Q4 2019 Earnings Call

[music].

Greetings and welcome to balance on strong incorporated fourth quarter 2019 earnings call.

At this time all participants are in listen only mode a question.

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Please note. This conference is being recorded I would now like to turn the conference over to your host today.

Strong management. Please proceed good morning, and welcome to Valentine strong earnings conference call for the fourth quarter and for year ended December 31st 2019.

Before we begin I'd like to remind everyone that some statements made on this call will be forward looking in nature. These statements are based on management's current views and expectations as of today.

And the company is under no obligation and expressly disclaims any obligation to update forward looking statements, except as required by law.

These statements are also subject to risk.

And uncertainties that may cause actual results to differ materially from those described on todays call.

Risks and uncertainties are also described in the company that SEC filings.

Today's presentation, then discussion okay also contain references to non-GAAP financial measures. The definition of non-GAAP terms and reconciliations to GAAP measures are available in the earnings release posted in the Investor Relations section of our website.

Our non-GAAP measures may not be comparable to those used by other companies and we encourage you to review and understand all of our financial reporting before making any investment decisions.

This time I would like to turn the call over to Kyle.

Good morning, and thank you for joining us on our call today.

2019 was a very busy year for bounce on strong.

We made significant progress towards our goal of increasing the profitability.

Improving the underlying value potential bar business isn't holdings.

Well I took a few minutes to walk our stakeholders through how we think about bound time strong as the governance leadership team from both a business strategy perspective, but the short term and the long term and how we see the company potentially evolving over the next few years.

So I'm watching many public companies downtime strong as the Delaware holding company. The owns a number of wholly owned subsidiaries and if you long term holdings that we viewed to be important to executing on our long term strategic vision for the company.

We have three reporting segments strong entertainment convergent a strong outdoor and three significant holdings 13, 47, PIH a task and Firefly.

Yeah, we spoke as we've spoken to many of you over the last few years, we've realized that it might be helpful for us to explain the origin of each of these segments in holdings, where are we believe we are today and where we are hopefully hubs in the future.

Strong Okay. My convergent makes up the vast majority bounce on strong as revenue.

Yes, my $57 million revenue and $12 million of adjusted EBITDA. When you combine two businesses on a trailing 12 months basis.

We break the pencils out separately to just two distinct operating segments, but these businesses are working together more and more on various revenue and expense opportunities, we seek to see future synergies between the two segments.

We're very pleased with the turnaround that convergent after the last few years two business that now has significant recurring revenue.

Very distinct business model and the digital signage industry I.

I think very few people expected us to have the financial performance that we have had to start for burgeon business and we're happy that we're executing on the business plan that we rolled out to investors a few years ago.

Our strong entertainment business is pretty significant revenue adjusted EBITDA, we're working to bring some of the lessons from the convergent turnaround to the strong entertainment side.

Long outdoor is our third operating segments, which remains highly synergistic with our holding in Firefly.

Strung out doing Firefly collaborate on numerous cells opportunities and strong outdoor sell the Firefly digital should contribute to bounce on strong is receiving additional I'm not sure as a fire fighting the future.

13, 47, PIH and the task our base.

Public companies with significant cash resources that were generated in 2019 from the cell businesses, where the liquidation of investments we will look to update you on the strategy for each of these as the years on but we're pleased with the substantial cash position that you took them has at this time.

M&A remains a key strategic focus of the company I will continue to evaluate acquisitions and sales of each of our businesses weve thoroughly analyze several potential transactions with our internal team.

These important investment banks and strategic consultants to help us further evaluate transactions, that's a better define our strategy.

Well, we booked at many opportunities we only do a transaction that we see wasn't the best interest of our shareholders for patients and we can't wait for the right opportunities opportunities that maximize shareholder value over the long term.

As the business operations have continued to improve we're seeing increased inbound interest in perpetual for strategic M&A transactions.

Teach a tuck in acquisitions and our digital signage and managed services businesses to opportunities to sell stakes in our operations for a combined with other providers, we intend to selectively pursue those opportunities where we believe we can increase shareholder value.

What kept the combined adjusted EBITDA of strong entertainment convergent for example, when only needs to assume a modest multiple of adjusted EBITDA to understand the potential upside from an <unk> from an M&A transaction.

Of course, M&A transactions come with risk and uncertainty and are difficult to execute but we believe we've assembled a team that is up for the challenge will work to do what we believe isn't the best interest of shareholders.

Earlier this year as one example, we sold are strong outdoor digital advertising business to Firefly systems, San Francisco based company that has raised over $50 million of capital from prominent funds, including people ventures that effects.

We believe Firefly has a team of financial backing it up.

The next level, we're excited about Firefly strategy of bringing digital content to ride sharing taxi rooftops in major cities within the U.S. and around the globe.

Strong elsewhere maintains its true.

Patrick advertising platform and has made significant progress improving its margins in reducing its operating losses, while continuing to invest in the business with key hires in sales nothing.

As a result, our strong outdoor business turned profitable in Q4, we now have enhanced upside valuation potential is one of the largest investors and firefly.

It's been a lot of work to get the company positioned to where it is today, we have a lot more what to do to execute on our future business plans.

No trued up with a mark to be gossip, our operating performance more detail.

Thanks, Kyle consolidated operating results continued to strengthen in the second half of 2019, particularly in the fourth quarter for all three operating segments [noise].

Strong entertainment, which is the largest provider premium large format screen systems.

Leading provider of managed services in North America rebounded in Q3 in Q4.

The beginning of 2019 was challenging to say the lease with the roof damage in a critical area of our screen manufacturing facility impacting first half revenue.

Demolition and reconstruction of that area limited capacity for the better part of the year.

Our team and Joliet did a tremendous job reacting quickly.

And decisively to contain the situation and I just production to keep our customers' needs met throughout the construction process.

Construction in PBC, one is now complete and the newly expanded seeming areas fully operational entering 2020.

In addition, we leased additional production space in Joliet, a few months ago to ramp up eclipse screen production.

Our seamless solid surface curved screen for theme parks flight training simulators and other applications contributor. This first meaningful revenue in Q4.

We also started the expansion of our global sales team as we start to focus increased effort on international opportunities for screening systems in Europe, and China in the future.

Convergence is they premier provider of digital screen digital signage solutions in North America, and it's primarily focused on larger enterprise customers, where our unique. These ass offering provides a turnkey solution, providing efficient and consistent content delivery across multiple locations.

Convergent has seen a tremendous turned around in 2019 after years of losses.

The cost reduction initiatives implemented last year have reduced the offer operating cost structure of the business and we standardized our hardware platforms to increase scalability.

With the expansion of these AD revenues are now more than 50% recurring in nature.

At higher average gross margins.

The Dcs model allows us to partner with our customers in a more meaningful way, that's compared with a onetime signage sale and we believe that our customers see that has a higher value service and helped us to create a stick your long term customer relationship.

With higher margins and lower cost profitability has improved significantly with over 4 million in adjusted annual EBITDA. This year.

We expect those trends to continue into 2020, as we continue to expand or de SAS installed base.

Strong outdoor is our out of home advertising business, primarily focused on the taxi top advertising and the New York market.

As with convergent operating performance is strong outdoor also improved significantly into any 19.

If you recall, we incurred significant operating expenses as a startup cost of that business were expensed as incurred in 2018 and into 2000 Nike.

In mid 18, we first began selling adds a new work we established the leadership in sales team in early 2019 and in May we completed the transaction and investment Firefly, combining our digital network with theirs and becoming investor.

In the second half of 2019 strong outdoor posted its first profitable quarter and we're excited about the enhanced value creation potential for btn as Firefly continues to expand its digital network.

Overall 2019 was saw tremendous progress and improve profitability in our convergent and strong outdoor businesses.

Strong entertainment rebounded nicely in finished out the year with a solid momentum to close out the year.

We're excited about the coming here and look forward to continuing to build on the foundation stab wish this year.

Along with everyone else in there what however, we're closely monitoring the Corona virus outbreak impact, particularly in China were cinemas remain closed in the U.S., where we're starting to see restrictions on public gathering and travel.

Well, we have not seen a significant impact on our operations at this stage, it's too early to evaluate the potential effect on consumer spending which affects the operations our customers and ultimately our own.

We will continue to monitor the situation closely and stand ready to support our customers' needs. During this period.

I'll now turn the call over to try to review the financials.

Thanks Mark.

Total revenue decreased 6% to 17.1 million for the fourth quarter 2019, and decreased 3.3% to 62.6 million for the full year.

Gross margins improved to 39.6% for the fourth quarter of 2019 compared to 24.7% for the fourth quarter of 2080.

On a full year basis gross profit margins improved to 29.5% during 2019 from 18.8% during the prior year operating income improved the 0.8 million for the fourth quarter of 29 team I'm 0.1 million in the prior year.

On a full year basis operating loss improved by over 60% to 4 million from 10.3 million in the prior year.

Adjusted EBITDA improved to 2.6 million for the fourth quarter of 29 team from 1.1 billion last year.

And on a full year basis, adjusted EBITDA was 1.4 million in 2019 compared to a loss of 4.0 million in the prior year a five point.

$4 million net improvement.

These improvements were primarily driven by.

Emergent turned around from a net loss in the prior year to profitability. During 2019 on the increased and D stat combined with cost reduction.

Strong entertainment continued to rebound following the headwinds in the first half of 2019.

Improvement that strong outdoor which turned to first profitable quarter of non digital AD revenue increase and operating costs decreased.

And lower corporate level Gionee due to actions taken early 2019 to reduced professional service fees.

Slide 14 summarizes our consolidated operating results for the previous five quarters, which Mark mentioned earlier continued to improve.

Gross profit gross margin percentage income from operations and adjusted EBITDA all increased sequentially throughout 2019.

On slide 15, we show the operating trends.

And our strong entertainment business over the past five quarters.

Revenues and profitability did significantly in the first topic 29 team following the roof issue.

In Q3 in Q4 revenue bounce back as production returned closer to normalized levels income from operations and adjusted EBITDA, followed suit with operating income and adjusted EBITDA nearly doubling.

From the first half of 29 team to the second half on the increased volume.

On page 16 convergence operating results continue to trend in an upward direction gross margins and adjusted EBITDA have improved.

And the revenue mix is now predominantly recurring service in nature.

On slide 17 strong outdoors financial results improved following the Firefly transaction, we're now focused on selling non digital AD and generating better utilization on those assets.

We also have a lower fixed cost structure, which allows for a higher gross margins and overall profitability at the current scale of the business.

Selling and administrative expenses increased as we invested in additional sales and marketing to drive the improved non digital ad sales.

We also now having a definite firefly, which we carry on the balance sheet on the cost basis, and which could potentially provide longer term upside depending on fireflies performance and future liquidity event.

In closing as we produce pursue our strategy. We will continue to rigorously manage expenses and we remain confident in our ability to further improved financial performance and drive growth and value creation with that let me turn the call back tomorrow.

Thanks Todd.

Thank you for your time, an interesting ballantine strong if anyone has questions we'd like to spend time with us I would encourage you to reach out to us and schedule some time for color and in person meeting.

My contact information is included in the earnings release distributed this morning, and we welcome your questions and input.

We're always available and look forward to speaking with you. Thank you again and have a good day.

Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and have a great day.