FG Group Holdings Inc.
Q1 2015 Earnings Call Transcript

Published: 11 May 2015

[Operator:]

Good morning and welcome to the Ballantyne Strong's first quarter 2015 conference call. [Operator Instructions] I would now like to turn the conference over to Tony Rossi, Investor Relations for Ballantyne Strong. Please go ahead.

[Tony Rossi:]

Thank you, Amy. Good morning, everyone, and welcome to the Ballantyne Strong first quarter 2015 conference call. Today's call and webcast 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 and results, customer demand for the company's products, the development of new technology for alternate means of motion picture presentation, domestic and international economic conditions, the management of growth and other risks detailed from time-to-time in the company's Securities and Exchange Commission filings. Actual results may differ materially from management's expectations. Joining us today from management are Chris Stark, President of Ballantyne Strong; and Nate Legband, Chief Financial Officer. At this time, I would like to turn the call over to Chris. Chris?

[Christopher Stark:]

Good morning and thank you for joining us. Our first quarter performance was relatively consistent with what we saw in the prior quarter. The strength in certain areas of our cinema business helping to offset lower project revenues from our Managed Services business. Although overall capital spending in the cinema industry continues to be fairly restrained, we have seen an uptick in theater renovations and upgrades that has created additional demand for our screens via our strong NDI business as well as for equipment reinstallation work from strong technical services. From an international perspective, we've had another good quarter selling our library management systems into South America, driven primarily by incentives provided to theater owners by the Brazilian government to convert to digital platforms. Turning to the Convergent business, we're continuing to realign our business operations and marketing platform to more efficiently deliver solutions to existing and new customers. Toward that end, we've made progress in developing partnerships with suppliers and vendors in the digital signage industry to strength the capabilities and services we offer as well as generate another source of referrals. During the first quarter, the company realized a steady build up in the sales pipeline as well as supporting a number of new pilot programs tied to the retail segment. As has been discussed in previous quarterly calls, the sales cycle for digital media project has proven to be relatively long, and as such, it has taken considerable time for our pipeline to begin producing substantive contributions for the growth of this segment of our business. That said, we have invested considerable resources and energy toward this business, and will continue to manage it aggressively to deliver world-class service to our customer base, while contributing value to our shareholders. Finally, I'd like to say a few words about the recent proxy contest. The settlement of the contest marks a starting point for management, employees and shareholders of Ballantyne Strong to aggressively pursue a renewed mission of providing our customers with accessible service and value, while delivering solid financial performance to our shareholders. Toward that end, the company has assembled a diverse Board of Directors with a wide range to support our mission. During the days and weeks ahead, the management team and Board will be evaluating the business with an eye toward developing an appropriate capital allocation policy, determining where investment should be made in our existing business to drive organic growth and identifying non-strategic areas where expenses can be reduced. With that said, let me turn the call over to Nate for additional color on the company's first quarter results.

[Nathan Legband:]

Thanks, Chris, and good morning, everyone. Our total net revenues in the first quarter of 2015 were $22.5 million, an increase of 2% from $22 million in the same period of last year. The Managed Services segment generated revenues of $7 million in the first quarter compared with $8.4 million in the same period of the prior year. The decline is primarily attributable to lower project revenues in the digital media business. Our Systems Integration segment generated revenue of $15.7 million in the first quarter compared with $14 million in the same period of the prior year. The increase was driven by three factors. First, we had higher shipments of digital projectors, particularly into the Asia market. We shipped a total of 140 units in the first quarter, up from 134 in the same period last year. Second, we had higher sales of library management systems. And third, we had an increase in sales of our screens. Gross profit was $4.3 million compared with $4.2 million in the prior year. Our gross margin was essentially unchanged at 19% in the first quarter compared with 19.1% in the same quarter in the prior year. Selling and administrative expenses were $5.5 million compared with $5.4 million in the prior year. Compared to the prior year, we have lower compensation expense, but this was offset by higher expenses related to the proxy contest. We've recorded $645,000 in other income in the first quarter of 2015, which was related to the favorable impact of currency translation on the cash and accounts receivable held at our Canadian subsidiary. During the first quarter, the U.S. dollar strengthened by over 8% against the Canadian dollar. We recorded income tax expense of $9.7 million in the first quarter of 2015, primarily resulting from a non-recurring, non-cash charge totaling $10.1 million relating to a full valuation allowance against our U.S. tax jurisdiction deferred tax assets. The valuation allowance resulted from negative evidence in the form of operating losses in the U.S. in recent years. We are highly focused on improving performance of our U.S. based operations, and are taking actions to strengthen the profitability of those operations. Should the taxable income generated in the U.S. increase in the future, it is possible that some or all of the valuation allowance against the deferred tax assets could be reverse. The utilization of these deferred tax assets is the primary focus of management and the Board. We generated a net loss of $10.2 million or $0.72 per share in the first quarter of 2015 compared with the net loss of $594,000 or $0.04 per share in the same period a year ago. Excluding the valuation allowance against our deferred tax assets, we generated a net loss of $92,000 or $0.01 per share in the first quarter of 2015. Ballantyne's cash and cash equivalents balance was $23.9 million at March 31, 2015, an increase from $22.5 million at the end of the prior quarter. The increase was due to strong collections on accounts receivable and $1 million refund from the IRS related to our 2013 tax year. At this point, Chris and I are ready to answer your questions. Operator, please open the lines.

[Operator:]

[Operator Instructions] End of Q&A

[Operator:]

I see no questions. I would like to turn the conference back over to management for closing remarks.

[Christopher Stark:]

Thank you all for joining us on today's call. We look forward to speaking with you again in this next quarter.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.