Q2 2023 FG Group Holdings Inc Earnings Call

Good morning, and welcome to the F. G Group Holdings earnings Conference call for the second quarter 2023.

At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.

If you have any questions or comments during the presentation. You May press star one on your phone to enter the question queue at any time.

Note. This conference is being recorded.

I will now turn the conference over to your host John Nesbit of IMS Investor Relations. John you may begin.

Thank you good morning, and welcome to <unk> Group Holdings Earnings Conference call for the quarter ended June 30th 2023 on the call today are Mark Roberson, Chief Executive Officer, Todd Major Chief Financial Officer, and Karl Seminar Chairman of the board of Directors as a reminder, there's a slide presentation to come.

Today's call, which can be accessed at the Ft Group Holdings' website before we begin I would like to remind everyone that some statements made on this call will be forward looking nature. These statements are based on management's current views and expectations as of today. When the company is under no obligation and expressly disclaims any obligation to update forward looking statements.

Sept as required by law. These statements are also subject to risks and uncertainties that may cause actual results to differ materially from those described in 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 <unk>.

GAAP terms and reconciliations to GAAP measures are available in the earnings release posted on the Investor Relations section of the website are 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 I'll turn the call over to Mark Roberson go ahead Mark.

Thanks, John Good morning, and thank you for joining the call today.

Overall this is a very good quarter for F. G. H a major accomplishment was the closing of the separation and IPO with strong local entertainment.

Which is now operating as a standalone entity and its common shares are now trading under the symbol <unk>.

Following that transaction, our core holdings at F. G. H now include a controlling stake in strong.

As well as non control Stakes in Green first forest products <unk>.

Chief financial and Firefly media.

We also have commercial real estate holdings in Georgia through our digital edition operation and we retain the screen manufacturing facility in Quebec.

Following the IPO F. G. H continues to hold approximately 84% ownership in strong global.

And we will continue to report S. G on a consolidated basis in our financial results.

Overall on a consolidated basis, the financial results for the quarter reflect the strong performance is strong.

And consolidated revenues doubled and adjusted EBITDA increased from a loss of 370000 last year to $2 4 million in the current quarter.

Starting with an overview of stronghold entertainment on slides five through seven weeks.

We provided quite a bit of detail on strong performance yesterday after the market closed.

And I would encourage you to review their results separately and listen to the call but to recap.

Revenues grew as we continued to see increased demand from cinema exhibitors for screens and services.

We're also continuing to add new customer counts in your services, increasing our market share.

As a result screen systems are up 24%, while technical service revenues grew over 40%.

And we had our first initial sale of IP and our strong studios group this quarter.

Each contributed over 6 million of consolidated revenue.

There are few key drivers to growth.

One the continued resurgence in the cinema industry and the rebound in box office.

Cinemark IMAX at AMC, all reported strong quarterly profits over the past week or so.

AMC reported its first quarterly profit in several years.

IMAX reported a 30% increase in revenue and recently had its fourth best box office weekend ever.

And cinemark delivered the second highest EBITDA quarter in its history.

Two.

They are increasing investments by exhibitors and premium auditoriums, which included the laser upgrades, which are just starting to roll out through the industry.

Auditoriums with premium large format screens and premium audio such as IMAX. For example are driving an increasingly large share of the box office.

AMC Cinemark Cineplex Annapolis are among the larger exhibitors, who have all publicly announced their plans to upgrade the laser.

And we saw upgrades really just getting started in the second half of 2022 with just a few exhibitors and we believe those activities will increase in the second half of this year and continue on into next year.

Several exhibitors, including Cinemark in IMAX or example noted in the earnings call. This week that they expect capital spending in upgrades to be backend loaded this year.

Which is consistent with our expectations for the second half demand and we're staffing up to meet that demand.

Three our position in the industry.

Strong exclusive relationships and increasing market share and geographic reach.

We have a leading position in North America in the cinema industry and over the past couple of years, we further strengthened and formalize those relationships and we've increased our sales efforts.

We supply all of IMAX screens on a worldwide basis.

And we're the exclusive screen supplier for AMC Cinemark and markets.

And we are the preferred supplier to many other exhibitors.

We also announced our first major European customer win this quarter.

And as the rollout of laser and other upgrades accelerate we believe we're well positioned.

Fourth the expansion and diversification of our revenue base, which includes the addition of strong studios theme parks and immersive.

We've expanded our revenue base expanding in the theme parks and immersive attractions, we've been expanding our service offerings to be more of a one stop shop for the exhibitors, we've been expanding internationally as well as we launched strong studios last year, which also realize its first meaningful revenue transaction this quarter with a portion of the IP for safe Haven.

Moving onto our non consolidated holdings on slides nine through 11.

We have three equity positions and three other operating companies Green first FG financial and Firefly.

And we also have commercial real estate holdings, which includes a 44000 square foot building in 11 acres in Atlanta, which if you recall, we retained from our sales conversion a couple of years ago.

And as part of the strong entertainment spin out we retained ownership of the 80000 square foot screen facility in Quebec, which is being leased S. E on our long term operating lease.

<unk> recently announced several transactions to monetize our non core assets with the sale of private forest land for 49 million.

And in that transaction was followed by the sale of two sawmills in Quebec for $90 million.

Those deals further strengthened green for his balance sheet, bringing down the average cost per board foot of operations and allows their team to focus their attention and resources on the more valuable and more efficient, Ontario mill operations.

FTE financial continues to grow its reinsurance and asset management business.

<unk> had a really nice first quarter with its growing reinsurance business reporting over onemain and underwriting profits.

On the merchant banking side. After you recently launched crave worthy NFU communities.

Crave worthy of the fast growing restaurant brand platform led by the former CEO of Jimmy John's.

And ethnic communities and self managed real estate company, that's acquiring manufactured housing communities.

Also in the merchant banking side Theres back after the merger.

Announced a merger agreement with <unk> connect which is a cloud based SaaS company focused on the medical and dental industries.

And <unk> acquisition Corp, recently announced this combination would think markets.

Is it online brokerage with an established global partnerships and our scalable business model.

Turning to Firefly Firefly continues to grow their business as a leading provider of mobility based digital out of home media solutions.

Digital out of home media is an attractive market is projected to continue to grow at about 11% over the next 10 years.

And Firefly continues to execute on its plans, it's growing and it's been expanding its international reach recently into markets like the U K, Canada and Abu Dhabi.

So overall, we're really pleased to see the accelerating progress in both our stronger payments segment.

It is now operating as a standalone public company.

As well as our equity holdings as they execute on their strategic plans.

Todd do you have to walk us through the financials.

Okay.

Sure Thanks, Mark and good morning, everyone.

Start on slide 13, I will run through a quick overview of the financial results for the quarter.

As Mark mentioned as a result of our majority ownership and strong global Entertainment. We are consolidating ftes result into our financials.

Since SCE is by far the largest part of our operating business. My prepared remarks. Today will include a good amount of discussion on the <unk> results that were released yesterday afternoon.

Consolidated revenue was up nearly 100% from the prior year with several key drivers.

The first is the revenue recognition, resulting from the sale of a portion of the IP and safe Haven.

There were meaningful increases in revenue across nearly all of our product and service offerings with screen sales digital equipment and installation services, leading the way.

Screen sales were up 24% over the prior year digital equipment was up 32% and installation revenue increased more than 120%.

Most recent quarter turned into the sixth consecutive quarter with year over year increases in installation revenue.

That is due in large part to the expansion of our nationwide team of technicians to include a dedicated installation fee.

Not only do we expect the top line revenue number to improve as a result of the additional service offerings.

We're also expecting margins on the services to improve as we move away from outsourcing the work.

Consolidated operating income improved even after the recognition of some nonrecurring transaction related expenses. Excluding these one time costs operating for the quarter would've been approximately $350000 a significant improvement from last year's operating loss of 900000.

Flipping over to the balance sheet, we ended the quarter with just under 5 million in cash and continue to maintain adequate liquidity.

Now that the entity that owns or controls the safe Haven production as consolidated as part of Sce's results those assets and liabilities are also now part of our consolidated balance sheet.

We recorded an intangible asset that represents the net cost of production of safe Haven that will be amortized as the series is monetize.

In addition, the production was financed so we have some additional nonrecourse debt to the balance sheet.

However, subsequent to June 30 debt balance was fully repaid via receipt of the minimum guarantee and the tax credits received procuring the series in Canada.

That concludes the financial overview for the quarter I'll now turn the call over to Carl Thermidor, Oh go ahead Carl.

Thank you Todd and Mark.

During the first half of the year, there's been significant progress made across our businesses.

As the largest shareholder I am confident that we hold some extraordinary businesses that will be much more valuable over time.

Strong global Entertainment completed its IPO last evening, we reported a very strong quarter there.

Their business is benefiting from our market leading position expansion into new verticals.

Also the initial success of the strong studios business.

As Mark reviewed the other businesses are generally executing across their plans Green first is focused on optimizing the core assets in Ontario, they strengthened their balance sheet and the drop in duty rates should positively impact profitability.

We view Green first is a very valuable asset and are confident that over time this value will be realized either organically or via consolidation.

With that key financial this business has come a long way in a short period of time since we essentially restarted the business a few years ago.

Reinsurance business methodically growing and I'm excited about the business on the merchant banking side.

With our specs, we're innovating with new structures that are more attractive to investors and issuers alike and we also are excited about the crave worthy business, which has a proven CEO and some attractive scalable restaurant brands.

Finally, Firefly continues to grow and build a powerful economic model for the outdoor advertising space.

I'm sure at this point many of you have seen their product on the roof of cabs in major metro areas, such as New York.

My focus is not only to build value, but to build sustained long term value for shareholders will continue to work hard and with urgency for shareholders I look forward to taking any questions you may have.

Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.

We do ask that while posing a question. Please pick up your handset if you're listening on speaker phone to provide optimum sound quality.

Once again, if you have any questions or comments. Please press star one on your phone.

Please hold while we poll for questions.

Your first question is coming from Jack Snyder from Great French capital Your line is live.

Hey, guys. Appreciate you taking the question.

Good morning.

Just had a quick question how should we think about the anticipated launch of the laser upgrade cycle.

Oh, Yeah. Good question Oh, we think the when you look at the laser upgrades as you know we're really.

Pretty early in the early innings, you know maybe in the first inning here.

Analogize the timeline here really the current laser installations are being driven by just a couple of large exhibitor.

Exhibitors, who are driving the initial rollout upgrades in major markets.

The major exhibitors have a long way to go in terms of upgrading their circuits.

And we're starting to see the regional exhibitors, yes, just now starting to formalize and announced their plans with regards to their laser upgrade plans. So this is a cycle. That's just starting it's gonna be a multi year upgrade cycle through the industry.

If you listen to some of the earnings calls from AMC, and Cinemark and somebody others. They were pretty explicit about the benefits of scale pre.

Premium auditoriums that premium audio visual experience.

And their desires to continue to invest even more heavily in upgrading their auditoriums.

Over the next several years, so we're pretty early in the phase right now.

Got it got it great I think that's that's all from me thanks guys.

Thank you.

Yeah.

Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone you're.

Your next question is coming from Brett Weiss from Janney Montgomery Scott Your line is live.

Good morning, Brett.

Good morning can you guys hear me.

Yes, yes, loud and clear great.

Great Great Great time come not in the office.

With the market share that strong entertainment has.

Do you have pricing power versus your customer base.

Or will you need to be.

Even more of a consolidator.

To attain pricing power with some of the secular headwind.

Headwinds your customer base is facing longer term.

Yeah. It's good question Bret with regards to pricing power.

Varies in different markets, and obviously with products and different products in different.

Customers, but overall within North America, we have a pretty dominant market share, but it's not that we're not without competition.

So we certainly don't have the power to price at whatever levels, we'd like it has to be competitive it has to make sense.

But we do have a premier product, we have a premium product and you know I think we're able to.

<unk> charged for that.

Some of the service area as you know we have.

In recent periods been passing along some some cost increases that we're seeing on the inflationary side, yes, there's definitely been some up some adjustments to pricing.

Right.

<unk>.

And on fire.

Assuming.

In the future at some point.

I T O markets open up a little bit more.

Is there I E.

That's not to the calendar date, but is there any.

On table on a potential IPO on on Firefly.

That you can share with us.

Yeah, I mean, I don't think Theres, a specific target date or quarterly timetable that I could lay out for you that.

It would be appropriate.

It certainly is within their plans are continuing to execute.

In terms of their growth they are continuing to expand you know they've raised additional capital a couple of rounds since our investment in Firefly. So we like what they're doing they're continuing to execute continuing to grow and when the time is right I'm sure that they will be ready to go.

Great.

For me and you know very nice quarter. So thank.

Thank you Brett really appreciate it.

Yep.

Thank you that concludes our Q&A session I will now hand, the conference back to management for closing remarks. Please go ahead.

Well. Thank you so much for joining the call today.

You know overall good quarter, we're excited about a lot of the things that are going on at strong entertainment as well as the other holdings in the portfolio.

If you have additional questions or weren't able to join the call today, you'll feel free to reach out to us through the IR contact information and we'd be happy to address any additional questions. Thank you.

Sure.

Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.