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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
IMAX (NYSE:IMAX) Q3 EPS beat from top-line growth and cost control. Revenue was $81 million, compared with our estimate of $78 million, and consensus of $76 million. The topline beat was driven by more sales / sales-type lease installs and upgrades than we had expected, which more than offset lower-than-expected Rentals revenue from gross box office from DMR that was below expectations. Adjusted EPS was $0.26 (excluding a $0.04/share charge for stock-based comp), compared with our estimate of $0.20, and consensus of $0.21. The EPS beat was driven by betterthan-expected top-line growth and cost control as SG&A and R&D were both well below expectations. SG&A was below due to timing and discipline on discretionary spending, while R&D was below from the timing of spending on laser development.
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Adjusting our estimates. We are decreasing our FY:12 estimate for revenue to $276 million from $283 million to reflect lower box office assumptions, but raising our EPS estimate to $0.67 from $0.65 to reflect the Q3 beat. We are decreasing our FY:13 estimate for revenue to $324 from $330 million primarily due to lower Services assumptions (derived in part from lower box office), but increasing our estimate for EPS to $1.10 from $1.00 to reflect higher Rentals margin assumptions.
Conservative installation guidance. After installing 28 theater systems in Q3, vs. guidance of 26 – 28, IMAX maintained FY:12 installation guidance of 110 systems, which represents a 20% y-o-y decline from 2011. FY:13 installation guidance calls for 110 – 125 systems, implying no growth at the low end and only 14% at the high end; this seems conservative as well, particularly given that guidance now includes an estimate of installations from arrangements that will sign and install within a given year, as opposed to just backlog, which was the company’s prior practice.
A continuing disconnect between the backlog and installation guidance. Despite a backlog of 285 theaters, FY:12 installation guidance is for only 110 theaters, implying that IMAX would have to install roughly 100 theaters every year for almost three years just to catch up with its backlog, excluding any new signings.
Maintaining our NEUTRAL rating, but increasing our price target to $22 from $21. Despite an increasing backlog and a consistent stream of high-profile theater signing announcements, management appears content with a slow installation pace that limits growth. We believe our target, which represents 20x our FY:13 EPS estimate of $1.10, reflects a growth rate in line with the pace of expansion.
Michael Pachter is an analyst at Wedbush Securities.
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