FG Group Holdings Inc.
Q3 2017 Earnings Call Transcript

Published: 6 Nov 2017

[Operator:]

Good day. And welcome to the Ballantyne Strong Third Quarter 2017 Conference Call [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Brett Coburn. Please go ahead.

[Brett Coburn:]

Good afternoon, everyone. And welcome to today's third quarter 2017 conference call. We apologize we're having trouble getting our earnings release out of the wire, so you may refer to the SEC Web site at sec.gov for a copy of our 8K and earnings release. We would like to remind everyone that today's call may contain forward-looking statements related to the Company's future operating results. Except for the historical information, it may include forward-looking statements that involve risks and uncertainties, including, but not limited to, quarterly fluctuations in results, customer demand for the Company's products, the development of new technology for the markets the Company serves, domestic and international economic conditions, the management of growth and other risks, detailed from time-to-time in the Company's Securities & Exchange Commission filings. Actual results may differ materially from management's expectations. Joining us on the call is Kyle Cerminara, Chairman and Chief Executive Officer; Lance Schulz, Chief Financial Officer; Ray Boegner, President of Cinema; and Stephen Schilling, President of Digital Media. At this time, I would like to turn the call over to Lance Schulz.

[Lance Schulz:]

Hello everyone, and thank you for joining us today. I will begin by reviewing the financial highlights for the third quarter and then I will turn it over to Kyle to his update. We will then have an opportunity for a question-and-answer session. Net revenues in the third quarter increased 5% to $19.6 million compared to $18.7 million in the same period of last year. Sales of Cinema products and services decreased 22% to $8.7 million in the third quarter compared to $11.1 million in the third quarter of year. This decrease was driven by decreased sales of projectors, lamp products and screen support systems, partially offset by slight increases in sales of screens and digital parts. Sales of Digital Media products and services increased 40% to $11.1 million in the third quarter compared to $7.9 million in the same period last year. This increase was driven by increased sales of digital signage equipment and installation services. Consolidated gross profit increased to $5.3 million or 27% of revenues in the third quarter of 2017 compared to $4.4 million or 23% of revenues in the third quarter of 2016. Gross profit in the Cinema segment increased to $3.1 million or 35% of revenue in the third quarter of 2017 from $2.7 million or 25% of revenue in the third quarter of 2016. This increase in gross margin, as a percentage of revenue, was driven by product mix as screen sales, which carry a higher margin, comprised a greater percentage of total revenue. Screen warranty expense was also lower relative to last year's third quarter. The gross profit in the Digital Media segment increased to $2.2 million or 20% of revenues in the third quarter of 2017 from $1.6 million or 21% of revenues in the third quarter of 2016. Selling and administrative expenses increased to $4.8 million in the third quarter of 2017 compared with $4.1 million in the same quarter of the prior year, primarily due to increased cost associated with our CRM and ERP systems implementation along with higher bad debt expense. Operating income was $548,000 in the third quarter of 2017 compared to $257,000 in the same period of the prior year. After reflecting some equity method investments losses, foreign currency losses and income tax expense, we recorded a net loss from continuing operations of a little over $1 million compared to $462,000 in the same quarter of the prior year. I will now turn it over to Kyle Cerminara to give us his update.

[Kyle Cerminara:]

Thanks Lance. Good afternoon, and thanks for joining us today. Lance and I’ve worked very closely together over the last few months. We've made significant progress in shaping the strategy for Ballantyne Strong in each of its subsidiary companies. There has been a lot of heavy-lifting, and I'm very pleased with the progress we've made over the last three months and the future direction of the Company. We've made a lot of changes to the Company over the last two years, and we’re working on additional changes that we believe will significantly increase shareholder value. I want to spend a few minutes today discussing how we think about the Ballantyne Strong as an investment and why we’re so excited about the future. As many of you know, the crown jewel of Ballantyne Strong is Strong/MDI. Strong/MDI is the largest cinema screen manufacturing in the Western Hemisphere. It's headquartered in Joliette, Quebec about an hour north of Montreal, and has approximately 100 employees that work in our state-of-the-art 83,000 square foot manufacturing facility. Strong/MDA generates virtually all of its operating income of our Cinema segment, and is a steady cash flow generator. I believe the Strong/MDA is one of the best business I've seen in my career. We're currently pursuing several ways to grow Strong/MDA, and we believe the Company is well positioned to maintain and grow its market share. Another valuable component of Ballantyne Strong is Strong Technical Services. Strong Technical Services is one of the largest cinema service providers in the U.S. with the nationwide field service team and 24/7 network operating center that's responsible for monitoring tens of thousands of sites and devices. Strong Technical Services is a consistent cash flow generator, and has an employee base that we intend to grow over the next few years to meet the strong demand for our services. We very much like our market position in Strong Technical Services, and we believe we’re well positioned to grow organically and to gain market share. The other valuable subsidiary of Ballantyne Strong is Convergent Media Systems, which is at the core of our Digital Media business. The previous Board and management team of Ballantyne Strong acquired this business from Sony in 2013 for approximately $17 million. We've made substantial investments in this business since then, and we are razor focused on executing as we move into 2018. The two most notable investments we've made are in our digital signage as-a-service or DSaaS product offering that you've likely heard us discuss. There’re few significant DSaaS contracts that we’re working on to sign for implementation in 2018. In addition to DSaaS, we've been working on developing a number of advertising networks that we believe can add significantly to our Digital Media business, revenue and profitability in 2018 and beyond. I'm personally very excited about these opportunities to develop advertising networks, and I look forward to updating you on this opportunity in the next few months. In closing, we've had a great deal of opportunities ahead of us and I look forward to further updating you as we head into 2018. We believe we've made significant progress refining our strategy and product offering, and that 2018 will be a much better year for us if we can execute on a few key growth initiatives and strategic opportunities. This concludes our presentation for our third quarter. And we’d like to open up the lines for Q&A. Operator, please open up the lines.

[Kyle Cerminara:]

Thanks again for joining us on this call this afternoon. We appreciate the support of our shareholders for the work we've done. We continue to be very committed to achieving our ultimate vision for the Company and generating real value for our shareholders. We appreciate your time today and we look forward to talking to you again in the near future. Thank you.

[Operator:]

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.