Q2 2021 Ballantyne Strong Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Ballantyne Strong Inc. Second quarter earnings conference call and all.
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I would now like to turn the call over to John Nesbitt, Oh, I and Investor Relations you May go ahead.
Good afternoon, and welcome to the Ballantyne strong earning conference call for the second quarter ended June 30th 2021 on.
On the call today from Ballantyne strong are Mark Roberson, Chief Executive Officer, and Todd Major Chief Financial Officer 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 we're expressly disclaims any obligation to update forward looking statements, except as required by law.
These statements are also subject to risks and uncertainties and may cause actual results to differ materially from those described on today's call. The risks and uncertainties are also described and the company's S E SEC filings.
Today's presentation and discussion also contains references to non-GAAP financial measures. The definition of non-GAAP terms and reconciliations to GAAP measures are available and the earnings release posted on the Investor Relations section of the company's 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 at this time and we'd like to turn the call over to Mark. Okay. Go ahead Mark.
Thanks, John Good afternoon, and thank you all for joining the call today.
Let's jump right in and we'll discuss our strong entertainment operating business first and then we can provide and update on the holdings on our balance sheet.
It's certainly been a busy few months.
Starting on page 3 if you're following the Powerpoint.
We've seen a robust recovery and our entertainment business.
With revenues more than doubling from the low point last year.
On a sequential basis, we saw revenues increased 28% from Q1 to Q2 of this year.
The primary drivers had been increased demand for managed services as a result of theaters reopening and our eclipse and immersive screen division is showing good signs of growth through the past year.
Post close of Q2, we also announced a couple of very significant initiatives.
We announced their intention to pursue and IPO with a strong entertainment and vision.
We also announced it would be to increase their holdings and green first through their rights offering.
And I'll talk about both of those in more detail and just a few moments.
Referring to pages 4 through 7.
As you May know or do you know strong entertainment is our primary operating business following the divestiture of convergent and strong outdoor.
S T S and MDI subsidiaries, where the industry leader and projection screen and managed services.
With multiple blockbusters already released and many more to come and the second half of 'twenty, 1 and into 2020 to move.
Moviegoers are returning to the theaters improving debt home streaming is really not a replacement for the premium experience about theater.
As we look forward, we're obviously watching the delta variant, but were optimistic and continue to see signs that the favorable tailwind and the industry are strengthening.
A good indicator is if you listen to the conference calls of our major customers and hear what they're saying.
IMAX Cinemark and AMC, all posted solid quarters.
With almost all their domestic locations open and operating and expectations for a really busy second half of the year as it release schedule intensifies.
1 thing that the largest and most successful exhibitors all have in common is a focus on innovation and creating a premium guest experience.
Our products and services are focused on creating that premium viewing experience and we're well positioned and those trends continue.
As a market leader, we believe were well positioned to capitalize on the recovering demand.
Over the past year, we strengthened our market leadership position with multiyear exclusive agreements and cinemark on the screen side.
And with Marcus theatres on the managed services side.
And we supply all of IMAX screens worldwide on on exclusive basis, leveraging our best in class premium large format screens.
And the pace of new releases picks up we also expect exhibitors to increase focus on uptime, So protection equipment and to rely more heavily on outsourcing.
We've been ramping back up on nationwide field service team as demand increases and.
And we're expanding our capabilities with Nox services, starting to gain traction internationally as well as and the U S.
We've also been diversifying our entertainment revenue base building on our core strength and expertise and cinema projection screens and coatings.
1 example is our immersive eclipse screen for theme parks and simulators and other non cinema applications.
In addition, our proprietary paints and coatings are also being used and venues like the alumina area and in Atlanta.
And the van Gogh exhibit and major cities around the U S.
Our eclipse immersive screen division and a smaller but rapidly growing segment of our business and.
And revenues there remain on target to double this year.
On page 8 as we mentioned earlier, we announced the intent to pursue a separate listing and IPO the strong Entertainment group.
Under Securities Law, we're extremely limited in what we are able to say about the planned IPO at this time so.
So I'll apologize in advance if we're not able to fully respond your questions on the topic at this time.
The proposed offering is expected to occur later this year.
Subject to satisfactory market and other conditions.
The timing and class a number of securities to be offered and their price has not yet been determined.
Ballantyne strong doesn't tend to remain the majority shareholder of the subsidiary post offering.
Moving on to our holdings, there was a lot of activity there as well over the past few months.
Starting on with Green first on page 10, and with the Powerpoint because I'm sure. Most of you are aware.
And first announced the planned acquisition of the lumber assets of Rayonier and recently completed a rights offering as part of that financing transaction.
Reinforced expects to complete the acquisition and Q3, which will make them a top 10 lumber producer in Canada.
Prior to this transaction Ballantyne owns 7 million shares of reinforced common stock.
And were issued and 21 million rights to acquire additional shares repurchase at 1 and a $1.50 Canadian.
During July we exercise $8.3 million rights, which will bring our ownership up to $15.3 million shares upon the closing of the transaction.
Based on the information that's been publicly disclosed by Green first we expect that 15 million share position and represent approximately 10% of reimbursed post deal.
We allocated approximately $10 million of capital to increasing our position and green purse and continue to maintain a strong liquidity position with just under $10 million of consolidated cash and the balance sheet. Following this investment.
We're bullish on repurchase and look forward to participating and their success as they complete their transactions and become a major player on the Canadian lumber industry.
Based on recent market prices and the value of a $15.3 million shares will be approximately 35 million compared with a book value of approximately $12 million.
On page 12, moving on to Ft financial.
We have and what we owned 1 million common shares or approximately a 21% ownership interest as of June 30.
F G and it's a reinsurance and investment management holding company book.
Focused on opportunistic collateralized and loss cat reinsurance on allocating capital to spec and spec sponsor related businesses.
F G F Road and second reinsurance contract recently and.
And it's and watched the spec platform to provide strategic administrative and regulatory support services to newly formed Spacs.
On April 12, and she completed an IPO of its first back platform investment all Dell financial.
F T S potential benefit beneficial ownership and all that was approximately 533000, although founder founder shares.
And 321000 warrants.
F G and also recently announced the F G and New America has closed on the acquisition of oxide and leading Fintech platform and.
And F G and New American now operates it's off by effective July 21st.
<unk> Chief financial holds 861000 shares of class a common share its about 5 and 300 and a 358000 class a warrants.
On page 13, Firefly, which is a venture backed private company focused on innovative street level digital media advertising is a company, we invested in and through the merger with our outdoor advertising business last year.
Firefly is growing aggressively and recently announced the acquisition of Herb taxi media, making firefly, the dominant mobility media company and its market.
But at least and spent a lot of activity and momentum over the past few months and we're excited about the positive trends and our holdings as well as and are operating business.
With that I'll now turn the call over to Todd.
Thanks Mark.
With recent quarters today's financial review will cover the operating results of our continuing operations and do not include convergent and strong outdoor now and that they have been classified as discontinued operations.
Slide 15 contains summary comparison Q2, 2021to the prior year.
Revenue and operating results during the second quarter of 2020 were severely impacted by widespread closures and cinema and other entertainment venues as well as our manufacturing facility in Canada now.
And now that the industries and recovery mode on.
Our revenue and profitability on return are improving with revenues more than doubling from prior year and also increasing sequentially.
Operating results for the second quarter of 'twenty 'twenty 1.
And $1.3 million benefit from the recognition of employee retention credits.
The favorable impact of those products are excluded from adjusted EBITDA.
Turning to slide 16, now revenue and profitability got strong entertainment during the second quarter of 2021 and benefited from overall industry recovery as well as growth and revenue generated from our eclipse screens.
Gross margin of 41% during the second quarter includes an $850000 benefit from the employee retention credits. Excluding this benefit gross margin during the second quarter would've been approximately 27% well ahead of the 2% and the prior year.
The remaining 200000 and strong entertainment employee tax credit benefit during the second quarter 2020.1 was recorded within SG&A.
Slide 17 shows the historical trend of strong entertainment showing the pre Covid operating results.
During the significant.
The negative impacts of Covid during 2020, we were able to implement a series of cost management measures and strong entertainment and finished the year at near breakeven levels.
Prior to Covid, the group was generating revenue and the $35 million to $45 million range annually with EBITDA margins in excess of 20 per cent.
Slide 18, and it's a snapshot of the balance sheet as at the end of June compared to the end of 2020.
Cash balances have increased debt and lease obligations have been reduced and shareholders' equity increased 65 per cent from year end.
The market value of our publicly traded holdings continued to be well above our carrying value on the balance sheet.
As Mark mentioned earlier following the end of the quarter, we allocated capital to the exercise of the Green first rights to acquire $8.3 million additional shares approximately $8.3 million U S dollars cash.
Cash came from the balance sheet and an additional $1.7 million came from sale of a portion of the rights.
Following the completion of the Green first acquisition and beginning in the third quarter, we expect our percentage ownership on Green first will be below 20%.
As a result, we expect to begin accounting for green burst on a mark to market basis in the third quarter, which is a change from the parent equity method.
We're evaluating the impact of the change in accounting and it.
<unk> that we would reflect the mark to market gain on the P&L. When we report the third quarter results now, let me turn the call back Tomorrow.
Thanks Pat.
And just to wrap up before we take any questions and we're certainly and a much better position today than we were 1 year ago at this time.
Strong entertainment is positioned for the continued recovery and the sentiment and entertainment industry. Our holdings are performing well and have additional upside opportunity on our balance sheet has improved which provided the liquidity to be able to increase our stake and green first and we continue to value and evaluate opportunities to increase long term shareholder value.
Hugh.
With that we'll now open the call for any questions.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
If you are using a speakerphone please pick up your insurance if that's okay.
Is that and kind of your question has been addressed and you would like a Italia question.
And I start and too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from generic book.
And again, Mr. Pease go ahead.
Yeah, Mark I was wondering what's the book value of the stock at this time.
Yeah, the book value of <unk>.
Ballantyne shares or book value.
And our whole.
And the whole thing the ballantyne on the whole and and all the holdings.
Yeah, Yeah, our current shareholders' equity is $44 million on the balance sheet.
44 million divided by the share count.
It's roughly $2.40 per share.
It's probably worthy to note that the balance sheet and as reported under GAAP.
Jim does not reflect the fair value of the investment holdings, because those are reported on the equity method or the cost method so lead.
The book value. If it was increased to market value for those holdings will be considerably higher than the $2.40.
Is that is that what youre looking for yeah, that's kind of I guess I was kind of looking at both of them you know.
And with all the holdings to.
Could you calculate that real quick.
Right.
You were you were looking for that for that calculation with the fair value of the investments yes, yes.
On a current value yeah.
Yeah hold on we can do that pretty quickly on the fly. He just gave US a couple of seconds here.
Basically the 2 elements that we would and.
Add to the book value that's reported on the balance sheet would be increasing for the unrealized.
Appreciate him and here and into Green first position.
And as well as the unrealized gain inherent and the F T financial position, which at this point or unrecognized on the balance sheet. So you take the 44 million reported for $45 million of shareholder's equity reported on the balance sheet and debt unrealized value, which what does that get you to Todd.
Just just under a 58 million and 58 million per and then.
Divided by book the shares.
Rich.
Yeah.
So on the share on the common share basis that would put you a little over $3 a share about $3.15 a share.
And again recognize that.
Fair valuing the investments not necessarily fair valuing the other assets on the books and the operations, which are reported it and appreciate it cost and would not reflect.
The fair value of the entertainment business for instance.
And so you know so are you guys going to issue this tracking stock.
I guess what.
First of all is that correct.
Shareholders are we going to get a piece of that.
So I think you're referring to the announcement regarding the planned planning to pursue an IPO of the strong Entertainment group right correct, yes, yeah, so and so I'm very limited on what I can say about debt under securities law.
And really refer back to the press release and Pep stay within the 4 corners of the press release at this time, but basically what we've announced.
He is an IPO a planned IPO the stronger attainment route it's.
It's not planned to be a spin out or a spin off of the group.
Ballantyne shareholders under true IPO would not receive additional shares and a strong entertainment would issue shares at the subsidiary level to raise capital and Ballantyne with children would participate and that through their ownership of ballantyne.
And it doesn't that doesn't make a lot more extra accounting and stuff like that and why not just do a issue more shares of Ballantyne stock.
Yeah, we.
We've looked at a number of alternatives and our board has looked at this closely.
You know really for quite some time and.
You know multiple ways to unlock the value.
And here and in the business and we believe unrecognized to some degree and the Ballantyne strong holding company.
On structure.
And we believe that the best way to potentially unlock value would be through a separate listing.
And that's really about all I can say with regards to the IPO plans themselves staying within the bounds of the securities laws. This time at the time that we proceed further and file our S..1 you will be able to speak a lot more clearly about that a lot more and a lot more detail.
Yeah, I know, we went through a really tough time with Covid and everything but I was kind of looking back before fundamental global Hum took over the board and that and it really doesn't look like and as a shareholder.
And we've gone backwards and so what.
What would you say to reassure me that we're headed and the right direction.
Yeah, and it was kind of a tough question I don't mean to I didn't mean to come off that way, but [laughter] and.
And that had been better off on a bearing my money and the backyard. So.
I'm sorry.
Yeah sure Jim and it's fair question I. Appreciate these the spirit with which you're asking it and I would say certainly you know as with any company theres been ups and downs I don't think any of US predicted you know COVID-19 or lots of other things that have occurred over the past few years and you know, but I do think you know.
And we've over the past 2 to 3 years you know if you look at what we've been able to do on the business you know certainly not all been perfect, but we've been able to significantly reduce the operating overhead of the business and.
And we've been able to take convergent and turned it from a perennial loser to you know a and EBITDA profitable business and and get it sold and monetize them, we've been able to take our strong outdoor and turned it on the Firefly. The holdings are now beginning to perform at Green first and and F. G I.
And a significant way.
And you know our stronger attainment businesses, certainly underperformed for the past you know year or better, but you know I think.
The team there has done a really good job navigating COVID-19.
Been able to flex the business down during the worst of Covid, a year ago and last summer.
And keep the business stable.
And you bring excess amounts of cash and you know.
We see things recovering and the business, they're not back to where they were pre COVID-19 when the business would do and <unk>.
$35 million to $40 million and revenue and 20% EBITDA margins, but we see positive trends and the business.
M C Regal and Cinemark IMAX, you know, they're not back where they were pre COVID-19, either but they've all announced pretty good quarters with trends moving and the right direction and have pretty bullish outlooks for the back half of 2021 as well as into 2020..2 so yeah, we think the business.
<unk> is positioned to take advantage to capitalize on that.
Danielle.
Danielle as we look forward yeah, we're looking at ways that we can improve shareholder value both through our holdings and through the operating business and.
We believe you know a potential IPO of that business is 1 way to do that.
And on the Green first.
And when they announced all this stuff.
Commodity price for lumber was.
3 times as high.
Is ballantyne and going to be able to navigate through these lower prices and be profitable.
Yeah. So so green first so really not ballantyne, but I think you're asking about green for stability and navigate the volatility and the lumber price and I would recommend that you, obviously listen to and and look at the Green and first filing separately from Ballantyne as well, so what they're saying.
Themselves about the lumber prices and their outlook on the business at the current lumber prices and a win win.
When that reversed.
The transaction was announced in April lumber prices were obviously considerably higher and they went on to be much higher by made and they've obviously come back down and they're still.
Above historic levels and.
And when and when they looked at that transaction and put it together.
The team at Greens first.
Based on what was discussed and their conference call and and their filings you now put together a pretty conservative view.
Lumber prices, and where lumber prices and need to be for that business to be profitable and thrive. So they werent banking on lumber prices remaining at those elevated levels and in order for that business to be successful.
Ballantyne you guys about thought that there was a lot of opportunity there to you are headed and and participate in that rights offering and convert that and desktop so and so is that a fair assessment.
Yeah, Yes, we we looked at it and we did convert $8.3 million net of the rights and we received into green for stock and Yeah, We're very confident and the management team there and believe that our.
Good things are yet to come for Green first and that are we now have $15.3 million shares and we will have at the close of their transaction, which represents.
We will represent about 10% of the common equity and briefer. So we feel pretty good about green first and you know.
And it's it's quite a turnaround from.
Where green first and you know formally Itasca was you know a couple of years ago and you know.
The shares were you know a couple of million dollars on our balance sheet and now and a market value they would be certainly much much higher than that.
Okay. Thank you for taking my questions.
Yes, yes, I appreciate it thank you for calling.
Yeah.
And as a reminder, if you have a question. Please press star then 1 can be giant and get the cute.
Our next question comes from Walter Bellinger with long term capital. Please go ahead.
Yeah.
Hey, guys. Thanks for taking my question. So for strong could you remind us what your market share is domestically for big screens and services.
And then also how we should be thinking about your market share internationally.
Oh, Yeah I appreciate that I appreciate it Paul Walter.
So you know when we think about our market share you know our strong Entertainment Division.
Traditionally had a a large market share, particularly in North America, where we believe we've traditionally had about a 65 per cent market share and the screen business and.
And you are either a close 1 or 2 and the managed services business for cinema.
So we believe we're the market leader and North America on boats.
And our screens and services and have a strong position and and we see that position continuing to be strong and get even stronger internationally. We've had certainly much less market share in our core markets are in Canada, and the U S. We've had.
Diesel sales into China, and Mexico, and other markets that you know from a market share standpoint, and we've not participated in those markets as much as we'd like given the opportunity for the growth is continuing and China as well as and the middle East.
And yes, we are.
We believe that's an opportunity for us to continue to gain market share as we look forward.
Great. Thanks, that's really helpful. That's it for me so good luck.
Okay. Thank you.
Okay.
Okay.
Our next question comes from Shawn Collins private Investor. Please go ahead.
Hello, everyone and I just had a few questions.
Hum.
What percentage of the business this strong consider strong entertainment.
At this point from an operating.
Company standpoint, strong entertainment as well.
Rubbing majority of the business. It's it's predominantly all of the operating business at this point after the sale of convergence and.
And strong outdoor and the past year strong entertainment as you know.
Well over 95 per cent of the revenue of the business.
Also on a separate large supply and service cinema companies once their IPO recently.
And how it is strong entertainment and tend to stand out.
From the crowd.
Yeah I think.
You must be referring to M. I T, which recently launched their IPO or is there someone else you're referring to.
That's what I'm, referring to yeah.
Okay, just want to make sure.
Yes, I mean, and I think I don't think we'll have much trouble standing out and the crowd I think if you look at strong entertainment.
Our group.
Is.
And as a market leader and the space you know.
And Mike M. I T is a great company you know there they are a good group, we know them well I think a lot of them I think they've done a lot of good stuff.
Obviously, you know I think we're better just like everybody would say.
From a size standpoint, you know, we're we're probably about double their size given that we have both the screen business day on our service business. So you know.
We feel very good about being able to stand out in terms of the opportunity.
Within the entertainment business, both when you look at our business levels from a historic standpoint, and as well as going forward.
Alright, Thank you very much.
Alright, thank you.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Okay. Thank you all for joining and call really appreciate your time and appreciate the questions look forward to.
Good talking to you again soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.