IMAX CORP

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.

As of December 31, 2023, the Company indirectly owns 71.55% of IMAX China Holding, Inc. (“IMAX China”), whose shares trade on the Hong Kong Stock Exchange. IMAX China is a consolidated subsidiary of the Company.

GENERAL

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 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 operating 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 Marketing and Customers.

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

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

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

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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;

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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;

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

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ongoing maintenance and extended warranty services; and

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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, certain movies shown in the IMAX network are filmed using proprietary IMAX film cameras or IMAX certified digital cameras, which along with IMAX’s customized guidance and a workflow process provide filmmakers 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.

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 awe-inspiring 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 a key premium distribution and marketing platform for Hollywood and foreign local language movie studios.

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 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 Live TM 40 th 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. For more information on the Company’s content, see section “FILM DISTRIBUTION AND POST-PRODUCTION” below.

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® product 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.

IMAX NETWORK

The IMAX network is the most extensive premium network in the world with 1,772 IMAX Systems operating in 90 countries and territories, including 1,693 commercial multiplexes, 12 commercial destinations and 67 institutional locations as of December 31, 2023. The Company 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%.

IMAX grew its network by 3.7% in 2023 driven by 128 system installations and ended the year with a backlog of 450 IMAX Systems. The Company believes that the majority of its future network growth will come from international markets outside of China. As of December 31, 2023, 76% of IMAX Systems in the global commercial multiplex network were located within international markets (defined as all countries other than the United States and Canada). 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 revenue generated from its Greater China (which includes the mainland of the People’s Republic of China, Hong Kong, Macau, and Taiwan) 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 Company has a partnership in China with Wanda Film (“Wanda”) and as of December 31, 2023, through the Company’s partnership with Wanda, there were 376 IMAX Systems operational in Greater China, of which 362 are under the parties’ joint revenue sharing arrangements. In December 2023, Beijing Wanda Investment, which owns a 20% stake in Wanda Film Holding, was sold to China Ruyi Holdings, a Tencent Holdings-backed 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”, “– The Company faces risks in connection with its significant presence in China and the continued expansion of its business there”, “– General political, social and economic conditions can affect the Company’s business by reducing both revenues generated from existing IMAX Systems and the demand for new IMAX Systems”, and “– The Company may not convert all of its backlog into revenue and cash flows” in Part I, Item 1A.)

PRINCIPAL PRODUCTS AND SERVICES

The Company believes it is the world’s largest designer and manufacturer of specialty premium projection and sound system components for premium large-format theaters around the world, and it is also a significant distributor of large-format films.

The Company’s principal products and services are as follows:

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IMAX Film Remastering – The digital remastering of films and other content into IMAX formats for distribution to the IMAX network.

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Film Distribution and Post-Production – The distribution of large-format documentary films, primarily to institutional theaters, and, increasingly, the distribution of exclusive IMAX events and experiences including music, gaming, and sports, as well as the provision of film post-production services.

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IMAX Systems – The sale or lease of premium IMAX Systems to exhibitor customers.

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IMAX Maintenance – The provision of preventative and emergency maintenance services and quality monitoring to the IMAX network.

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Other – Principally includes the Company’s streaming and consumer technology business, including its streaming technology and IMAX Enhanced product services, as well as other ancillary activities.

The Company assesses and evaluates the Company’s performance based on the operating results of the Content Solutions and Technology Products and Services segments, which largely reflect the different customer bases the Company serves. The Content Solutions segment principally focuses on content enhancement and distribution services for the Company’s movie studio customers. The Technology Products and Services segment primarily consists of products and services for the Company’s exhibitor customers, including the sale, lease and ongoing service of IMAX Systems. The Company’s segment information is provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 21 to Consolidated Financial Statements in Part II, Item 8.

IMAX FILM REMASTERING

IMAX Film Remastering is a proprietary technology that digitally remasters films into IMAX formats. 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 and 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.

The IMAX Film Remastering process involves:

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in certain instances, scanning, at the highest possible resolution, each individual frame of the film and converting it into a digital image;

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optimizing the image using proprietary image enhancement tools;

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enhancing the digital image using techniques such as sharpening, color correction, grain and noise removal and the elimination of unsteadiness and removal of unwanted artifacts;

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recording the enhanced digital image into an IMAX digital cinema package format or onto IMAX 15/70-format film; and

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specially remastering the soundtrack to take full advantage of the unique sound system of IMAX Systems.

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 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. The Company has a Filmed For IMAX® program under which filmmakers craft films from their inception in various ways in order 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 bolster its international film strategy, supplementing its slate of Hollywood films with appealing local language films released in select markets, including China, Japan, India, and South Korea.

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 10 with IMAX DNA (2022 — 12).

(3)

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

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.

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.

FILM DISTRIBUTION AND POST-PRODUCTION

The Company continues to believe that the IMAX network serves as a valuable platform to launch and distribute original content. The Company distributes large-format documentary films, primarily to institutional customers. 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 of gross revenues as participation revenues.

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, interactive content 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 film 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.

IMAX SYSTEMS

The Company’s primary products are its various digital projection systems, which are either sold or leased to exhibitor customers along with a license for the use of the globally recognized IMAX brand. The Company’s digital projection systems include a projector that offers superior image quality and stability and a digital theater control system; a digital audio system delivering up to 12,000 watts of sound; a screen with a proprietary coating technology, and, in certain situations, 3D glasses and cleaning equipment. IMAX’s digital projection systems also operate without the need for analog film prints. The Company’s digital projection systems provide a premium and differentiated experience to audiences that is consistent with what they have come to expect from the IMAX brand, while providing exhibitor customers with the compelling economics and flexibility that digital technology affords.

As part of the arrangement to sell or lease an IMAX System, the Company provides extensive advice on auditorium planning and design, and supervision of installation services. The terms of each sale or lease arrangement vary according to the configuration of the IMAX System, as well as the cinema and film distribution markets relevant to the geographic location of the customer.

Revenue from the sale or lease of an IMAX System may be recognized at a different time from when cash is collected from the exhibitor customer. Further discussion of the Company’s revenue recognition policies is provided in Critical Accounting Estimates in Part II, Item 7 and Note 2(o) to Consolidated Financial Statements in Part II, Item 8.

The following table presents the number of IMAX Systems that are in the network and in backlog, by configuration, as of December 31, 2023 and 2022:

IMAX Laser Systems

In 2014, the Company introduced its first laser-based digital projection system. Since then, the Company has continued research and development aimed at creating more affordable laser-based solutions with various screen sizes for its commercial multiplex customers. Beginning in 2021, the Company began offering an additional laser-based system product to provide customers with an opportunity to replace and upgrade IMAX Xenon Systems. The Company currently sells two different configurations of its laser systems. The Company believes that IMAX Laser Systems present greater brightness and clarity, higher contrast, a wider color gamut and deeper blacks, consume less power and last longer than other digital projection technologies, and are capable of illuminating the largest screens in the IMAX network.

IMAX Xenon Systems

In 2008, the Company introduced its digital IMAX Xenon System. Prior to 2008, all of the IMAX Systems offered by the Company were film-based and required analog film prints. The Company believes that IMAX Xenon Systems deliver higher quality imagery when compared with IMAX Film Systems.

IMAX Film Systems

IMAX Film Systems include various configurations, including 2D and 3D systems, and screen sizes. Following the introduction of the digital IMAX Xenon System in 2008, the number of IMAX Film Systems in the IMAX network has decreased significantly. However, IMAX’s proprietary format, the IMAX 70mm Film System continues to be a sought after IMAX viewing experience. The existing network of 30 unique locations are being actively supported and leveraged for special event releases throughout the year such as with the 2023 release of Oppenheimer in IMAX 70mm film, which garnered significant consumer interest and demand for this format.

The following table provides information about the Company’s system backlog by deal type 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.

(4)

As of December 31, 2023, the Company’s backlog includes 14 systems (2022 ― 14) in Russia, one system (2022 ― 1) in Ukraine, and five systems (2022 ― 5) in Belarus with a total fixed contracted value of $22.9 million (2022 ― $22.9 million).

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 IMAX 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 the backlog are valid and binding commitments.

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.”)

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. The current backlog information reflects all known elections.

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. (Refer to “Maintenance and Extended Warranty Services” below.)

OTHER PRODUCTS AND SERVICES

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

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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

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

Tobe 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 specialists.

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

The Company derives a small portion of its revenue from other 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.

MARKETING AND CUSTOMERS

The Company markets IMAX Systems through a direct sales force and marketing staff located in offices in Canada, the United States, Greater China, Europe, and Asia. In addition, the Company has agreements with consultants, business brokers and real estate professionals to locate potential customers and system locations for the Company on a commission basis.

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%. Commercial multiplex systems are the largest part of the IMAX network, comprising 1,693 IMAX Systems, or 96%, of the 1,772 IMAX Systems in the IMAX network as of December 31, 2023. The Company’s institutional customers include science and natural history museums, zoos, aquaria, and other educational and cultural centers. The Company also sells or leases IMAX Systems to commercial destinations such as theme parks, private home theaters, tourist destination sites, fairs, and expositions. As of December 31, 2023, approximately 75% of all open and operational IMAX Systems were in locations outside of the United States and Canada.

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.

The Company has a partnership in China with Wanda which is its largest exhibitor customer. As of December 31, 2023, Wanda represented 22% of the Company’s commercial network, 4% of the Company’s backlog and 10% of its revenues. As of December 31, 2022, Wanda represented 23% of the Company’s commercial network, 4% of the Company’s backlog and 7% of its revenue. A geographic breakdown of the Company’s revenue is provided in Note 21 to Consolidated Financial Statements in Part II, Item 8.

INDUSTRY OVERVIEW

Competition

The out-of-home entertainment industry is very diverse with numerous companies vying for the public’s leisure time, and the Company faces competition as a consequence. Within the theatrical space, exhibitors and entertainment technology companies have introduced their own branded, large-screen 3D auditoriums or other proprietary theater systems, some of which include laser-based projectors, and in many cases, have marketed those auditoriums or theater systems as having similar quality or attributes to an IMAX System.

The Company also faces in-home competition from a number of alternative film distribution channels such as subscription streaming services, transactional video-on-demand (both rentals and sales), advertiser-supported video-on-demand, internet, and broadcast and cable television. The Company further competes for the public’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media, and restaurants. Furthermore, the Company may continue to face competition in the future from companies in the entertainment industry with new technologies and/or greater capital resources to develop and support them.

The Company believes that its competitive strengths include the value of the IMAX brand name, the premium IMAX consumer experience, the design, quality and historic reliability rate of IMAX Systems (including the IMAX Laser Systems as well as the IMAX immersive sound system, the return on investment of an IMAX System for exhibitors, the number and quality of IMAX films that it distributes, the tailored distribution and marketing support by dedicated teams around the world, the relationships the Company maintains with prominent Hollywood and international filmmakers and other content creators (a number of whom desire to film their movies and events with IMAX cameras), the availability of Hollywood and international films to the IMAX network through IMAX Film Remastering technology, the availability of unique and innovative events and experiences such as distributed concerts, special theatrical screenings, and live Q&A sessions with top content creators, consumer loyalty and the level of the Company’s service and maintenance and extended warranty efforts. The Company believes that all of these alternative formats deliver overall experiences that are inferior to The IMAX Experience and do not have IMAX's brand trust, filmmaker endorsement, loyal fan base, or global footprint and scale.

Exhibitor Consolidation

The Company’s primary customers are commercial multiplex exhibitors. Since 2016, the commercial exhibition industry has undergone significant consolidation, including AMC Entertainment Holdings Inc.’s (“AMC”) acquisition of Carmike Cinemas and Odeon & UCI Cinemas Group (“Odeon”), which includes Nordic Cinema Group (“Nordic”), and Cineworld Group plc's (“Cineworld”) acquisition of Regal Entertainment Group (“Regal”).

The Company believes that the consolidation of the commercial exhibition industry has helped facilitate the growth of the IMAX network. The Company has historically enjoyed strong relationships with large commercial exhibitor chains, which have greater capital to purchase, lease or otherwise acquire IMAX Systems. As larger commercial chains such as AMC and Cineworld have purchased smaller chains, those smaller chains have in turn become part of the IMAX network. For instance, following AMC’s acquisition of Odeon and Nordic, the Company and AMC entered into an agreement for 25 new IMAX Systems across the Odeon and Nordic network. The Company believes that continued consolidation could facilitate further signings and other strategic benefits going forward.

However, exhibitor consolidation has also resulted in individual exhibitor chains constituting a material portion of the Company’s revenue and network. Continued industry consolidation, as well as consolidation in the movie studio industry, may present risks to the Company. (Refer to “Risk Factors – Consolidation among commercial exhibitors and studios reduces the breadth of the Company’s customer base, and could result in a narrower market for the Company’s products and reduced negotiating leverage. A deterioration in the Company’s relationship with key partners could materially and adversely affect the Company’s business, financial condition or results of operation. In addition, an adverse economic impact on a significant customer’s business operations could have a corresponding material adverse effect on the Company.” in Part I, Item 1A.)

THE IMAX BRAND

IMAX is a premier global technology platform for entertainment and events.

The Company relies on its brand to communicate its leadership and singular goal of creating entertainment experiences that exceed all expectations. Top filmmakers, studios, and other content creators use the IMAX brand to message that a film will connect with audiences in unique and extraordinary ways.

The Company has a Filmed for IMAX program through which filmmakers partner closely with IMAX to craft films that fully leverage IMAX technology and where every frame, from inception, is intentionally designed for The IMAX Experience. Box office metrics demonstrate audiences respond extremely favorably to Filmed for IMAX titles.

To capture content in a resolution appropriate for IMAX screens, filmmakers utilize IMAX 70mm film cameras or IMAX-certified best-in-class digital cameras with leading brands including ARRI, Panavision, RED Digital Cinema and Sony. When this content is paired with IMAX’s proprietary post-production process, the resulting craftsmanship enthralls fans in 1,700+ IMAX locations around the world.

The IMAX brand is a promise to deliver what today’s audiences crave, which is a memorable, more emotionally engaging, more thrilling and shareable experience. IMAX commissions on-going third party consumer research to measure the strength of its brand in numerous markets. The Company’s latest 2023 studies show that the IMAX brand has achieved near universal awareness, is uniquely recognized as a leading, ultra-premium brand, and offers one of the most differentiated movie-going experiences. The IMAX brand has also been proven to signal a special, must-see event at levels far greater than any other entertainment technology brand based on evidence. Across various measures of brand equity and health, the IMAX brand ranged from two to 10 times more powerful than other entertainment technology brands. The Company believes that its strong brand equity supports consumers’ predisposition to choose IMAX over competing brands and to pay a premium for The IMAX Experience now and into the future.

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.

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 including 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.

MANUFACTURING AND SERVICE

Projector Component Manufacturing

The Company assembles IMAX System projectors at its facility in Mississauga, Ontario, Canada (near Toronto). With a few exceptions, the Company develops and designs all of the key elements of the proprietary technology involved in this component. The fabrication of a majority of parts and sub-assemblies is subcontracted to a group of carefully pre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on an order-by-order basis. The Company believes its significant suppliers will continue to supply quality products in quantities sufficient to satisfy its needs. The Company inspects all parts and sub-assemblies, completes the final assembly, and then subjects the projector to comprehensive testing individually and as a system prior to shipment. Historically, these projectors have had reliability rates based on scheduled shows of approximately 99%.

Sound System Component Manufacturing

The Company develops, designs, and assembles the key elements of the theater sound system component. The standard IMAX sound system component consists of parts from a variety of sources, with approximately 50% of the materials of each sound system attributable to proprietary parts provided under original equipment manufacturers agreements with outside vendors. These proprietary parts include custom loudspeaker enclosures and horns, specialized amplifiers, and signal processing and control equipment. The Company inspects all parts and sub-assemblies, completes the final assembly, and then subjects the sound system to comprehensive testing as a system.

Screen and Other Components

The Company purchases its screen components and glasses cleaning equipment from third parties. The standard screen system component consists of a projection screen manufactured to IMAX specifications and a frame to hang the projection screen. The proprietary glasses cleaning machine is a stand-alone unit that is connected to the theater’s water and electrical supply to automate the cleaning of 3D glasses.

Maintenance and Extended Warranty Services

The Company provides ongoing maintenance and extended warranty services to IMAX Systems. These arrangements are usually for a separate fee, although the Company sometimes includes free service in the initial year of the arrangement. The maintenance and extended warranty arrangements include service, maintenance, and replacement parts for IMAX Systems.

To support the IMAX network, the Company has personnel stationed in major markets throughout the world who provide periodic and emergency maintenance and extended warranty services on existing IMAX Systems. The Company provides various levels of maintenance and warranty services, which are priced accordingly. Under full-service programs, Company personnel typically visit each IMAX location every six to twelve months to provide preventative maintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the system. Under some arrangements, customers can elect to participate in a service partnership program whereby the Company trains a customer’s technician to carry out certain aspects of maintenance. Under such shared maintenance arrangements, the Company participates in certain of the customer’s maintenance checks each year, provides a specified number of emergency visits, and provides spare parts, as necessary.

PATENTS AND TRADEMARKS

The Company’s inventions cover various aspects of its proprietary technology and many of these inventions are protected by Letters of Patent or applications filed throughout the world, most significantly in the United States, Canada, China, Belgium, Japan, France, Germany, and the United Kingdom. The subject matter covered by these patents and applications includes auditorium design and geometry, audio and display technology, mechanisms employed in projectors and projection equipment (including 3D projection equipment), stereoscopic (3D) imaging, digitally re-mastering 35mm films into large-format, dynamic range and contrast of projectors, seaming or superimposing images from multiple projectors, and other inventions relating to imaging technology, digital projectors, laser projection, and video quality assessment. Included in the Company’s patent portfolio are more than 30 patents and patent families acquired from the Eastman Kodak Company covering laser projection technology. In addition, the Company acquired more than 15 patent families in connection with the acquisition of SSIMWAVE in September 2022. The Company has been and will continue to be diligent in the protection of its proprietary interests.

As of December 31, 2023, the Company holds 92 patents, has 14 patents pending in the United States and has corresponding patents or filed applications in many countries throughout the world. While the Company considers its patents to be important to the overall conduct of its business, it does not consider any particular patent essential to its operations. Certain of the Company’s patents expire between 2024 and 2041.

The Company owns or otherwise has rights to trademarks and trade names used in conjunction with the sale of its products, systems, and services. The following trademarks are considered significant in terms of the current and contemplated operations of the Company: IMAX, IMAX 3D, Experience It In IMAX®, The IMAX Experience, DMR, Filmed For IMAX, IMAX Live, IMAX Enhanced, and SSIMWAVE®. These trademarks are widely protected by registration or common law throughout the world.

HUMAN CAPITAL

The Company believes that effective human capital management is critical to its success. The Company’s human capital management objectives are focused on attracting, engaging, and retaining exceptional talent who are passionate about IMAX’s business; and 2) fostering a work environment that unites diverse teams around its mission to connect the world through extraordinary experiences that inspire us to reimagine what’s possible together.

To achieve these objectives, the Company’s people and culture strategy focuses on creating a compelling employee brand which attracts top talent to join the Company; engaging its employee base to maximize overall performance and enhance retention; offering a competitive total rewards program (the “Total Rewards Program”); developing and refining a diversity, equity, and inclusion (“DE&I”) plan that is unique to its business; and continuing its focus on employee safety.

As of December 31, 2023, the Company employed 697 people, of which approximately 69% were employed outside of the United States. The global workforce consists of approximately 96% full-time and 4% part-time employees. Some of the Company’s recent initiatives to achieve its’s human capital management objectives include the following:

Recruiting Talent

The Company believes that a collaborative team of innovative employees from diverse backgrounds and experiences is essential to meet the demands of technology and creativity. Additionally, the Company has and will continue to provide DE&I training for hiring managers to ensure the Company’s interview and hiring processes are fair and equitable. The Company’s outreach efforts include using global job boards, engaging with community associations and organizations, working with universities and colleges to build stronger partnerships, and maintaining relationships with IMAX alumni to proactively expand its sources of talent. The Company continues to implement technologies and solutions to support human capital management strategies and processes while supporting talent management for creative projects as it stays connected to the vision, foundation, and core of the Company.

Engaging Employees

During 2023, the Company created a comprehensive talent management plan to foster greater employee retention, engagement, and inclusivity. The plan includes incorporating the Company’s values of collaboration, belonging, and excellence in its culture into talent management by rolling out development programs to build manager and leader capabilities and enhancing the overall employee experience. The Company expects to implement the plan in 2024. For 2024, the Company has updated its performance management process and launched an employee training program to foster a high-performance and engaging work culture. For example, the performance management process includes a new mid-year talent review cycle to assess talent, understand the Company’s bench strength and gaps for succession planning and engagement strategies.

In 2024, the Company plans to deploy an employee engagement survey to gather feedback and insights on how to continue to make IMAX a great place to work.

Total Rewards

The Company takes a holistic view of the Total Rewards Program, focusing on providing competitive compensation and benefits packages to attract, incentivize, and retain a talented, diverse, multi-generational workforce.

The Total Rewards Program balances base compensation, incentive compensation for both short-term and long-term performance, and a focus on total well-being of the employee. The Company’s recent efforts to improve the Total Rewards Program include the following:

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In 2023, the Company undertook a review of base compensation across various levels within the Company and established a career development path for employees in the technical domain.

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The Company introduced enhancements to its U.S. and Canadian benefits program in select regions, aiming to modernize its benefits offerings to better align with the needs of the Company’s employees. These modifications were informed by both employee feedback and market conditions.

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Given the increased focus on mental health, in response to addressing the needs of the Company’s employees and their families, the Company enhanced its health and family-friendly benefits to provide mental health support and access to mental health practitioners to its employees.

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The Company supports new parents, including adoptive parents, through maternity and parental leave benefits. Furthermore, the Company has broadened its company-subsidized reimbursement program to cover camps, complementing emergency backup childcare, ongoing childcare, elder care, and pet care.

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In 2023, the Company expanded its financial wellness offerings for U.S. employees, to include a subsidized membership for legal assistance.

Diversity, Equity, and Inclusion

In 2023, the Company continued its commitment to diversity, equity, and inclusion. The Company engaged its executive sponsorship committee to revise its DE&I strategy, which focuses on the following areas:

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Fostering a culture of engagement and inclusivity where employees feel a sense of understanding, acceptance, and belonging.

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Implementing processes, policies, and practices that are fair and equitable.

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Ensuring the diversity of the partners, filmmakers, and audiences IMAX serves are reflected through progressive recruiting and retention efforts.

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Impacting the workplace and communities in which IMAX operates in a positive way.

As of December 31, 2023, women represented approximately 35% of the Company’s global workforce. The Company currently has three female directors (30%) and two directors who identify as ethnically diverse (20%) on its Board of Directors (the “Board”). There are four (25%) female members of the Company’s management team of 16 as well as four (25%) members of the Company’s management team who identify as ethnically diverse.

Employee Safety

Risks to the safety of employees are present in day-to-day office work, building renovation, manufacturing, logistics, training, testing, research, and development, and during the designing, installation, and servicing of IMAX Systems around the world. The Company has implemented a global program for workplace safety that ensures it has the necessary controls in place to keep its employees and visitors safe. Every employee is responsible for participating in workplace safety planning activities, and managers are responsible for employee safety program implementation within their business function. This effort is supported by a cross-functional team dedicated to employee health and safety and business continuity.

AVAILABLE INFORMATION

The Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, as soon as reasonably practicable after such filings have been made with the SEC. Reports may be obtained free of charge through the SEC’s website at www.sec.gov and through the Company’s website at www.imax.com or by calling the Company’s Investor Relations Department at 212-821-0154. No information included on the Company’s website shall be deemed included or otherwise incorporated into this Form 10-K, except where expressly indicated.