IMAX Corporation (NYSE:IMAX) Q3 2021 Results Earnings Conference Call October 28, 2021 8:30 AM ET

Company Participants

Brett Harris - Head of Investor Relations
Richard Gelfond - Chief Executive Officer
Joe Sparacio - Interim Chief Financial Officer
Megan Colligan - President at IMAX Entertainment, Executive Vice President

Conference Call Participants

Eric Wold - B. Riley Securities
Steven Cahall - Wells Fargo
Alexia Quadrani - JPMorgan
Eric Handler - MKM Partners
Mike Hickey - Benchmark Company
Aaron Lee - Macquarie
Jim Goss - Barrington Research
Mike Ng - Goldman Sachs

Operator

Good day and welcome to the IMAX Corporation third quarter 2021 earnings conference call. Today's conference is being recorded.

I will now turn the conference over to Mr. Brett Harris. Please go ahead, sir.

Brett Harris

Thank you. Good morning everybody. And thank you for joining us on today's third quarter earnings conference call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer and Joe Sparacio, our Interim Chief Financial Officer. Megan Colligan, President, IMAX Entertainment and Rob Lister, Chief Legal Officer, are also joining us today.

Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our third quarter earnings press release and a slide presentation have been posted on the Investor Relations section of our website. At the conclusion of this call, our historical Excel model will be posted to the website as well.

I would like to remind you of the following information regarding forward-looking statements. Today's call as well as the accompanying slide deck may include statements that are forward-looking and that they pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause actual future results or occurrences to differ.

Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information, future events or otherwise.

During today's call, references may be made to certain non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures as well as a reconciliation to non-GAAP financial measures including adjusted net loss, adjusted EPS and adjusted EBITDA as defined by our credit facility, are contained in this morning's press release and in our earnings materials, which are available on the Investor Relations page on our website at imax.com.

With that, let me now turn the call over to Mr. Richard Gelfond. Rich?

Richard Gelfond

Thanks Brett and good morning everyone. Thank you all for joining us today.

It's exciting to be speaking to you on the heels of our record-breaking weekend with Dune, an opening that underscored the differentiation of IMAX. The film is a brilliant showcase for our technology, shot with our cameras and made for our screens. We scored our biggest October global opening of all time, capturing an outsized 20% of the box office, our best domestic opening since 2019 and our highest domestic indexing since 2017, despite a day and date streaming release and it pushed us to our best month of October ever with more than $100 million and counting, on track to be the eighth highest grossing month in IMAX's 50-year plus history.

It is clear the global film industry has reached a turning point. The movies are back. IMAX is delivering global box office grosses in line with or above pre-pandemic highs as consumers return to theaters around the world. Hollywood studios have recommitted to exclusive theatrical releases for their biggest blockbuster movies and the slate is kicking into high gear with an unprecedented pipeline of marquee tent pole to close out 2021 and throughout 2022.

The movie business has passed an enormous stress test. For more than a year, consumers had easy access to an expanding world of in-home entertainment options and virtually no access to blockbuster entertainment in theaters. Despite that massive disruption, consumer demand for moviegoing remains strong as we have long believed more than 100 years of human behavior doesn't change that easily. Cinemas have thrived across the advent of television, the Internet and proliferation of mobile devices because the theatrical experience is the most immersive, communal and accessible way to enjoy storytelling. And the secular trends, all favor IMAX, from the blockbusterization of the film slate to the globalization of the theatrical experience, the emphasis on premium out-of-home experiences, the 45-day theatrical window and the rise of local language filmmaking around the world.

Today, I would like to discuss why IMAX is very well positioned to capitalize as the industry recovery accelerates, a strategic overview of the entertainment landscape and positive trends driving box office momentum and our results for the third quarter, which demonstrate our differentiated business model, strategy and growing consumer demand. As I said, the evolution of the global film industry is taking shape in ways that uniquely benefit IMAX and our market share.

First, IMAX is in the blockbuster business and blockbusters will grow their dominance as more mid-tier films move to the streaming platforms. 90% of IMAX annual global box office is driven by the top 30 releases and 60% is driven by the top 10. We also stand to gain from the compressed forward demand we have seen with the shorter 45-day window. Given the even bigger emphasis on opening weekend, an IMAX run will be even more significant for studios and consumers. An IMAX release helps create a global event around a film. Studios recognize that IMAX is a window onto itself. We create value across the entire chain for blockbusters, from launch marketing to downstream windows to ancillary revenue. For instance, Sony moved the domestic release of Venom 2 up two weeks in large part to secure an IMAX release. The film was an enormous success at the box office with IMAX driving 9% of the film's domestic debut gross on only 1% of the screens. We have also accelerated our strategy to diversify our content portfolio with local language filmmaking forging deeper partnerships with studios and filmmakers in Japan and China.

And the results have been fantastic. I am very happy to share with you that IMAX has set a new company record for yearly local language box office with $165 million and counting. We are excited to continue down this path, given the untapped potential of local film industries in Russia, India and South Korea and the return of a full Hollywood slate next year. While we have seen little contraction among our exhibition partners, IMAX is well insulated from this threat and could even benefit from it. Our screens operate in the top-performing multiplexes across key box office markets. For example, in North America, 80% to 90% of our annual box office is generated in the top 20% of multiplexes. And as we saw with AMC and Regal's acquisition of prime Los Angeles locations, consolidation can create new opportunities for IMAX theaters in high-value locations.

Finally, the strength of our business underscores the value of our global brand. We have continued to grow our IMAX Enhanced in-home entertainment licensing business throughout 2021. We have grown our multifaceted partnership with Sony, adding studio titles and expanding onto Sony Bravia TVs in the U.K. and Japan. We are in productive conversations with leading global streaming platforms which are very interested in exclusive IMAX expanded aspect ratio to gain a competitive edge. The expansion of IMAX Enhanced to major streaming services could be a strategic turning point as we seek to enter the home.

Turning to the state of global moviegoing. IMAX and the entire industry is in great shape. This month, we have already surpassed our IMAX record for the best month of October ever at the global box office and we still have a weekend to go, which includes the debut of No Time To Die in China. We are on track to surpass $150 million in global box office in October making this some of our best top 10 months of all time. In fact, we will do almost as much businesses in October as we did in each of both the first and second quarter of this year. In September, our monthly gross was right in line with our pre-pandemic September totals from 2017 to 2019. We even eclipsed the strong September 2019, which was our best full year ever at the box office. Each successive release has demonstrated the come back of the box office in new ways.

The surprise hit Free Guy had impressive lead at the box office, performed very well in China where IMAX has accounted for more than 13% of the box office and helped establish a new franchise for Disney with a sequel already announced. Shang-Chi emerged as the highest grossing film of 2021 at the domestic box office and lifted IMAX to its biggest September weekend of all time during its debut. Sony's Venom sequel shattered expectations with a $90 million domestic opening including $8 million across IMAX screens in North America.

No Time To Die, the first Bond film shot with IMAX cameras, has earned $34 million globally in the IMAX network so far, demonstrating how broadly the recovery is spreading. The film delivered IMAX its biggest opening for a Bond film ever in 24 countries worldwide in such diverse markets as the U.K. and Japan, Hong Kong and Italy, South Africa and Ecuador and its international hold surpassed many recent Bond films. Additionally, older audiences turned out for the film globally despite fears that they would stay home.

Dune also shot with our cameras has earned $29 million in the IMAX global network to-date and demonstrated the marketing power of a filmed for IMAX release. We captured 22.5% of the opening weekend domestically despite a day and date release on HBO Max and 20% of last weekend globally. Finally, in China, IMAX yet again delivered its best ever opening weekend for the National Day holiday led by The Battle at Lake Changjin which has earned more than $33 million, again filmed for IMAX. The movie has already surpassed $780 million in box office as one of the top grossing Chinese films of all time. Free Guy, Dune and the weekend's release of No Time To Die have also calmed fears that China is souring on IMAX Hollywood product.

There have been a number of unusual challenges for Hollywood releases in 2021. There has been a backlog of Chinese local language films which led the government to prioritize local titles over Hollywood ones. Hybrid streaming releases have unleashed widespread piracy. And given how vocal the Chinese authorities have been in protecting the theatrical window, resistance in admitting films widely available on the Internet does not come as a surprise. And finally, we have seen cultural sensitivity around some films, a consideration that doesn't generally impact more than one to two films a year this year. With many of the industry's issues now resolved, we are very optimistic about the slate ahead for the remainder of Q4 and 2022.

This year closes with Marvel's highly anticipated Eternals opening next weekend Ghostbusters: Afterlife, which earned raves that the recent CinemaCon exhibitor conference, the latest Spiderman and the new installment of the Matrix. The unprecedented 2022 slate includes DC's the Batman sequels to The Flash and Aquaman and the introduction of Black Adam, starring Dwayne Johnson, three Marvel films, including new installments of the Thor and Black Panther, new franchise entries for Jurassic World, Mission: Impossible and Transformers, Top Gun: Maverick shot with IMAX cameras and of course, the sequel to James Cameron's Avatar, the film that, to this day, remains the highest grossing IMAX film of all time. The unique success of the first Avatar on IMAX screens created a halo effect for the company boosting installation activity and accelerating the growth in our network. In its initial release, Avatar generated $240 million in box office on less than 200 IMAX screens. And in March of this year, IMAX captured 30% of the box office on only 1% of the screen with the re-release of Avatar in China, demonstrating how strong the brand association remains between IMAX theaters and James Cameron's epic Avatar 13 years later. We are excited for this franchise to return with another three movies over the coming years.

Now let's talk about our strong Q3 results. Recent box office momentum is reflected in our results for the third quarter, which demonstrates strong consistent progress not only toward recovery but in recovery. The company delivered its best results in nearly two years across several key metrics including adjusted EBITDA, adjusted EPS, gross margin, revenue and global box office. In fact, IMAX recorded its fourth consecutive quarter of positive EBITDA and its third consecutive quarter of $100 million-plus in box office and its strongest quarter at the box office since 2019. During the quarter, we repurchased $4.6 million of IMAX shares of IMAX stock and $5 million worth of IMAX China stock. While we wanted to be aggressive and opportunistic, we were somewhat constrained by blackouts during the quarter.

To conclude, with momentum in our business and across the industry, we are cementing our strong long term strategic position. We command the only global out-of-home platform for premium blockbuster entertainment with a diversified footprint across 85 countries and territories worldwide. We have a flexible asset light business model and we are in demand global brand, beloved by audiences worldwide, critical to filmmakers and studios and ripe for new business opportunities. We believe we have reached a very positive inflection point for IMAX and the global film industry. Theaters are open. The pipeline of blockbuster content is following and audiences are returning in record numbers. We look forward to strengthening our position as one of the world's premiere entertainment experience.

Thanks again to all of you for joining us today. With that, I will turn it over to our Interim CFO, Joe Sparacio.

Joe Sparacio

Thanks Rich and good morning everyone. As Rich mentioned, the release of exclusive theatrical franchise films and growing consumer demand drove another quarter of sequential improvement across key financial metrics. We continue to expect this momentum in moviegoing to build as our fans increasingly adapt to the pandemic and the cadence of franchise film releases built into what could be an excellent 2022. Moreover, our results benefited from our global asset light licensing business, which is characterized by low fixed costs and high incremental and normalized margins.

We ended the quarter with $193 million in cash and $241 million of debt. When combined with the $300 million available under our credit facility and $18 million available under our IMAX China working capital loan, we have $511 million of available liquidity. During the quarter, we purchased $4.6 million or 317,000 shares at $14.53 of IMAX stock and $5 million or 3.6 million shares at $1.40 or HKD10:90 per share of IMAX China stock. We intend to be opportunistic in repurchasing shares when we view our stock price as disconnected from the underlying fundamentals of the business, subject as always to our blackout windows.

As I discussed in the third quarter, please remember, year-over-year results reflect that in Q3 2020, much of our network was reopening with limited content available for exhibition. Third quarter 2021 revenue increased to $56.6 million from $37.3 million in 2020. Adjusted EBITDA increased to $13.1 million versus a slight EBITDA loss of $300,000 in the year ago period. And adjusted EPS loss improved to $0.08 per share from $0.75 per share in comparison to the year ago period. In the third quarter, the company took a further non-cash valuation allowance charge of $4.3 million or $0.07 per share against the value of deferred tax assets recorded in the period. As a result of the pandemic related uncertainty, accounting rules prevent us carrying deferred tax assets in certain tax jurisdictions.

IMAX Technology Network revenue increased to $25.6 million in the third quarter from $11.4 million in Q3 2020. The continued global reopening of the company's network and return of major Hollywood franchise titles, particularly in the U.S. and international markets, drove box office of $142 million versus $70 million in Q3 of 2020. Gross margins for this business were $10.9 million, which increased from $600,000 in Q3 2020, largely due to higher box office driven revenue and the operating leverage inherent in our business model.

IMAX Technology Sales and Maintenance revenue for the third quarter increased to $277.7 million from $23.7 million due to an increase in maintenance revenue commensurate with the continuing reopening of the network and that was partially offset by fewer IMAX system installations. This quarter, we installed 14 new IMAX systems, six of which were sales or STLs. In comparison, we installed 18 new IMAX systems in Q3 of last year and which included nine sales or STLs. Gross margins for this business increased to $14.9 million compared to $9.4 million on higher revenue.

SG&A excluding stock-based compensation increased 15% to $22.7 million in the quarter as compared to $19.7 million in the comparable period last year. The increase in SG&A excluding stock-based comp was driven by the increased business activity associated with the continued reopening of the company's global network. In the third quarter, we spent $4 million on capital expenditures, including $3 million invested in equipment for joint revenue-sharing theaters.

We believe our third quarter results demonstrate that our business has reached a turning point. Consumers have returned in large numbers to our network. Studios have recommitted to exclusive theatrical releases for IMAX friendly blockbusters. And our superior asset light business model is delivering across all our key metrics.

With that, I will turn the call back over to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. And we are taking our first question from Eric Wold with B. Riley Securities. Please go ahead.

Eric Wold

Thank you. Good morning guys. Rich, you talked about what happened last time with Avatar back in 2009 in terms of increasing demand for IMAX systems and accelerating installation. I guess can you talk about the pace of discussions right now with exhibitors around new signings given the strength of recovery and the film slate that coming up? And then given that we are mostly in a new build environment now versus the retrofit environment that was back then with the original Avatar, how much opportunity is there to accelerate installations over the next 12 months, if they do want to get ahead of that slate?

Richard Gelfond

So, certainly from an IMAX point of view and in our ability to build inventory, Eric and get it out there, there is a lot of opportunity. Our lead time is 90 days or maybe a little bit more than that. So, to the extent there is demand we can meet it. As I said during the call, we have seen this dramatic turnaround in the last several months, September, October, where for us things they haven't only come back to normal, but they are kind of ahead of pre-pandemic normal. It's kind of early though to forecast that out. I mean it's not just Avatar coming forward next year. It's the films in the fourth quarter we talked about. It's obviously other films whether it's the Marvel films or the DC films or Top Gun or Mission: Impossible or Jurassic World, can't remember all of them, there are so many. So I do think that slate is going to motivate people to install, sign and open. And in addition to that, you have the greater indexing that's going on with IMAX. So you have a greater share of the box office going to premium. So there's obviously a lot of incentive as exhibitors return to normal around the world to gear off their networks with IMAX. However, I think at the moment, it's too early to forecast how quickly that pace will unfold. We are kind of working through it. Right now, we are working on putting together our 2022 budget and obviously one of the key inputs on that is how quickly people will sign up for new theaters and how quickly they will open those theaters. The fundamentals are there for that, as you say, experience the Avatar effect in many ways. But I think I am really going to have to defer until the end of the year call to give you some concrete data.

Eric Wold

Understood. And then just lastly, as China is starting to reopen for more Hollywood films and you got past the backlog and other issues you talked about. How do you manage the different content preferences between kind of the larger cities versus maybe the lower tier cities in terms of Hollywood versus local language content? And does that become a sticking point in any of your negotiations with the studios and discussion the studios in terms of how many screens they are allocated?

Richard Gelfond

Well, first of all, one of the really good things and it's coincidental, it's not by design is that the best times of the year in China are different than the best times of the year in the U.S. So for example, in the U.S., you think of the summer time or you think of Christmas time. In China, you think about Chinese New Year, which is late January, early February. Typically, you think about the National Holiday which is in October. So the blockbuster seasons are complementary. They don't end up on top of each other. Within China itself, in the top 1 or 2 tier cities, there's a stronger preference for Hollywood content than there is in tier 2, 3 and then tier 3, 4 and 5 cities. So as a general matter, the local language films perform better in the lower tier cities and the western films perform somewhat better in the top tier cities. So when we split the network and we program, we generally take that preference into mind when we decide what to release and when. However, like everything in the movie business, it's also a film by film preference. So if there's a film like Avatar which was so universally beloved in China, I don't think we make that kind of pure distinction. But if it were a smaller Hollywood film and over a significant Chinese local language films available there or probably a Japanese language film in Japan or Korean in Korea, wherever it is, we would have to balance that. So you have these general rules but you also take into account the specific titles.

Eric Wold

Perfect. Thanks Rich.

Richard Gelfond

Thanks Eric.

Operator

Thank you. We take our next question from Steven Cahall with Wells Fargo. Please go ahead.

Steven Cahall

Thank you. Maybe just first on IMAX Enhanced. You mentioned some productive conversations. So I was wondering if you could give us any idea on maybe what the timing may look like for something a bit more strategic? And I guess that Disney+ and HBO Max or some of those most critical services? So any comments you would make on your relationships with those studios or services specifically, I think, would be helpful. And then secondly, Dune obviously had this great opening weekend but even that is maybe a bit of a nichier product, not quite as family-friendly. So just wondering if you could comment how Eternals is tracking? If you have seen any presale data? I have heard some things but curious to kind of get your view on how it looks like that's tracking pre-opening? Thank you.

Richard Gelfond

Sure. So let me start with Enhanced. As you know, but just for the benefit of others who may not know, Enhanced is a technology that we have developed which basically helps upres movies on big screen TV's in the home. So after a theatrical window when you want to watch a movie in your home, Enhanced makes the movie look better. And one of the primary examples today is our relationship with Sony where Sony licenses its technology for its large screen TVs. Sony also twice as involved on the film side with us in upressing the films so they are compatible with its system and compatible with Enhanced. And it's gone pretty well for us so far.

I don't know if, Joe, you can correct me on that but I think of the seven largest TV manufacturers in the world, we are in four of them already. So we made some traction kind of below the radar screen. It's gone pretty well. Because of that transaction and frankly because of IMAX's overall success in the IMAX brand, we have had a number of discussions over the last couple of years with significant parties whether on the manufacturing side or the streaming side or the studio side. And there are enough of them out there right now where we feel pretty good that some of them including maybe some larger ones are likely to come to fruition. Again, you can't guess about deals. But my best guess would be, by the end of the year I would think something, there could be some significant developments in that area.

You asked specifically about some of the streaming services. You mentioned Disney+. You mentioned HBO. Max. Obviously, there's Netflix and Amazon and others and you know, included in the discussions that I refer to are discussions with some of the larger streaming services But again, we will have to see what and when and it's hard to predict when things get done completely.

In terms of Dune, obviously as you mentioned, the results were beyond our expectations. We did 20% of the world as we mentioned in our script in kind of major markets like the U.S. and China where 1% of the screens but in a lot of other places, we are a fraction of 1% of the screens. So the indexing there was phenomenal.

In terms of the Eternals, we tend to do very well with Marvel films in general. I think we feel that that film with a theatrical window around it is going to perform well. We don't have numbers but Marvel films in general perform well and they tend to do specifically very well on IMAX. I don't think you will see Dune type indexing because the director of Dune, Denis Villeneuve, filmed it specifically for IMAX and basically said to audiences, go see it in IMAX. That's the way I want you to see it. Chloé Zhao is very close to IMAX. So we did Nomadland. she's been in our in headquarters in Playa Vista. She certainly is pushing the IMAX version of the release. So we have high expectations for it.

Megan, what do you want to add to that?

Megan Colligan

You know what, I would expect that it would do very well. Chloé is an auteur filmmaker and speaks very well about the format and shot at film with the expectation of it being a film that is best seen in IMAX and speaks to that very clearly. And I think on a relative, basis this movie should be expected to do very well in our format.

Steven Cahall

Great. Thank you.

Operator

Thank you. And we take our next question from Alexia Quadrani with JPMorgan. Please go ahead.

Alexia Quadrani

Thank you. Just circling back your commentary about indexing and how well Dune did. I am curious what do you sort of see as sort of the run rate I guess post-pandemic? You know you probably don't see Dune levels because like you mentioned that was shot on IMAX cameras, so skewed very favorably. But I would assume you would probably see higher than pre-pandemic just given the nature of the films that are coming out and that the consumers want that kind of experience. So just curious if you have any thoughts on how we should think about that going forward? And my second question is, you have done, following up on your commentary on Hollywood films in China, I think you said Q4 is looking better. Do we think we can get back to kind of a normal run rate of the Hollywood films in China though at some point, whether it's 2022 or beyond?

Richard Gelfond

Sure. Your first one, your first question, first about indexing which is that, although Dune was kind of the best case we have seen in a while, IMAX came out of the pandemic with increased market share, not only in the United States but in many of our international territories. And if you look at in China as one example, our indexing is up significantly. It was like in the low-2s in terms of the national box office for the whole country, 2% to 3% and about a percentage higher than it was before the pandemic. In the United States, we did 12.5% of Bond on the opening weekend which is very good indexing. Typically, IMAX movies more index on opening weekend in 10%-ish range. We just talked about Dune being in the 20%-ish range. Obviously, the Nolan movies typically over index very much. Some of that is because of our camera program and shooting films with IMAX DNA or with IMAX cameras.

And I am going to answer your second question and then I am going to ask Megan to fill in a little bit about our camera program and why there are more films being shot in IMAX and how that's helping our indexing. But the other point of indexing I think this after spending time sitting at home in the pandemic watching your television, streaming, cable, whatever it is, I think when you have an opportunity to leave the home and it's complex of extra dollars, I think you want something very different than what you typically can get in-home. And I think that's really fuelling a lot of that higher indexing.

On your second question with regards to China, as I mentioned during the prepared remarks, there are a lot of things going on in China in terms of Hollywood films not getting in at the same rate. And the two biggest, in my mind, was there was a backlog of Chinese films. So they have to run up their own films before they were gong to let a lot of new films in. And the second was the day and date experiment during the pandemic. And the degree of piracy during that experiment made it diseconomic for the Chinese government to let films in theatrically that have already sort of played so heavily on torrent sites in China or illegally purchase. So as you know, they are starting to let more films in. We talked about Dune getting and Bond getting in. I have heard that Spider-Man has applied to get in. I have heard outside sources say they think that will happen. Again, it's a pure guess, Alexia, but I would think that 2022 will look something like a normal year in China because the impediments that existed in 2021 are in the process of going away.

So with that, I would like Megan to give you some context for a second about why more films are being shot with IMAX cameras or with IMAX DNA.

Megan Colligan

So I think we have talked about it before but just to clarify we have a certified IMAC camera program, the top of the line cameras at every camera character has an IMAX camera that any filmmaker is capable of using. We have early discussions with top tier filmmakers and we are in very advanced discussions with filmmakers that are making the kinds of movies that we would like to be using our certified cameras very early on. So for instance, next year we have 10 movies that are shot with our cameras, one of which was shot with film cameras, Jordan Peele's Nope was shot with IMAX film cameras. The difference in that process, you can imagine, has a lot of significance.

For one, people are thinking about IMAX from the start. They are thinking about how they shoot for our screen. They are talking about it from the moment they are on set. And they are engaging with audiences right at the outset. And audiences are really smart and really connected to the top tier filmmakers and top tier materials. And fans want to see films in the way that filmmakers want them to see it. And so that connective itty and that connection has a massive impact and that differentiation has massive impact for us. And so I think you are going to see, especially next year I think we are going to see a real increase in the way consumers are connecting with our brands as this program really takes off.

And next year will be, as I said, a massive year. You are talking about three different Marvel movies that are shot with our cameras. You are talking about Top Gun: Maverick. As I said, you have Black Panther and Thor and Doctor Strange. And we are also doing Creed with MGM. So it's a real diversification in the type of studios we are working with as well. And so it really creates a diversified slate for us. A lot of different filmmakers that we are working with, a lot of different types of films and it starts to really broaden the base of the IMAX fans.

Alexia Quadrani

Thank you very much.

Operator

Thank you. And we take our next question from Eric Handler with MKM Partners. Please go ahead.

Eric Handler

Good morning and thanks for the question. Rich, I wonder if you could talk about how the lineup despairing for next year for international films that are going to have the IMAX DNA embedded in there and how that number might compare to what you are seeing in 2021?

Megan Colligan

I am going to jump in on, if you don't mind. We have a really robust program and we are excited about next year in terms of that program. We have a French film that has IMAX DNA for the first time that was shot with our cameras. We have a Chinese film that will be coming out, we believe. You can never say this early but we think it will be coming out for the New Year that was shot with our cameras, the Chinese New Year. We have a program that we are doing with Toho. It's a five picture deal for Japanese films. So we are really very focused on local language titles and continuing our efforts locally to ensure that we are serving our audiences in the country that we are continuing to grow in and looking at the best filmmakers with local language titles. And that program has been very successful and we continue to educate filmmakers around the world about this program.

Richard Gelfond

And I think, in China specifically Eric, I don't have it at my fingertips but as we mentioned on this call, we just set a local language record. But there are many, many films in China that we are involved in at this point. We are also looking at different projects in newer markets like Korea and India as well. So I think we have kind of lead the way in identifying local language content and I think you will see us continue to double down on that.

Eric Handler

Very helpful. Just as a follow-up question, you touched a little bit on this earlier. But as you are talking with theatre owners about new deal signings, are you getting a sense, is there any sort of gating factor that is preventing more deals being signed at this point? Or how is sort of the pipeline of deal activity progressing at this point?

Richard Gelfond

Well, I have to remind everybody on the call that it's kind of remarkable that during a pandemic last year when the world was shut down, we signed about 65 new systems and we installed about 75 new systems when the world was closed. So there was a level of activity going on while things were still shut down. It's picked up a bit now. There are a number of live things going on. We had a number of signings during the quarter. We have got some that are contingent that we haven't announced yet. But I think sort of the discussion we had around the Avatar effect and I think the higher indexing that IMAX is doing versus regular cinema, the push to premium, the move to blockbusterization, the move to the localization, I think we will see all those manifest themselves in the next couple of months as people start looking at their plans for 2022.

Eric Handler

Thank you very much.

Operator

Thank you. And we take our next question from Mike Hickey with Benchmark Company. Please go ahead.

Mike Hickey

Hi. Rich and team, congrats on the quarter. Awesome to see the strength there at the box office. Just a few questions. One, maybe I missed this. Did you give some perspective on your fourth quarter installations, please?

Richard Gelfond

Yes. I think, Mike, where we sit right now, it looks like the cadence will be fairly consistent with what we have experienced last year.

Mike Hickey

Okay. Just in terms of seasonality in the course of the year?

Richard Gelfond

Yes. The sell-through activity, yes, I mean typically the fourth quarter is a big quarter for us on an installation basis. So right now, things are shaping to fairly consistent.

Mike Hickey

Okay. Good. The next question. Rich, I was just sort of curious your view on China in terms of how they use sort of maintain the zero tolerance strategy, I guess, in terms of combating COVID. Just wondering how important do you think that's been in terms of driving performance at the box office for China? And obviously it will have implications on travel, safety, et cetera. I am curious if you think that you can sort of sustain this strategy? You are seeing other countries sort of back off that as they can't sustain it. what implications does that have for your box office in China film industry overall?

Richard Gelfond

I think the world has come up in general with a different policy which is learning to live with COVID in some way. So obviously, in places like the U.S., there isn't zero tolerance but the movies have opened and they are doing quite well. And this is only about the 10th time I am going to say it an I apologize, but this October which is one of the best months in our history. So obviously with COVID still existing, the box office has bounced back really strong. And I think people are going to movies just like they are going to restaurants and sporting events. So I don't think a closure here or there or the disease still existing is militarily looning the box office in any way that we can foresee.

You are right, China has a different approach which is zero tolerance. And what they do is, if there's an outbreak in a certain region, they will close all those theatres in that region. But generally it's been for one or two weeks and just as quickly as they close it they open it up. And again it's just part of the landscape there. So even though we delivered the best National Holiday numbers, $35 million, The Battle at Lake Changjin, there were theaters closed there and there theaters that reopened then and there are theaters closed now and there theaters that reopen. It's generally been in the 5% or less of the theaters in our network. So I just don't think it's had a material impact. It's kind of a different variation of the rest of the world learning to live with COVID, I would say, among the vaccinated people mostly. But I don't think whether they switch off their policy or change, probably that going to have a material impact on our box office.

Mike Hickey

Thanks. The last question for me, back to the U.S. here. LA sort of passed their vaccine mandates for theatres and I guess on concert and other venues. I think that goes live early November. Just curious your thoughts on, obviously LA I think has a pretty strong vaccination rate, but sort of curious how impactful that policy could be for your theaters or your screens there? And also wondering if we could see this sort of policy work itself in the other counties or states or cities? Thank you.

Richard Gelfond

Well, it would take me a long time to go though our 85 countries and give you a fulsome answer. But I can tell you, in New York you have to show that you have been vaccinated to get in to a theater. And if you just look at our results over the last couple of months, with the vaccine mandate to go to the theater, they have been quite strong. So I guess as more people get vaccinated and they are required to be vaccinated to go to a theater that should have a positive impact. I think we saw in other countries during the initiation of those mandates, it took a slight bit of time for transition until people learn to get the apps and learn to use them. But again I don't think that's going to make a material difference.

Mike Hickey

Nice. Thanks Rich. Good luck guys.

Operator

Thank you. And we take our next question from Chad Beynon with Macquarie. Please go ahead.

Aaron Lee

Hi. This is Aaron on for Chad. Thanks for taking my question. Over the last couple of years and especially through the pandemic, if you guys have been doing a good job focusing on controlling costs and we saw strong results this quarter. As the recovery continues, how should we think about expenses and margins in 2022? Thanks.

Richard Gelfond

Yes. I think you are going to see them go up to some extent. There have been, when this first happened because we are a global company we had dealt with COVID in other territories before most people did. So we were able to react very quickly and very decisively and we did that and we drilled our calls way down. Obviously, we are a company that understands return on investment and understands that it's not happy days are here again, let's start throwing money out the windows. We never managed ourselves that way and we never will. On the other hand, things like marketing where are there opportunities right now and you look at our -- I mean one of the reasons we over-indexed on Dune is we did a really terrific, our marketing department did a terrific job marketing the movie. An again, for the rest of the quarter we have things like Ghostbusters, Spider-Man, make sure it's coming. I am a marketing is an ordinary part of how you promote a movie. So I think you will see some of costs go back to 2019 levels. We are in the middle of the budgeting right now but the amount of money we spend basically being closed is going to increase.

Aaron Lee

I appreciate it. Thank you. That's helpful. As a quick follow-up for me, some exhibitors have talked about being push pricing power in the U.S. Just curious if this is the trend you have seen as well?

Richard Gelfond

It's interesting because I had read. I don't know if it's true. But at Lincoln Square, tickets for Dune were $26. So if that's true, that was clearly, AMC is operator there testing that. And that's, I don't know about 20%, 25% higher than normal. It has been suggested to me that especially with IMAX, with experiences so differentiated and especially in the earlier ones in the movie there's so much demand and the opening weekend, the opening day. So again IMAX doesn't set the pricing. Our exhibitor partner is doing it. It's simply up to them but it wouldn't surprise me given the amount of movies next year, the demand and the specific demand for IMAX that people tested out and I think there is an opportunity there. But again, it's not what we control.

Aaron Lee

Got it. Thank you.

Operator

Thank you. And we take our next question from Jim Goss with Barrington Research. Please go ahead.

Jim Goss

Thanks and good morning. I would like to start with opportunities with your traditional IMAX Museum content in terms of expanding demand for streaming services and factual content services. Are you seeing any renewed opportunities there that might give you some incremental profits? And you might tie it also into the conversation you just had about IMAX cameras. Do those deals involve any participation in the aftermarket? Or are they totally exclusive to the theatrical sector?

Megan Colligan

Well, in answer to your first question. The camera program applies to documentaries. And I think that there are a lot of opportunities in the documentary space, I think for number of reasons. But one, I think the proliferation of subscription programs that a lot of our exhibition partners have supported actually had done a lot to support documentaries. And we have seen a spike in commercial documentary prior to the pandemic where you imagine that movie goers are going to commercial films and then on their third or fourth movie are taking in what would be considered smaller fare. And you are seeing a boost with movies like RBG, Won't You Be My Neighbor?, Apollo 11. There was a series of documentaries that did quite well in the theatrical space. And we are interested in that and we are looking more towards 90-minute movies with 40-minute cut downs so that we can support both our institutional theaters and our commercial theaters and be able to play IMAX documentary content in both spaces. So we are looking to that as an opportunity for us. And I think that there's also a greater interest in documentaries around the world. But that does require a 90-minute runtime to be able to have those opportunities all over the world. And then certainly the streaming services are very interested in this space and nearly every streaming service supports a pretty healthy documentary content on their service. So there's a pretty robust market for buying documentaries. So it's something we are looking at. It's something that we are keeping an eye out for it. There's a lot of very interesting content. We certainly are really interesting partner for the highest documentary filmmakers. There's a point of differentiation in the marketplace. And so we are pretty picky in choosing with what we decide to be a part of. But yes, I think in the next year or so, you will start to see us taking a bigger position in documentaries.

Jim Goss

Okay. And in terms of the IMAX camera, the benefit is to drive people to IMAX for the first-run box office. But you don't have an aftermarket benefit in terms of any deals with the studios?

Richard Gelfond

Yes. I mean the way we negotiate the contracts, Jim, I mean the cameras are available for rent. Or we might contribute them for a piece on the back end of the movie. But there's no general precedent to that. It's just something we will negotiate on a one off basis.

Jim Goss

Okay. And the one other last thing I will ask about is --

Richard Gelfond

Jim, I am sorry we are running over. There is one other person. I am happy to take the question offline afterwards. We are just running late. So the other person can take the call. Thank you.

Operator

Thank you. And we take our next question from Mike Ng with Goldman Sachs. Please go ahead.

Mike Ng

Hi. Good morning. Thanks for squeezing me in. I was just wondering if you could talk a little bit about some of the key countries and geographies that are contributing to network expansion growth? And whether or not that changes at all because of demand for new screens because of Avatar? Or if post-pandemic any of the demand for screens to change by geography? Thank you.

Richard Gelfond

So I think as you know, Mike, our biggest potential growth areas are probably Japan, the Middle East, continue in China. And the reason for that is because the performance is so strong. So during the pandemic, Japan's per screen average was $1.5 million. The second best per screen average was half of that which was Australia. The Middle East, particularly Saudi Arabia and also UAE also has tremendous per screen averages and it's pretty much a new market that's opening up. And China, because our brand is so valuable and we have you dual programming local language and Hollywood films, is also very strong. So if you ask me just to name the three markets that I think we will see the fastest rate of growth from, it would be those. Before the pandemic, we have been making progress in places like India, Korea, Southeast Asia, Western Europe, starting in LatAm. And the answer there would be, I think we have to wait to see how quickly those areas rebound and what the exhibitors are thinking there and what's their financial situation. But those are certainly ones where we were making progress, slowed by the pandemic and I would hope we could make progress there again.

Mike Ng

Okay. Thanks for squeezing me, Rich. Thanks.

Richard Gelfond

Okay. No problem Mike.

Operator

And that will conclude today's Q&A session. I would like to turn the call back over to Rich Gelfond for any additional or closing remarks.

Richard Gelfond

Sure. Thank you operator. I certainly don't have to tell anyone on this call from your own lives or as investors, in our company it's been a very difficult year-and-a-half on a global basis. And I keep getting asked over and over, is it behind us? Is behind us? I am a big believer in math and when you have the month, you have the quarter we just had which we know is better than expectations at many places and I know the results say we met our revenue. But in fact the revenue kept going up. We are transparent. Every week, we give you our going up revenue. So yes, we met our target that kept going up. And as I said a number of times about October and you look at the slate and you look at the indexing and you look at every kind of operating matrix there is, we are back and there is no other way to put it. I mean could there be something that happens that we don't see that could have been before the pandemic? There was. It was called the pandemic. There could be after the pandemic. But as far as I see from my seat running this company, instead of sitting around our offices talking about when things are going to open and when movies are going to move and if they are going to move, we are sitting around our office figuring out how we can meet all the demand from the studios and filmmakers and the talent that wants their movies in IMAX. And we are figuring out how we are going to market them. And we are figuring out how we are going to squeeze them all in. And that's a high class problem and that feels very good for those of us at IMAX. And I expect it to continue to translate into improved financial results going forward. So thank you very much.

Operator

Thank you. This will conclude today's conference call. Ladies and gentlemen, you may now disconnect.