Q1 2022 Ballantyne Strong Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Ballantyne Strong Inc. First quarter 2022 earnings conference call.
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And now I would like to turn the call over to Jenn Peladeau IMS Investor Relations. Thank you you may begin.
Good afternoon.
I think the Ballantyne strong Inc. Earnings conference call for the first quarter ended March 31, 2022 on the call today from Ballantyne strong are Mark Mark Roberson, Chief Executive Officer, and Todd Major Chief Financial Officer. There is also a slide presentation management will be referencing that is available on the Investor Relations section the Ballantyne strong website.
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 expressly disclaims any obligation to update forward looking statements except as required by law. These statements are also subject.
Risks and uncertainties and may cause actual results to differ materially from those described on today's call risks and uncertainties are also described in the company's SEC filings today's presentation and discussion 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 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 decision at this time I'd like to turn the call over to Mark Roberson go ahead Mark.
Thanks, Jim.
Good afternoon, everyone and thanks for joining okay.
On our year end call about a month and a half ago. We discussed the positive momentum we were seeing in our entertainment business as well as in our equity holding.
If you're following along with the Powerpoint I'll start on slide 453% for this.
This year is off to a strong start in Q1 revenues are more than double from where they were last year.
We're witnessing a robust reopening recovery in cinema and the current outlook for entertainment business continues to be strong.
Revenues increased 110% for the quarter to just over $10 million well.
While EBITDA and results from continuing operations improved 83%.
And 68% on the flow through from their spiritual cinema space.
As we look ahead to the rest of this year and beyond we expect those industry trends should continue to provide a favorable backdrop.
Moving to slide seven through nine.
Over the past couple of years, we've been working hard to diversify our revenue streams in the entertainment business.
In addition to the rebound in revenues from our cinema customers are flips product line.
Which is for immersive theme parks and stimulators.
Also continued to generate growth.
And most recently we added the added content with the addition of strong studios, which we expect to be a meaningful contributor going forward.
Two weeks ago, all the major exhibitors and studios gathered together in Las Vegas for the annual spend of Mccahon Tradeshow.
It's kind of a reunion with industry finally back together in large numbers and there was a tangible level with increased optimism and confidence coming from both exhibitors as well as from the studios.
There were several key recurring themes from conference.
What were useful and I'd like to share with you.
Number one.
People are coming back to the cinema and they're coming back in large numbers.
Box office results are strong and breaking records.
So any for instance to reiterate is that from August of last year, which was the last thing I'm con through this March.
They generated over 3 billion at the box office.
IMAX instead of Mark have announced record setting box office performances.
Spider Man no way home with the six largest global opening ever.
Just this past weekend doctor strange or a large audience is back it's been about and.
And was the second largest opening weekend since Covid started.
Yesterday AMC reported this revenues were up buybacks.
The major studios, we're all United in voicing their commitment to the theatrical experience.
During COVID-19 there was a lot of well publicized experimentation with direct to streaming as day and date releases other model.
Without exception the major studios all expressed their commitment to the theatrical window.
And the reality that blockbuster releases generate more revenue profit when they could have multiple bites at the Apple and create a strong opening in the theater.
For our cinema customers. That's obviously welcome news and it's really just part of the continuing evolution as exhibition in streaming COVID-19 and optimize the revenue opportunities for each project.
Three the backlog of new blockbuster releases coming this year and future years is enormous.
We just add Doctor Strange open up as he mentioned this past weekend at really strong numbers.
Top gun coming out the end of this month.
And as you look out this latest content cause the stimulus doesn't show any signs of slowing down.
He got Thor Black Panther flash and other than Aquaman.
Theyre sequels to Jurassic Park, a couple of mission impossible Transformers.
And your buzz like you're continuing the toy story lineage and.
And there are many many more that I won't try to name them and then we also have three released it that look more in September which will be followed by the new avatar with water, which will close out the year in December .
And where does it James Cameron has already completed production or working on production with three additional avatar sequels. It will fall.
And if you recall the original avatar drove a meaningful upgrades like the industry 10 years ago. When it first came out.
And as the industry confidence is returning we're also seeing exhibitor starting to reinvest in their businesses.
AMC, just announced a major upgrade to the laser projection.
As you May recall, we are the exclusive supplier screens to AMC.
And we're excited to support them as they invest in bringing the best premium experience there already.
We would expect this first round of upgrades in the middle of the back half of the year and believe this represents the first phase of a longer cycle.
Denmark, who we also supply on an exclusive basis.
There's also a committed upgrading all of their sentiments the laser as well.
So coming out of Covid with industry, beginning to reinvest and with our leadership position, we feel that we're well positioned.
Moving over to slide 10.
Our our eclipse immersive screen businesses continue to perform well.
And we continue to explore additional unique applications for our paints and coatings.
And that product line.
The Navy stimulator projects had been had been a nice addition.
We've completed two projects recently and have several more coming over the next couple of years.
And again, the Eclipse line is a smaller but potentially faster growing part of the screen business.
And it's one where I believe we're really just getting started on marketing and creating awareness in the market with eclipse law.
On slide 11, with our services business.
We're also seeing demand pick up.
We are recurring monthly revenue maintenance contracts are back to pre COVID-19 levels now.
Yep project and installation work are starting to pick up as well.
We're also seeing increased demand for sales of protection and audio equipment as exhibitors are upgrading.
Sundar experience.
Is it starting to prepare the upcoming release.
We are also striving to become a broader one stop shop.
And increase our share of business with our existing customers.
The laser upgrades for example were working to capture a broader ray.
Project management and installation activities.
And we really haven't done in the past.
Which should provide a complementary boost for our service revenues as well as screen as we support the laser upgrade projects.
Moving over to slide 12 and 13.
With the announcement of the law.
This quarter.
Why did add content is a new line of business in there and you're in the Entertainment group.
This opens up a brand new growth driver for the business.
As you may recall from our last year end discussion, we acquired a portfolio of 12 projects with chicken soup as part of the deal.
We plan to start production on two of those projects in the coming months, they're already green lit and ready to go.
So those two projects we've licensed the distribution rights for screen media and returned for $9 million minimum revenue guarantee upon delivery.
Our overall business model and the goal is to build with strong studios.
To build our content library over time and to do so in a financially disciplined manner.
We'll be utilizing co production of presale, just pure production funding, while we're building out the content library.
Reading, both near term revenue as well as longer term participation and back.
Moving over to slide 15 in 'twenty will talk about our equity holdings.
In addition to the entertainment business, we hold equity Stakes and three operating companies.
Green first forest product, that's chief financial and Firefly.
Greensburg reported its first quarter, which was profitable I might add just completing their acquisition.
We own $15 3 million shares and Green first as a leading member fiduciary in Canada.
The capacity to produce over 900 million for Italy.
We believe central Canada, as a great place from a lumber supply standpoint, and bleed green versus well positioned both in the current cycle as well as in the longer term.
Reinforced recently uplifted, yes that and just last week, therefore, which is one of the largest lumber producers in North America announced that they had acquired a 16% stake in Greensboro.
We didn't enter four as investment as a positive long term indicator for holding a green.
<unk> Chief financial continued to expand its reinsurance backed by Forbes.
Again, we hold one 6 million common shares that yeah.
During the quarter. After you have completed two stacked ipos.
Those are the third and fourth Ipos supporting FGS back strategy.
If you recall all Bel completed its business combination with aggregate in December <unk> America completed in combination with a buy back in July .
Additionally, FGS reinsurance business, just patiently deploy capital and they entered into two new contracts as well.
We also hold shares of Firefly, which is a private VC backed company.
Firefly continues to grow post COVID-19 and continues to be innovative they recently announced a new program, where they're partnering with Hyundai as.
As Firefly in car as well as their own screens screens installed generating.
Generating advertising revenue to subsidize the fleet and drivers.
First of all I will we'll enroll professional drivers and fleet operators when they purchase new vehicles in the program. So that the drivers can earn advertising revenues to subsidize the cost of the.
Purchase a car.
Another way that Firefly is continuing to build the relationships and strengthen their position as well as driving scale.
As they continue to grow and eventually look towards affordable, but what it is that we believe the firefly holding could deliver significant upside potential for us down the road.
Todd once you walk us through the quarter.
Thanks, Mark and good afternoon, everyone.
Slide 22 contains a summary comparison of consolidated Q1 2022 results to the prior year.
Strong entertainment operating results saw meaningful increases in revenue and profitability as the industry wide recovery from Covid continues.
Revenues from the sale of products and services were each up over 110% compared to the prior year.
While gross margin dollars also more than doubled year over year gross margin as a percentage of sales was roughly flat.
With shifts in product mix, including higher sales of projection and audio equipment being the primary driver.
As you would expect we're also see an uptick in some of our sales and marketing efforts as the industry continues to open up.
The marking of the value of our Green first equity holding the fair value resulted in a $1 $7 million unrealized gains during Q1 as we've mentioned in the past the benefit from unrealized gain on our equity holdings are excluded from our calculation of adjusted EBITDA, which also increased significantly from Q1.
Moving to slide 23, which is a quarterly trend of strong entertainment for the five most recent quarters not only did Q1 of 2022 outperformed the prior year. We're pleased to see the strong entertainment business deliver improvements sequentially over Q4 of last year as well.
Gross profit and operating income during the second and third quarters of 2021 benefited from the recognition of employee retention credits.
Overall, we are encouraged by the recent trends and operating results of the business.
Slide 24 is summarized balance sheet as at the end of Q1 2022, and also December 2021 and 2020.
Cash flows used in operations and decreases in working capital during the first quarter, which were primarily related to deferred revenue combined with the cash payment in connection with the strong studios acquisition of projects from chicken soup and the down payment for the purchase of the digital ignition building were partially offset by the receipt of a $2 $3 million.
Prepayment on the stage that note receivable.
The purchase of the digital ignition building in Alpharetta, which we previously leased resulted in the removal of the right of use asset and lease liability with an offsetting increase the PP&E in long term debt.
The increase in other liabilities since the end of 2021 'twenty 'twenty is primarily due to an increase in deferred taxes as a result of the appreciation of our green first equity holding.
That wraps up the financial review and I'll now turn the call back to Mark.
Thanks Todd.
Our entertainment business has been accelerating as industries emerging from Covid, the momentum appears to be sustainable and increasing.
Afforded by the enthusiasm we're hearing from our major customers. It is released as accelerate.
With additional strong studios, we now have an additional growth engine with projects starting to kick off this summer.
And our holdings in Firefly, FB financial and Greensboro, and can you add additional upside because overall long term value.
With that we'll now open up the line for any questions.
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Okay.
Okay.
Yeah.
And our first question comes from Brett Reece with Janney. Please go ahead.
Hi, Mark Hi, Todd.
Greg.
Yeah, Hi.
Thanks for calling me all right.
Yeah sure can I ask you on on fire fly you know you read a lot that you know the Uber and Lyft drivers have to you know make more money.
Is that a tailwind because the you know the advertising.
Yeah device on the top of the car is incremental revenue for the Lyft and Uber driver, though is is that a tailwind for us.
Yeah enhanced sales with with Firefly.
Yeah, Yeah, I mean, I, certainly think so and I believe that's an important part of the thesis as you know these.
These drivers you know just like everything else there they get squeezed by increasing gas prices and other things as well and you know they've got a they've gotta make more money in one of the ways that they can do that is by utilizing their vehicle you know for more than just the fear coming through the over at <unk>.
By utilizing it for advertising.
Firefly is a great example of how they can do that and they've got a great program.
This deal that they're setting up with Hyundai is just another way that there that they are expanding their ability to reach those drivers and in partnering with on the front end of the purchase of the fleet vehicles. So yeah, we think that's unimportant.
Part of the Firefly thesis.
Great.
On a 10 million dollar revenue run rate, if we generate a positive cash flow this quarter.
Okay.
Cash flow from operations was it was a bit of a use.
Had some deferred revenue that we had recorded at the end of the year. We have received the cash prior to the end of 2021 that we recognized in revenue during the quarter. So there was a little bit of a use.
From an operations standpoint during the quarter and.
And then we also.
Purchased the digital admission buildings, we had.
About $500000 downpayment on that purchase and then we also had a strong studios acquisition, where we paid about $300000.
As our upfront payment from that.
So all of those combined.
Netted against the two and a half million dollars to $2 $3 million, we received from Sage net there was a.
About seven or $800000 cash use overall during the quarter.
But not all of that was operationally.
Okay.
And can.
And we expect soon to see incremental revenue.
From the.
She lived with the Belgium.
Company and in Europe .
That's something that starts up pretty soon or is that.
Often the AR in the horizon.
Yeah. It will start fairly soon Brent it's a.
It may start slowly because Europe is a little bit slower to reopen.
To accelerate and start their upgrade cycles than we're seeing in the U S. So we don't expect it to start like a rocket, but we do expect it to start very soon and we're working with them now in the logistics and in other aspects. So that we can actually be able to start shipping from that facility as soon as in the fall.
Summer fall so.
That will allow us to really establish a quick ship beachhead in Europe , where we can service those customers.
Much faster and much more economically and give us a good position to start increasing market share in Europe as that market starts to starts to accelerate their post COVID-19 recovery as well.
Are the margins higher on your net product sales or on your net service revenue because they can be a net service revenue doubled quarter to quarter, which was very nice to see.
Yeah.
It really there's not a straight answer to your question because there's a lot of difference yeah. There's a lot of product mix difference potentially in the product lines. They also it depends on the product you know our services generally carry nice margins on our screens carry very nice margins, we have other products, we distribute that we distribute.
Third party products that are at lower margins. So it really depends on the mix within the product sales line item. If we're if we're heavy on screens you will see the product margins tick up if wherever your own distribution as you may see that percentage drop you know, but obviously contribute.
<unk> margin dollars and our service revenues are generally fairly consistent.
Alright, one more if I may and it's something you may not be able to answer but I'll give it a go with respect alrighty.
E B I T. All.
Are you holding off going forward with it.
Oh wait.
Potentially better pricing because of market conditions, and how do you weigh that versus perhaps lower prices for what you want to do.
I use the money for.
Yeah, we're evaluating that week by week, you know obviously, the you know and there are limits to what I can say, specifically with regard to the IPO, but what I can say is that we have filed publicly the S. One.
We will be updating that S. One with Q1 financials here shortly because those numbers will go scale at the end of this week or first of next week. So we get the S. One updated with Q1 carve out financials.
And obviously the SEC has declared at that point.
We will be in a position to where we could launch the IPO and.
At such time as market conditions are appropriate.
It's really all I can say about it in terms of timing over point is we're going to be ready to go.
We have certain objectives, we want to achieve.
And when it's right.
We will start moving forward.
Alright, Thank you for answering all my questions and I'm going to step back, but thank you good quarter.
Thanks, Thanks as always Brent I appreciate the call. Thank you.
Again, if you'd like to join the question queue Press Star then one and the next question comes from Frank Jones with Barlow Capital. Please go ahead.
Hey, guys. Thanks for taking my question. So I was wondering could you provide a little more insight into the 9 million do you expect the strong studios.
Specifically you know how do you get a little maybe a little more color on how you expect to realize the revenue and you know over like what kind of a rough time frame that would be.
Sure Yeah. Thanks for the question, Frank Yeah, I'm not going to get.
Into too much detail specifics on precise timing.
But what I will tell you is that the 9 million, maybe I'll just back up and kind of explain what it represents and kind of how the model works would be helpful. First as well because it's when we acquired these projects from chicken soup, we acquired 12 projects two of those projects were for.
Seeding with quickly and plan to be in production as early as as early as mid summer on one of them in late summer to fall on the second one and then there are other projects beyond that but on these first two projects.
Have a minimum revenue guarantee from screen media, which is the distribution arm under chicken soup, where they'll distribute that have no license that for distribution on the Crackle network.
So at the time that we deliver the.
Each of those series.
To them, so that it's available for exploitation.
That's when we would receive the minimum revenue guarantees for each of those projects and that's when we would anticipate recognizing revenue. So we anticipate that in both of those could likely occur in this year, it's certainly possible that they could slip out into early next year, but within the next nine to 12 months, we would expect.
To deliver those episodes and be able to recognize the revenue from those projects and then obviously we have we're excited about the business. We're not just doing it for those two projects those are a nice.
Start and launch to the business gives us a head start.
Where we can kind of hit the ground running with revenue producing projects you know right out of gate as opposed to waiting in building the business for a year before we get to get to that stage and we're working on building the pipeline of other projects and we plan to employ a fairly similar model, we have with a lot of other projects to where we utilize.
Revenue guarantees from distributors you know prior to starting production.
To be able to generate revenue and generate near term.
Revenue as well as longer term participation, but do it in a very capital light.
Actually disciplined fashion, so that we're not taking a lot of risk on these projects. So I don't know if that answered your question, but hopefully that some background is helpful.
Oh, Yeah. That's very helpful. Thank you very much yeah. That's that's it that's it for me. Thank you.
Okay alright. Thanks.
We have no further questions. So this concludes our question and answer session and I will turn the conference back over to management for any closing remarks.
Thanks, Thanks, everyone for dialing in and listening to the call. If you do have any other questions that come up after the call feel free to reach out to either myself or Todd and I look forward to talking to you again.
Shortly when we report Q2 in August .
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.