TORONTO -- IMAX Corporation (Nasdaq:IMAX) (TSX:IMX) today reported net income of $2.6 million, or $0.05 per diluted share for the second quarter ended June 30, 2009, compared to a net loss of $12.2 million, or $0.29 per diluted share for the second quarter of 2008. Total revenues increased 94% to $41.0 million, compared to total revenues of $21.2 million last year. The Company generated operating income of $6.5 million, a turnaround of over $14.0 million compared to an operating loss of $7.7 million in the year-ago period.
IMAX Chief Executive Officer Richard L. Gelfond stated, "We are very pleased with our second quarter financial results. The strategic and operational groundwork laid over the last two years came together in the second quarter and resulted in a significantly larger theatre network and strong film slate, which drove our return to profitability. While one quarter does not make a trend, we believe this quarter is an early indication of the benefits of our new business model and that the pieces are in place to continue to deliver revenue growth and profitability for fiscal 2009."
Included in the Company's second quarter 2009 financial results are several notable items, including a $3.4 million increase in share-based compensation expense primarily due to the Company's increased stock price over the course of the second quarter and its impact on variable stock-based compensation such as stock appreciation rights; $1.0 million in fees associated with the early termination of a service contract; a favorable foreign exchange translation adjustment of $2.5 million; and a one-time gain of $0.4 million due to the early retirement of debt. The net impact of these items was a $1.5 million reduction in net income, or approximately $0.03 per diluted share.
IMAX systems revenue increased 33% to $8.3 million versus $6.3 million in the prior year period. The Company installed and recognized revenue on five theatre systems, including two digital upgrades, that qualified as either sales or sales-type leases in the second quarter of 2009, compared to two theatre systems recognized in 2008.
Revenue from joint revenue sharing arrangements increased significantly to $7.2 million compared to $0.4 million last year. In the second quarter, the Company installed a total of 24 systems under joint revenue sharing arrangements, including two digital upgrades, compared to zero installations in the year ago period.
For the second quarter of 2009, total film revenue increased 145% to $16.1 million, compared to $6.6 million in the second quarter of 2008. This included significantly higher Production and IMAX DMR(r) revenues of $12.1 million compared to $2.5 million a year ago, reflecting both the success of the second quarter film slate and the Company's larger theatre network.
Mr. Gelfond continued, "DMR film revenue and our joint revenue sharing business combined to represent 47% of revenue in the second quarter. We showed a record four DMR titles in a single quarter which illustrates our ability to seize opportunities that digital projection brings. Our second quarter film slate was among the strongest we have had in a single quarter, and we continued to consistently drive box office results that far outpaced our percentage of screens, reflecting the consumer appetite for The IMAX Experience(r)."
Gross box office from DMR titles increased 346% to $84.2 million in the second quarter of 2009, compared to $18.9 million in the second quarter of 2008. Four DMR titles drove the Company's significant box office growth in the quarter. DreamWorks Animation SKG's Monsters vs. Aliens: An IMAX 3D Experience, generated $19.8 million in gross box office during the second quarter and a total of $26.5 million over the course of its run, for a per screen average of $129,000. Paramount Pictures' Star Trek: The IMAX Experience was released to the IMAX network on May 7 and generated $26.6 million in gross box office during the quarter, for a per screen average of $140,000. On May 22, Twentieth Century Fox's Night at The Museum: Battle of the Smithsonian: The IMAX Experience arrived in theatres and generated $15.5 million in gross box office, for a per screen average of approximately $79,000. In addition, the quarter reflected one week of Paramount Pictures' Transformers: Revenge of the Fallen: The IMAX Experience, which generated $21.9 million in gross box office during the second quarter and $43.3 million to date, for a global per screen average of $189,000 and a domestic per screen average of $195,500. Transformers: Revenge of the Fallen ranks as the third highest grossing DMR title in IMAX history, behind The Dark Knight: The IMAX Experience and Polar Express: An IMAX 3D Experience.
Second quarter gross margin increased to $20.7 million, from $5.9 million in the year-ago period. Included in gross margin for the second quarter was $1.5 million of non-recurring launch costs associated with the 22 new theatres opened under joint revenue sharing arrangements during the quarter.
Selling, general and administrative expense as a percentage of revenue declined significantly to 29.9% as compared to 53.1% in the second quarter of last year. Overall, SG&A expenses increased to $12.3 million in the second quarter compared to $11.3 million a year ago. Reflected in second quarter SG&A expense was the previously mentioned net increase in share-based compensation, contract termination fees and favorable foreign exchange translation adjustment, as well as lower operating expenses resulting from the Company's cost-cutting initiatives. Research and development costs decreased to $1.2 million in the second quarter of 2009 as compared to $2.0 million in the second quarter of 2008. Last year's research and development expenses reflected the costs associated with the development of the Company's digital projection system that launched in July 2008.
At the end of the quarter, 102 digital systems were in operation, compared to zero as of June 30, 2008. The number of IMAX theatres in operation under joint revenue sharing arrangements also grew significantly, to 91 theaters, compared to 11 at the end of the year-ago period. Primarily reflecting an increased level of digital system upgrades, the Company now expects to install approximately 95 to 105 systems in 2009, including 25 to 30 sales and sales type lease systems and approximately 70 to 75 joint revenue sharing theatre systems. Included in the installation guidance are the 12 system upgrades which occurred in the first six months of the year. At this time, the Company expects to end the year with approximately 120 joint revenue sharing theaters in operation.
As of June 30, 2009, the Company's backlog consisted of 171 theatre systems compared to 246 theatre systems in backlog as of June 30, 2008. Included in the 2009 and 2008 system backlog totals were 67 and 139 theatres, respectively, under joint revenue sharing arrangements and 104 and 107 theatres, respectively, under sales and sales-type lease arrangements. During the quarter the Company signed contracts for seven new systems, all of which were under sales and sales-type lease arrangements, compared to six system signings during last year's second quarter, four of which were under joint revenue sharing arrangements. Since quarter-end the Company has signed contracts for another eight theatres, including a six theatre deal signed with Vie Show Cinemas in Taiwan, which was announced last week.
At the end of the second quarter, the Company's cash position was $49.0 million, compared to $27.0 million as of December 31, 2008. During the second quarter, the Company raised $76.3 million in net proceeds through a common stock offering of 11,270,000 common shares. A portion of the proceeds was used to repurchase $44.3 million aggregate principal amount of its 9.625% Senior Notes due December 2010 which resulted in a one-time gain of $0.4 million due to the early retirement of debt. Offsetting the Company's cash position were investments related to its joint revenue sharing digital projection systems, which amounted to approximately $5.7 million in the second quarter compared to $3.6 million a year ago. Subsequent to quarter-end, the Company repurchased an additional $6.0 million of aggregate principal amount of its 9.625% Senior Notes.
Turning to the remainder of the 2009 film slate, the two-week delayed domestic release of Warner Bros.' Harry Potter and the Half-Blood Prince: An IMAX 3D Experience is currently in theatres, and has generated approximately $15.0 million in worldwide box office through Tuesday, August 4. Domestically, the film was widely distributed to IMAX theatres on July 29 and has generated approximately $6.3 million through Tuesday. On September 18, Sony Pictures and IMAX plan to release Cloudy With A Chance of Meatballs: An IMAX 3D Experience day-and-date to IMAX theatres. On October 16, Warner Bros. Pictures and IMAX will release Where the Wild Things Are: The IMAX Experience day-and-date purely to domestic IMAX theatres, which will then be followed by Disney's A Christmas Carol: An IMAX 3D Experience (Walt Disney Pictures and ImageMovers Digital, November 2009) and James Cameron's Avatar: An IMAX 3D Experience (Twentieth Century Fox, December 2009). In total the Company will show a record 12 DMR titles in 2009.
The Company's announced 2010 film slate to date includes Avatar: An IMAX 3D Experience, which is expected to carry over from its December 18, 2009 release, Disney's Alice in Wonderland: An IMAX 3D Experience (March 2010), DreamWorks Animation's How to Train Your Dragon: An IMAX 3D Experience (March 2010) and Shrek Forever After: An IMAX 3D Experience (May 2010), and an IMAX original film in partnership with Warner Brothers, currently titled Hubble 3D. The Company is in the process of finalizing its 2010 release slate and is in discussions regarding potential titles for release as far out as 2012.
Mr. Gelfond concluded, "Harry Potter and the Half-Blood Prince: The IMAX 3D Experience, is tracking in-line with our expectations and we are pleased to have finalized our 2009 film slate with Cloudy With A Chance of Meatballs and Where the Wild Things Are. With the compilation of our 2010 slate progressing very nicely, and given the smooth roll-out of our digital projection systems to date, we can focus on additional strategic priorities like the continued growth of the network and other business opportunities such as our multi-picture deal with Huayi Bros. in China. Our business model is beginning to generate tangible results, and we are optimistic about our ability to deliver growth over the long-term."