Analyst Gives IMAX Two Thumbs Down On Weak Q2 Box Office

Despite what seemed like a strong film slate, Imax Corp (USA) IMAX’s poor second-quarter performance has led Benchmark analyst Mike Hickey to downgrade the stock from Buy to Hold.

Hickey estimates revenue at $88 million vs. the Street’s $102 million and adjusted EBITDA of $22 million compared to the Street’s $38 million.

PSAs Are Down

Q2 "will likely mark" the fifth straight quarter of declining revenue from PSAs, the ads that screen before a film. Reduced PSAs led to an “aggressive reduction” in fiscal 2017 expectations.

“We initially anticipated that a more compelling surface film slate would reset PSA growth, but the opposite has created an awkward acknowledgement that recent PSA deteriorating could prove less than transitory,” said Hickey.

Global PSA is expected to be $206,000, a 23 percent year-over-year reduction.

The company is implementing a cost reduction plan to cope with reduced earnings, including a 10 percent or more headcount reduction.

Hickey views IMAX’s near-term risk/reward profile as negative, attributing the reduction from positive to:

• Global economic volatility.
• Ongoing concerns over near term execution risk.
• Dilution from new initiatives.
• A weak F2Q17 box office performance despite what appeared to be an exceedingly strong film slate.

That said, a silver lining may be in the company’s continued network growth, which is estimated to expand 29 percent by the end of fiscal 2018.

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