impairment include a current expectation that it is more likely than not that the long-lived asset will be sold significantly before the end of its useful life, a significant decrease in the market price of the long-lived asset, and a significant change in the extent or manner in which the long-lived asset is being used.

Film Assets

The recoverability of the Company’s film assets is dependent upon the commercial acceptance of the underlying films and the resulting level of box office results and, in certain situations, ancillary revenues. If management’s projections of future net cash flows resulting from the exploitation of a film indicate that the carrying value of the film asset is not recoverable, the film asset is written down to its fair value.

Valuation of Identifiable Intangible Assets Acquired

Management applies significant judgment in estimating the fair value of intangible assets. The estimates used to value the identifiable intangible assets acquired through the acquisition of SSIMWAVE are based in part on historical experience and information obtained from the management of the acquired business. The developed technology and in-process research and development acquired are valued utilizing income approaches, notable relief from royalty and multi-period excess earnings methods using discounted cash flow models. The significant estimates used in valuing these intangible assets include assumptions related to revenue and gross margin forecasts, attrition rate, royalty rate and discount rates. The estimates of fair value are based on assumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result.

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The estimates of fair value are based on assumptions believed to be reasonable at that time. If management made different estimates or judgments, material differences in the fair values of the net assets acquired may result.

(Refer to Note 4 to Consolidated Financial Statements in Part II, Item 8.)

Share-Based Compensation

The Company issues share-based compensation to eligible employees, directors, and consultants under the IMAX Corporation Second Amended and Restated Long-Term Incentive Plan (as may be amended, the “IMAX LTIP”) and the China Long-Term Incentive Plan (the “China LTIP”) as summarized below. The IMAX LTIP is the Company’s governing document and awards to employees, directors, and consultants under this plan may consist of stock options, restricted share units (“RSUs”), performance stock units (“PSUs”) and other awards. A separate share-based compensation plan, the China LTIP, was adopted by a subsidiary of the Company in October 2012.

The Company measures share-based compensation expense using the grant date fair value of the award (as defined below), which is recognized as an expense in the Consolidated Statements of Operations on a straight-line basis over the requisite service period. Share-based compensation expense is not adjusted for estimated forfeitures, but is instead adjusted when and if actual forfeitures occur.

The Company grants two types of PSU awards, one which vests based on a combination of employee service and the achievement of certain Adjusted EBITDA targets, and one which vests based on a combination of employee service and the achievement of total shareholder return (“TSR”) targets. The achievement of the Adjusted EBITDA and TSR targets in these PSUs is determined over a three-year performance period. At the conclusion of the three-year performance period, the number of PSUs that ultimately vest can range from 0% to a maximum vesting opportunity of 175% of the initial Adjusted EBITDA PSU award or 150% of the initial TSR PSU award, depending upon actual performance versus the established Adjusted EBITDA and TSR targets.

The grant date fair value of PSUs with Adjusted EBITDA targets is equal to the closing price of the Company’s common shares on the date of grant or the average closing price of the Company’s common shares for five days prior to the date of grant. The grant date fair value of PSUs with TSR targets is determined on the grant date using a Monte Carlo simulation, which is a valuation model that considers the likelihood of achieving the TSR targets embedded in the award (“Monte Carlo Model”). The compensation expense attributable to each type of PSU is recognized on a straight-line basis over the requisite service period.

The fair value determined by the Monte Carlo Model is affected by the Company’s share price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, market conditions as of the grant date, the Company’s expected share price volatility over the term of the award, and other relevant data. The compensation expense is fixed on the date of grant based on the dollar value of the PSUs granted.

The amount and timing of compensation expense recognized for PSUs with Adjusted EBITDA targets is dependent upon management's assessment of the likelihood of achieving these targets. If, as a result of management’s assessment, it is projected that a greater number of PSUs will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period that such determination is made. Conversely, if, as a result of management’s assessment, it is projected that a lower number of PSUs will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period that such determination is made.

(Refer to Note 17(b) to Consolidated Financial Statements in Part II, Item 8.)

Deferred Income Tax Assets

Income taxes are accounted for under the liability method whereby deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Investment tax credits are recognized as a reduction of income tax expense.

The Company assesses the realization of deferred income tax assets and based on all available evidence, concludes whether it is more likely than not that the net deferred income tax assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to be realizable. In assessing the need for a valuation allowance, management considers, among other things, projections of future taxable income and ongoing prudent and feasible tax planning strategies. If management determines that sufficient negative evidence exists, then management will consider recording a valuation allowance against all or a portion of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance, management’s projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove more difficult to support the realization of these deferred tax assets. As a result, an additional valuation allowance could be required, which would have an adverse impact on the Company’s effective income tax rate and results. Conversely, if, after recording a valuation allowance, management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance

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is recorded, the Company may reverse all or a portion of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would have a favorable impact on the Company’s effective income tax rate and results in the period such determination was made.

(Refer to Notes 12(d) and 12(g) of Notes to Consolidated Financial Statements in Part II, Item 8.)

Uncertain Tax Positions

The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. Although management believes that the Company has adequately accounted for its uncertain tax positions, tax audits can result in subsequent assessments where the ultimate resolution may result in the Company owing additional taxes above what was originally recognized in its financial statements.

Tax reserves for uncertain tax positions are adjusted by the Company to reflect management’s best estimate of the outcome of examinations and assessments and in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and interest accruals associated with the uncertain tax positions until they are resolved. Some of these adjustments require significant judgment in estimating the timing and amount of the additional tax expense.

(Refer to Note 12(h) to Consolidated Financial Statements in Part II, Item 8.)

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to Note 3 to Consolidated Financial Statements in Part II, Item 8 for a discussion of recently issued accounting standards and their impact on the Company’s financial statements.

RESULTS OF OPERATIONS

The Company’s business and future prospects are evaluated by Richard L. Gelfond, its Chief Executive Officer (“CEO”), using a variety of factors and financial and operational metrics including: (i) IMAX box office performance and the securing of new films and other events to be exhibited across the IMAX network; (ii) the signing, installation, and financial performance of IMAX System arrangements, particularly those involving laser-based projection systems; (iii) the success of the Company's investments in business evolution and brand extensions, including the integration and performance of SSIMWAVE, the distribution of live events to the IMAX network, and IMAX Enhanced, (iv) revenues and gross margins earned by the Company's segments, as discussed below; (v) consolidated earnings (loss) from operations, as adjusted for unusual items; (vi) the continuing ability to invest in and improve the Company’s technology to enhance the differentiation of The IMAX Experience versus other out-of-home experiences; (vii) the overall execution, reliability, and consumer acceptance of The IMAX Experience; and (viii) short- and long-term cash flow projections.

The CEO is the Company’s Chief Operating Decision Maker (“CODM”), as such term is determined under U.S. GAAP. The CODM, along with other members of management, assesses segment performance based on segment revenues and gross margins. Selling, general and administrative expenses, research and development costs, the amortization of intangible assets, provision for (reversal of) current expected credit losses, certain write-downs, interest income, interest expense, and income tax (expense) benefit are not allocated to the Company’s segments.

In the first quarter of 2023, the Company revised its internal segment reporting, including information provided to the CODM to assess performance and allocate resources. Accordingly, the Company has two reportable segments: (i) Content Solutions, which principally includes content enhancement and distribution services, and (ii) Technology Products and Services, which principally includes the sale, lease, and maintenance of IMAX Systems. The Company’s activities that do not meet the criteria to be considered a reportable segment are reported within All Other. Prior period comparatives have been revised to conform with the current year presentation. Additional information on segment reporting is provided in Note 21 to Consolidated Financial Statements in Part II, Item 8.

The discussion of the Company’s results of operations below compares results for the years ended December 31, 2023 and 2022 as well as for the years ended December 31, 2022 and 2021.

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Results of Operations for the Years Ended December 31, 2023 and 2022

The Company believes that its 2023 results of operations showed the strength of IMAX’s business model and the increasing global demand for The IMAX Experience by consumers, exhibitors, filmmakers, and studios. In 2023, the Company achieved a number of significant box office records reflecting the growing demand for IMAX. This contributed to the Company’s installation of 128 IMAX Systems compared to 92 in 2022, system signings of 129 IMAX Systems compared to 47 in 2022, and generating $58.6 million in net cash provided by the Company’s operating activities, compared to $17.3 million in the prior year.

Net Income (Loss) and Adjusted Net Income Attributable to Common Shareholders

The following table presents the Company’s net income (loss) attributable to common shareholders and the associated per share amounts, as well as adjusted net income attributable to common shareholders* and adjusted net income attributable to common shareholders per share* for the years ended December 31, 2023 and 2022:

* Refer to “Non-GAAP Financial Measures” below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.

Revenues and Gross Margin

For the year ended December 31, 2023, the Company’s revenues and gross margin increased by $74.0 million or 25% and $58.0 million or 37%, respectively, from 2022 principally due to the strength of the IMAX GBO performance through the distribution of films such as Oppenheimer, Avatar: The Way of Water, The Super Mario Bros. Movie, The Wandering Earth 2, Guardians of the Galaxy Vol.3, Mission: Impossible - Dead Reckoning Part One, Ant-Man and the Wasp: Quantumania, Creation of the Gods I: Kingdom of Storms, and Spider-Man: Across the Spider-Verse and record performance of local language content coupled with higher system sales and renewals in the current period.

The following table presents the Company’s revenue, gross margin and gross margin percentage by reportable segment for the years ended December 31, 2023 and 2022:

(1)
All Other includes the results from Streaming and Consumer Technology and other ancillary activities.

Segment Operating Results

The Company’s segment operating results are presented based on how the Company assesses operating performance and internally reports financial information. See Note 21 to Consolidated Financial Statements in Part II, Item 8 for additional information on the Company’s reportable segments.

Content Solutions

Content Solutions segment results are influenced by the level of commercial success and box office performance of the films and other content released to the IMAX network, as well as other factors including the timing of the releases, the length of play across the IMAX network, the box office share take rates under the Company’s film remastering and distribution arrangements, the level of marketing spend associated with the releases in the year and the fluctuations in the value of foreign currencies versus the U.S. Dollar.

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For the year ended December 31, 2023, Content Solutions segment revenues and gross margin increased by $24.9 million or 24% to $126.7 million from $101.8 million and $22.9 million or 45% to $74.1 million from $51.2 million, respectively, when compared to the same period in 2022 principally due to better performance of the films distributed throughout the global IMAX network in 2023 including IMAX China, following the Chinese government relaxing its dynamic zero-COVID policies and easing capacity restrictions at the end of 2022.

For the year ended December 31, 2023, GBO generated by IMAX films totaled $1.1 billion, a $209.3 million or 25% increase versus $849.7 million in 2022. The 2023 GBO was generated by the exhibition of 105 films, which consisted of 95 new films (2022 — 63), 10 carryovers (2022 — 10) and one re-release (2022 — five). The impact of changes in foreign currency valuations versus the U.S. Dollar led to a decrease in GBO of $23.0 million in 2023 as compared to prior year rates. The Company believes that if foreign currency exchange rates were consistent in 2023 and 2019 that IMAX GBO in 2023 would have exceeded its best box office year ever in 2019.

In addition, for the year ended December 31, 2023, local language films exhibited across the Company’s global IMAX network generated over $227.2 million in IMAX GBO, representing 21% of the Company’s total box office. Leading local language titles distributed across the IMAX network during 2023 included the Chinese Filmed For IMAX title The Wandering Earth 2, which generated IMAX GBO of $48.6 million, the Chinese film Creation of the Gods I: Kingdom of Storms ($32.5 million), the Chinese film No More Bets ($11.2 million), and the Japanese anime film The First Slam Dunk ($10.8 million). Despite accounting for approximately 1% of all Domestic screens and less than 1% of all screens globally in 2023, the IMAX network had a Domestic market share of 4.4% and a global market share of 3.2% in 2023.

In addition to the higher level of revenues, Content Solutions segment gross margin is also influenced by the costs associated with the films and other content exhibited in the period and can vary from period-to-period, especially with respect to marketing expenses, which are expensed as incurred, for films and the costs incurred to produce, market and distribute live events and documentary content during the period. For the year ended December 31, 2023, marketing expenses incurred towards films were $14.2 million compared to $17.3 million in 2022. Gross margin percent for the year ended December 31, 2023 was 58% compared to 50% for the same period in 2022 with the increase being driven by the operating leverage that results from achieving higher levels of box office with relatively fixed film distribution costs and strategic deployment of marketing dollars.

Technology Products and Services

The primary drivers of Technology Products and Services segment results are the number of IMAX Systems installed in a period, the costs associated with each installation, lease payments tied to the box office performance of the films released to the IMAX network, as well as the associated maintenance contracts that accompany each installation. The average revenue and gross margin per IMAX System under sale and sales-type lease arrangements varies depending upon the number of IMAX System commitments with a single respective exhibitor, an exhibitor’s location, the type of system sold and various other factors. The installation of IMAX Systems in theaters or multiplexes, which make up a large portion of the Company’s system backlog, depends primarily on the timing of the construction of those projects, which is not under the Company’s control.

For the year ended December 31, 2023, Technology Products and Services segment revenue and gross margin increased by $41.9 million or 22% to $234.3 million from $192.4 million and $28.9 million or 29% to $129.9 million from $101.1 million, respectively, when compared to the prior year. The higher level of revenue is driven in part by an increase of $16.9 million in system sales revenue as a result of 29 additional IMAX System installations under sales arrangements, including upgrades, partially offset by the impact of higher interest rates on future minimum payments and estimated variable consideration, the mix of contract types and lower aftermarket sales of 3D glasses.

Also contributing to the higher level of revenue was an increase of $13.8 million in Revenues — Technology Rentals, as a result of IMAX GBO earned from IMAX Systems under joint revenue sharing arrangements, which increased by $181.7 million or 42% in 2023 when compared to the prior year, from $433.1 million to $614.8 million, resulting from the higher level of box office performance discussed above.

The Technology Products and Services segment gross margin increase of 29% year-over-year is primarily reflective of a higher number of IMAX System installations and higher Revenues — Technology Rentals earned through the Company’s joint revenue sharing arrangements, driven by the stronger box office performance, which led to incremental profit flow-through.

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The following table provides detailed information about IMAX Systems installed and the associated revenue recognized at that time, except for traditional joint revenue sharing arrangement as revenue is recognized over the lease term, during the years ended December 31, 2023 and 2022:

All Other

For the year ended December 31, 2023, All Other revenue and gross margin increased by $7.2 million and $6.2 million, respectively, when compared to the same period in 2022 principally due to growth in revenues earned by the Company’s Streaming and Consumer Technology business. Full year 2023 reflects the inclusion of both SSIMWAVE’s revenues as that acquisition was completed in late September 2022 and growth in the consumer technology business of IMAX Enhanced.

Selling, General and Administrative Expenses

The following table presents information about the Company’s Selling, General and Administrative Expenses for the years ended December 31, 2023 and 2022:

(1)
A portion of total share-based compensation expense is also recognized within Cost and Expenses Applicable to Revenue and Research and Development. Refer to Note 17(c) to Consolidated Financial Statements in Part II, Item 8.

The increase in Selling, General and Administrative Expenses reflects the inclusion of $5.2 million related to the Company’s Streaming Technology operation of SSIMWAVE, which was not included to the same extent in the prior year comparative as the acquisition was completed in late September 2022, and $3.3 million in non-recurring transaction expenses associated with the proposal to acquire the outstanding shares in IMAX China.

As a percentage of revenue, Selling, General and Administrative Expenses excluding share-based compensation improved to 33% as compared to 37% in 2022, which reflected strong operating leverage coupled with management's continued focus on cost discipline.

Research and Development

The Company believes that it is a premier global technology platform for awe-inspiring entertainment and events with significant proprietary expertise in digital and film-based projection and sound system component design, engineering, and imaging technology, particularly in laser-based technology. A significant portion of the Company’s research and development efforts have been focused on the IMAX Laser Systems, which the Company believes is capable of illuminating the largest screens in the IMAX network and provides greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure that the Company continues to provide the highest quality, premier cinematic experience available to consumers. The Company has continued research and development aimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers.

For the year ended December 31, 2023, Research and Development expenses were $10.1 million, representing an increase of $4.8 million or 91% when compared to $5.3 million during the same period in the prior year, primarily driven by increased compensation expense of $1.0 million in Streaming and Consumer Technology business and $3.5 million in the Company’s other research and innovation initiatives. For the year ended December 31, 2023, expenses include $1.4 million specifically related to the Company’s Streaming and Consumer Technology activities.

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The Company intends to continue research and development to further evolve its end-to-end technology. This includes bringing connectivity to the Company’s global network to support live and interactive events worldwide; developing new IMAX film cameras and certifying additional digital cameras; further improving its proprietary film remastering and distribution process for the delivery of content for both theatrical (including local language content) and home entertainment; and further improving the reliability of its projectors, as well as enhancing the Company’s image and sound quality. Within the Company’s Streaming and Consumer Technology business, there is ongoing research and development in perceptual metrics involving novel measurement and optimization techniques. Investments are also being made to expand existing and/or develop new technologies which are expected to further enhance video quality, delivery, and creation across devices. Furthermore, the Company intends to invest in activities that will capture opportunities to create/build AI and automation into its operations and processes.

As of December 31, 2023 and 2022, 86 and 66 of the Company’s employees were connected with research and development projects, respectively.

Credit Loss Expense, Net

For the year ended December 31, 2023, the Company recorded current expected credit losses of $1.8 million, as compared to credit losses of $8.5 million recognized in the prior year. The prior period expense was principally due to reserves established against substantially all of the Company’s receivables in Russia due to uncertainties associated with the ongoing Russia-Ukraine conflict and resulting sanctions, partially offset by the reversal of provisions associated with the COVID-19 pandemic as the outlook for the theatrical exhibition industry improved.

Consolidated Financial Statements are prepared and involve estimates about the future. As a result, the Company’s judgments and associated estimates of credit losses may ultimately prove, with the benefit of hindsight, to be incorrect.

Asset Impairments

For the year ended December 31, 2023, the Company recorded asset impairments of $0.4 million principally related to the write-down of content-related assets which became impaired in the year.

On January 10, 2022, IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, entered into a joint film investment agreement with Wanda Film (Horgos) Co. Ltd. to invest RMB 30.0 million ($4.7 million) in the movie Mozart from Space, which was released on July 15, 2022. Pursuant to the investment agreement, IMAX (Shanghai) Culture and Technology Co., Ltd. has the right to receive a share of the profits or losses of the film distribution. IMAX (Shanghai) Culture and Technology Co., Ltd.’s commitment is limited to its investment and has no further obligation if the actual movie production cost exceeds the original budget. The investment met the criteria for classification as a financial asset. The investment was measured at amortized cost less impairment losses and was recorded within Other Assets in the Consolidated Balance Sheets.

For the year ended December 31, 2022, the Company recorded a full impairment of its RMB 30.0 million ($4.5 million) investment in Mozart from Space based on projected box office results and distribution costs.

Interest Expense

For the year ended December 31, 2023, interest expense was $6.8 million, with $257.2 million of year-end total debt, representing an increase of $0.9 million or 15% when compared to interest expense of $5.9 million with $270.7 million of year-end total debt in the prior year. This increase is primarily due to cash flows as well as timing of borrowings and repayments of revolving credit facility borrowings made during the year in support of investments in the business, including capital expenditures to invest in equipment for joint revenue sharing arrangements as well as share repurchases, and the impact of higher interest rates in 2023. (Refer to Note 14 to Consolidated Financial Statements in Part II, Item 8.)

Income Taxes

For the year ended December 31, 2023, the Company recorded an income tax expense of $13.1 million (2022 — $10.1 million). The Company’s effective tax rate for year ended December 31, 2023 of 28.3% differs from the Canadian statutory tax rate of 26.5%, primarily due to tax rate differences in foreign jurisdictions, a reduction in tax reserves of $0.4 million (2022 — $1.6 million) and a net decrease in the valuation allowance related to deferred taxes of $0.7 million (2022 — increase of $16.8 million). This was offset by withholding taxes of $5.2 million (2022 — $3.8 million). The remainder of the difference was due to normal course movements and non-material items.

For the year ended December 31, 2023, the deferred tax liability for the applicable foreign withholding taxes decreased by $2.4 million (2022 — $2.7 million). During the year ended December 31, 2023, $24.0 million (2022 — $27.4 million) of historical earnings from a subsidiary in China were distributed and, as a result, $2.4 million (2022 — $2.7 million) of foreign withholding taxes were paid

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to the relevant tax authorities. The remaining deferred tax liability on the Company’s Consolidated Balance Sheets as of December 31, 2023 is $12.5 million (2022 — $14.9 million).

(Refer to Note 12 to Consolidated Financial Statements in Part II, Item 8 for more information on the Company’s tax position.)

Non-Controlling Interests

The Company’s Consolidated Financial Statements include the non-controlling interest in the net income or loss of IMAX China, as well as the impact of non-controlling interests in the activity of its Original Film Fund subsidiary. For the year ended December 31, 2023, the net income attributable to non-controlling interests of the Company’s subsidiaries was $7.7 million (2022 — $2.9 million), an increase of 164.5% or $4.8 million year-over-year. The increase reflects the recovery of IMAX China’s box office following the Chinese government relaxing its dynamic zero-COVID policies and easing capacity restrictions at the end of 2022 and an increasing level of consumer confidence in attending public gatherings.

Results of Operations for the Years Ended December 31, 2022 and 2021

In the first quarter of 2023, the Company updated its reportable segments. See Note 21 to Consolidated Financial Statements in Part II, Item 8. The following discussion and analysis related to the Company’s segment results for the years ended December 31, 2022 and 2021 have been revised to conform with the current year presentation.

The discussion of the Company’s results of operations comparing results for the years ended December 31, 2022 and 2021 that was not impacted by the segment change is included under the section entitled “Results of Operations” in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Net Loss and Adjusted Net Income (Loss) Attributable to Common Shareholders

The following table presents the Company’s net loss attributable to common shareholders and the associated per share amounts, as well as adjusted net income (loss) attributable to common shareholders* and adjusted net income (loss) attributable to common shareholders per share* for the years ended December 31, 2022 and 2021:

For the year ended December 31, 2022, the Company recorded a net non-cash provision of $6.9 million, or $0.12 per share, due to an increase in reserves given the uncertainty of collecting receivables in Russia. This provision was taken due to the ongoing conflict and resulting sanctions in Ukraine and covers substantially all of the Company’s net receivable exposure in the Russian market. Excluding the impact of this provision, net loss attributable to common shareholders* was $(15.9) million, or $(0.28) per share, and adjusted net income attributable to common shareholders* was $10.1 million, or $0.18 per share. Over the past five years, Russia has represented on average approximately 3% of the GBO generated by IMAX films.

* See “Non-GAAP Financial Measures” below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.

Revenues and Gross Margin

For the year ended December 31, 2022, the Company’s revenues and gross margin increased by $45.9 million or 18% and $21.9 million or 16%, respectively, when compared to the same period in 2021 principally due to the strength of the GBO performance through the distribution of films such as Avatar: The Way of Water, Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Jurassic World Dominion, The Batman, Black Panther: Wakanda Forever, Thor: Love and Thunder, The Battle at Lake Changjin 2, and Spider-Man: No Way Home.

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The following table presents the Company’s revenue, gross margin and gross margin percentage by reportable segment for the years ended December 31, 2022 and 2021:

(1) All Other includes the results from Streaming and Consumer Technology and other ancillary activities.

Segment Operating Results

The Company’s segment operating results are presented based on how the Company assesses operating performance and internally report financial information. See Note 21 to Consolidated Financial Statements in Part II, Item 8 for additional information on the segments.

Content Solutions

Content Solutions segment results are influenced by the level of commercial success and box office performance of the films and other content released to the IMAX network, as well as other factors including the timing of the releases, the length of play across the IMAX network, the box office share take rates under the Company’s film remastering and distribution arrangements, the level of marketing spend associated with the releases in the year and the fluctuations in the value of foreign currencies versus the U.S. Dollar.

For the year ended December 31, 2022, Content Solutions segment revenues and gross margin increased by $24.8 million or 32% to $101.8 million from $77.0 million and $6.0 million or 13% from $51.2 million from $45.3 million, respectively, when compared to the prior year.

The performance of the films distributed through the IMAX network resulted in a $211.5 million or 33% increase in GBO, from $638.2 million in 2021 to $849.7 million in 2022, despite a 32% decline in Greater China box office driven by the COVID-19 restrictions instituted as part of China’s dynamic zero-COVID policy. This overall improvement in GBO earned through the global IMAX network for the year was partially offset by unfavorable foreign currency exchange rate movements. For the year ended December 31, 2022, GBO was generated by the exhibition of 78 films (63 new, 10 carryovers, and five re-releases), including Avatar: The Way of Water, which generated GBO of $140.2 million (or 11% market share) and Top Gun: Maverick, which generated GBO of $110.7 million (or 7% market share) in the year. During the year ended December 31, 2021, GBO was generated by the exhibition of 73 films (63 new, six carryovers and four re-releases).

In addition to the higher level of revenues, Content Solutions segment gross margin is also influenced by the costs associated with the films and other content exhibited in the period, and can vary from period-to-period, especially with respect to marketing expenses, which are expensed as incurred, for films and the costs incurred to produce, market and distribute live events and documentary content during the period. For the year ended December 31, 2022, the impact of the higher level of Content Solutions Segment revenues was partially offset by higher marketing expenses of $17.3 million, as compared to $8.2 million in the prior year reflecting investments to drive higher levels of box office and enable the achievement of the Company’s highest global and domestic market share of 3% and 5%, respectively, in 2022. The Content Solutions segment gross margin was also impacted by investments in infrastructure costs, depreciation expense and network connection fees of $3.3 million to operate the IMAX connected network for the year ended December 31, 2022.

Technology Products and Services

The primary drivers of Technology Products and Services segment results are the number of IMAX Systems installed in a period, the costs associated with each installation, lease payments tied to the box office performance of the films released to the IMAX network, as well as the associated maintenance contracts that accompany each installation. The average revenue and gross margin per IMAX System under sale and sales-type lease arrangements varies depending upon the number of IMAX System commitments with a single respective exhibitor, an exhibitor’s location, the type of system sold and various other factors. The installation of IMAX Systems in theaters or multiplexes, which make up a large portion of the Company’s system backlog, depends primarily on the timing of the construction of those projects, which is not under the Company’s control.

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For the year ended December 31, 2022, Technology Products and Services segment revenue increased by $19.4 million or 11% to $192.4 million from $173.0 million while gross margin increased by $15.0 million or 17% to $101.1 million from $86.0 million, when compared to the prior year. The increase in revenue was primarily reflective of an increase of $15.6 million in Technology Rentals and $3.3 million in recurring maintenance revenue partially offset by a $2.7 million decrease in IMAX Systems revenue related to a lower number of system installations year-over-year.

The increase in Technology rentals revenue earned through the Company’s joint revenue sharing arrangements, was driven by the stronger box office performance which led to incremental profit flow-through. IMAX GBO earned from IMAX Systems under joint revenue sharing arrangements increased by $94.0 million or 28% in 2022 when compared to the prior year, from $339.1 million to $433.1 million, resulting from the higher level of box office performance discussed above.

The increase in IMAX Maintenance revenue was due to the continued global reopening of the IMAX network amidst the ongoing recovery of the theatrical exhibition industry from earlier stages of the COVID-19 pandemic, partially offset by a decrease of $1.2 million in revenue associated with systems in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions.

The year-over-year lower level of IMAX Systems revenue in 2022 was the result of four fewer IMAX System installations, including upgrades, in 2022 under sale and sales-type lease arrangements and a decrease of $1.1 million in Finance Income associated with locations in Russia, Ukraine, and Belarus, which were placed on nonaccrual status due to the ongoing Russia-Ukraine conflict and resulting sanctions. These factors were partially offset by an increase of $5.0 million from the impact of amendments to existing IMAX System arrangements, as well as an increase of $3.3 million as the Company ended the temporary relief on annual minimum payment obligations for exhibitor customers during the COVID-19 pandemic.

The increase in Technology Products and Services segment gross margin of $15.0 million, when compared to the prior year as costs Rentals including depreciation expense, advertising, marketing and system commission costs grew at a lower rate than revenue. This increase was partially offset by lower year-over-year profit contribution from maintenance revenue due to the profit flowthrough of $2.5 million in maintenance revenue recognized in 2021 that had been deferred from 2020 due to uncertainties associated with the COVID-19 pandemic. For the year ended December 31 2022, Technology Products and Services segment depreciation expense of $22.6 million was consistent with the prior year and advertising, marketing and commission costs of $2.2 million, compared to $4.3 million in the prior year.

The following table provides detailed information about IMAX Systems installed and the associated revenue recognized at that time, except for traditional joint revenue sharing arrangement as revenue is recognized over the lease term, during the years ended December 31, 2022 and 2021:

All Other

For the year ended December 31, 2022, All Other revenue and gross margin increased by $1.7 million and $1.0 million, respectively, when compared to the same period in 2021 principally due to the inclusion of SSIMWAVE’s revenues for three months as the acquisition was completed in late September 2022 as well as growth in the IMAX Enhanced consumer technology business.

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CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

The discussion below compares the Company’s cash flows for the years ended December 31, 2023 and 2022. A comparison of the Company’s cash flows for the years ended December 31, 2022 and 2021 is included in the section entitled “Cash Flows” in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and is incorporated by reference into this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Operating Activities

The net cash used in or provided by the Company’s operating activities is affected by a number of factors, including: (i) the level of cash collections from customers in respect of existing IMAX System sale and lease agreements, (ii) the amount of upfront payments collected in respect of IMAX System sale and lease agreements in backlog, (iii) the box office performance of films and other content distributed by the Company and/or released to IMAX locations, (iv) the level of inventory purchases and investment in joint revenue sharing arrangements, and (v) the level of the Company’s operating expenses, including expenses for research and development and new business initiatives.

For the year ended December 31, 2023, the net cash provided by the Company’s operating activities totaled $58.6 million, as compared to $17.3 million in the prior year, an improvement of $41.3 million. In 2023, the net cash provided by the Company’s operating activities is principally a result of revenue growth attributable to the record box office performance of the films distributed through the IMAX network, revenue from the installation of IMAX Systems and revenue associated with the amendments and renewals of IMAX Systems arrangements. This is partially offset by $20.3 million of variable consideration receivables resulting from incremental sales arrangements, including upgrades and amendments, and change in variable consideration estimate, and $20.4 million of expenditures incurred in connection with the development of Film Assets.

For the year ended December 31, 2022, the net cash inflow from operating activities of $17.3 million was principally a function of the Company’s cash earnings, as well as Financing Receivables, partially offset by the increase in Accounts Receivable of $29.0 million resulting from revenue growth attributable to the strength of the box office performance of the films distributed through the IMAX network during the last quarter of the year and $19.6 million spent in connection with the development of Film Assets.

Investing Activities

For the year ended December 31, 2023, the net cash used in the Company’s investing activities totaled $31.8 million, as compared to $53.3 million in 2022. In 2023, the net cash used in investing activities is driven by $18.0 million invested in equipment contributed to the Company’s joint revenue sharing arrangements with exhibitor customers, $6.5 million related to the purchase of property, plant and equipment, and $8.3 million of intangible assets acquired, principally related to the continued development or purchase of internal use software. The Company considers its investment in joint revenue sharing arrangements to be reflective of growth capital expenditures.

In 2022, the net cash used in investing activities is driven by $15.9 million paid for the acquisition of SSIMWAVE, net of cash and cash equivalents acquired, $19.8 million invested in equipment to be used in the Company’s joint revenue sharing arrangements with exhibitor customers, $4.7 million invested by IMAX (Shanghai) Culture and Technology Co., Ltd, a wholly-owned subsidiary of IMAX China, in the movie Mozart from Space (see “Asset Impairment” above), $8.4 million related to the purchase of property, plant and equipment, and $4.4 million of intangible assets acquired, principally related to the development of internal use software.

Capital expenditures, including the Company’s investment in joint revenue sharing arrangements, the purchase of property, plant and equipment, the acquisition of other intangible assets, and investments in films were $53.2 million in 2023 as compared to $57.0 million in 2022. Based on management’s operating plan for 2023, the Company expects to continue to use cash to deploy additional IMAX Systems under joint revenue sharing arrangements.

Financing Activities

For the year ended December 31, 2023, the net cash used in the Company’s financing activities totaled $48.5 million, as compared to $58.5 million used by financing activities in the prior year. In 2023, the net cash used in financing activities is principally due to $13.5 million in net repayments of revolving credit facility borrowings, $26.8 million used to repurchase common shares of the Company, $6.5 million in taxes withheld on vested employee equity awards, and $1.4 million of dividends paid to the non-controlling interests of IMAX China.

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In 2022, the net cash used in financing activities is principally due to $83.2 million used to repurchase common shares of the Company ($80.1 million) and IMAX China ($3.0 million), $3.7 million paid to purchase treasury stock for the settlement of RSUs and related taxes, $2.7 million of dividends paid to the non-controlling interests of IMAX China, and $2.3 million in fees paid in relation to the Sixth Amended and Restated Credit Agreement entered into by the Company during the first quarter of 2022, partially offset by $34.3 million in net cash inflow from revolving credit facility borrowings. (Refer to Note 14(b) to Consolidated Financial Statements in Part II, Item 8.)

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2023, the Company’s principal sources of liquidity included: (i) its balances of cash and cash equivalents of $76.2 million; (ii) the anticipated collection of trade accounts receivable, which includes amounts owed under joint revenue sharing arrangements and film remastering agreements with movie studios; (iii) the anticipated collection of financing receivables due in the next 12 months under sale and sales-type lease arrangements for systems currently in operation; and (iv) installment payments expected in the next 12 months under sale and sales-type lease arrangements in backlog. Under the terms of the Company’s typical sale and sales-type lease agreements, the Company receives substantial cash payments before it completes the performance of its contractual obligations.

In addition, as of December 31, 2023, the Company also had $276.0 million in available borrowing capacity under its Sixth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association (the “Credit Agreement”), $26.8 million in available borrowing capacity under the IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX Shanghai”) revolving credit facility with the Bank of China (the “Bank of China Facility”), and $28.2 million in available borrowing capacity under IMAX Shanghai’s revolving credit facility with HSBC Bank (China) Company Limited, Shanghai Branch (the “HSBC China Facility”). (Refer to Note 14(a) to Consolidated Financial Statements in Part II, Item 8 for a description of the material terms of the Credit Agreement, the Bank of China Facility, and the HSBC Facility.)

The Company’s $76.2 million balance of cash and cash equivalents as of December 31, 2023 (December 31, 2022 — $97.4 million) includes $68.5 million in cash held outside of Canada (December 31, 2022 — $79.7 million), of which $30.0 million was held in the People's Republic of China (“PRC”) (December 31, 2022 — $43.7 million). Management reassessed its strategy with respect to the most efficient means of deploying the Company’s capital resources globally and determined that historical earnings of certain foreign subsidiaries in excess of amounts required to sustain business operations would no longer be indefinitely reinvested. During the year ended December 31, 2023, $24.0 million of historical earnings from a subsidiary in China were distributed (December 31, 2022 — $27.4 million) and, as a result, $2.4 million of foreign withholding taxes were paid to the relevant tax authorities (December 31, 2022 — $2.7 million). As of December 31, 2023, the Company’s Consolidated Balance Sheets include a deferred tax liability of $12.5 million (December 31, 2022 — $14.9 million) for the applicable foreign withholding taxes associated with the remaining balance of unrepatriated historical earnings that will not be indefinitely reinvested outside of Canada. These taxes will become payable upon the repatriation of any such earnings.

The Company forecasts its future cash flow and short-term liquidity requirements on an ongoing basis. These forecasts are based on estimates and may be materially impacted by factors that are outside of the Company’s control (including the factors described in “Risk Factors” in Part I, Item 1A). As a result, there is no guarantee that these forecasts will come to fruition and that the Company will be able to fund its operations through cash flows from operations. In particular, the Company’s operating cash flows and cash balances will be adversely impacted if management’s projections of future signings and installations of IMAX Systems and box office performance of remastered content distributed to the IMAX network are not realized.

For the year ended December 31, 2023, the Company had $76.2 million balance of cash and cash equivalents and net cash provided by the Company’s operating activities of $58.6 million which improved $41.3 million from 2022. Based on the Company’s current cash balances and operating cash flows, management expects to have sufficient capital and liquidity to fund its anticipated operating needs and capital requirements during the next twelve-month period following the date of this report.

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CONTRACTUAL OBLIGATIONS

Payments to be made by the Company under contractual obligations as of December 31, 2023 are as follows:

(1)
Represents total payments to be made under binding commitments with suppliers and outstanding payments to be made for supplies ordered, but yet to be invoiced.

(2)
The Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering its CEO, Mr. Richard L. Gelfond. The SERP has a fixed benefit payable of $20.3 million. The table above assumes that Mr. Gelfond will receive a lump sum payment of $20.3 million six months after retirement at the end of the term of his current employment agreement, which expires on December 31, 2025, in accordance with the terms of the SERP, although Mr. Gelfond has not informed the Company that he intends to retire at that time. (Refer to Note 23 to Consolidated Financial Statements in Part II, Item 8.)

(3)
Represents total minimum annual rental payments due under the Company’s operating leases.

(4)
The Federal Economic Development Loan will be repayable over 36 months, with repayments estimated to begin in January 2024. (Refer to Note 14(b) to Consolidated Financial Statements in Part II, Item 8.)

(5)
The Convertible Notes bear interest at a rate of 0.500% per annum on the principal of $230.0 million, payable semi-annually in arrears on April 1 and October 1 of each year. The Convertible Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. (Refer to Note 14(b) Consolidated Financial Statements in Part II, Item 8.)

OFF-BALANCE SHEET ARRANGEMENTS

There are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition.

NON-GAAP FINANCIAL MEASURES

GAAP refers to generally accepted accounting principles in the United States of America. In this report, the Company presents financial measures in accordance with GAAP and also on a non-GAAP basis under the SEC regulations. Specifically, the Company presents the following non-GAAP financial measures as supplemental measures of its performance:

•
Adjusted net income or loss attributable to common shareholders;

•
Adjusted net income or loss attributable to common shareholders per basic and diluted share;

•
EBITDA; and

•
Adjusted EBITDA per Credit Facility.

Adjusted net income or loss attributable to common shareholders and adjusted net income or loss attributable to common shareholders per basic and diluted share exclude, where applicable: (i) share-based compensation; (ii) COVID-19 government relief benefits; (iii) realized and unrealized investment gains or losses; (iv) transaction-related expenses; and (v) restructuring and executive transition costs, as well as the related tax impact of these adjustments.

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The Company believes that these non-GAAP financial measures are important supplemental measures that allow management and users of the Company’s financial statements to view operating trends and analyze controllable operating performance on a comparable basis between periods without the after-tax impact of share-based compensation and certain unusual items included in net loss attributable to common shareholders. Although share-based compensation is an important aspect of the Company’s employee and executive compensation packages, it is a non-cash expense and is excluded from certain internal business performance measures.

Reconciliations of net income (loss) attributable to common shareholders and the associated per share amounts to adjusted net income (loss) attributable to common shareholders and adjusted net income attributable to common shareholders per basic and diluted share are presented in the table below.

(1)
Reflects amounts attributable to common shareholders.

(2)
Reflects costs in connection with the Company’s proposal to acquire the outstanding 96.3 million shares in IMAX China in 2023 and costs incurred associated with the acquisition of SSIMWAVE in 2022.

(3)
Reflects costs in connection with the departure of the President, IMAX Entertainment and Executive Vice President of the Company and other employees to capture efficiencies and centralize certain operational roles. (Refer to Note 26 to Consolidated Financial Statements in Part II, Item 8.)

In addition to the non-GAAP financial measures discussed above, management also uses “EBITDA,” as such term is defined in the Credit Agreement, and which is referred to herein as “Adjusted EBITDA per Credit Facility.” As allowed by the Credit Agreement, Adjusted EBITDA per Credit Facility includes adjustments in addition to the exclusion of interest, taxes, depreciation and amortization. Accordingly, this non-GAAP financial measure is presented to allow a more comprehensive analysis of the Company’s operating performance and to provide additional information with respect to the Company’s compliance with its Credit Agreement requirements, when applicable. In addition, the Company believes that Adjusted EBITDA per Credit Facility presents relevant and useful information widely used by analysts, investors and other interested parties in the Company’s industry to evaluate, assess and benchmark the Company’s results.

EBITDA is defined as net income or loss excluding: (i) income tax expense or benefit; (ii) interest expense, net of interest income; (iii) depreciation and amortization, including film asset amortization; and (iv) amortization of deferred financing costs. Adjusted EBITDA per Credit Facility is defined as EBITDA excluding: (i) share-based and other non-cash compensation; (ii) realized and unrealized investment gains or losses; (iii) transaction-related expenses; (iv) restructuring and executive transition costs; and (v) write-downs, net of recoveries, including asset impairments and credit loss expense.

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Reconciliations of net income attributable to common shareholders, which is the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA per Credit Facility are presented in the table below.

(1)
The amortization of deferred financing costs is recorded within Interest Expense in the Consolidated Statements of Operations.

(2)
Reflects costs incurred resulting from the Company’s proposal to acquire the outstanding 96.3 million shares in IMAX China.

(3)
Reflects costs in connection with the departure of the President, IMAX Entertainment and Executive Vice President of the Company and other employees to capture efficiencies and centralize certain operational roles. (Refer to Note 26 to Consolidated Financial Statements in Part II, Item 8.)

The Company cautions users of its financial statements that these non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Additionally, the non-GAAP financial measures used by the Company should not be considered in isolation, or as a substitute for, or superior to, the comparable GAAP amounts.

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