FG Group Holdings Inc.
Q3 2015 Earnings Call Transcript

Published: 4 Nov 2015

[Operator:]

Good day and welcome to the Ballantyne Strong Q3 2015 Quarterly Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ms. Elise Stejskal. Please go ahead.

[Elise Stejskal:]

Good afternoon everyone and welcome to today's third quarter 2015 conference call. Today's call and webcast may contain forward-looking statements related to the company's future operating results. Except for 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 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. On today's call, management's discussion will include non-GAAP measures. Reconciliations to GAAP are available on our website and can be found in our Q3 investor presentation section under the investor’s financial reports and webcast page. Joining us on the call is Kyle Cerminara, Executive Chairman and Nate Legband, Chief Financial Officer. At this time, I would like to turn the call over to Nate.

[Nate Legband:]

Hello everyone thanks for joining us this afternoon. I will start our call this afternoon with the review of our financial results for the third quarter. Our executive chairman Kyle Cerminara will then share an update on our new board of directors, progress we've made since the appointment of our new board in May our value proposition and details around our plan going forward. We have a strong third quarter and we believe in our financial results for the quarter are beginning to reflect the results of the changes we began implementing over the past several months. We had a net loss of $3.2 million or $0.23 per share in the third quarter of 2015, paired with a net loss of $109,000 or $0.01 per share in the same period a year ago. The third quarter of 2015 included $3.9 million in charges that we expect will be nonrecurring in nature. I will discuss those nonrecurring charges in more detail shortly. Our total net revenues in the third quarter of 2015 were $23.5 million compared to $22.7 million in the same period of last year. The managed services segment generated revenues of $9 million in the third quarter compared with $7.2 million in the same period of the prior year. The increase was driven by increased project revenues in the digital media business as well as an increase in our cinema service demand work. The systems integration segment generated revenues of $14.8 million in the third quarter compared with $15.7 million in the same period of the prior year. The primary driver of the decline was lower shipments of digital projectors in the U.S. We shipped the total of 120 digital projectors in the third quarter compared with 131 in the same period last year. The decline we saw in digital projectors in the U.S. was partially offset by strong sales of our MDI screens and strong sales of our cinema equipment in Asia. Adjusted gross profit was $5 million compared with $4.1 million in the prior year. Our adjusted gross profit as a percentage of revenue was up 330 basis points in comparison to the same period the prior year. Our adjusted gross profit as a percentage of revenue was 21.2% in the third quarter compared with 17.9% in the third quarter of the prior year, the increase in adjusted gross profit as a percentage of revenue was driven by a more favorable mix in our sales to higher margin products as well as by realization of cost savings. These cost savings right down to item realized as part of the efforts that have been underway since the appointment of the new board in May. Kyle will be discussing those costs savings in more detail. Unadjusted gross profit was $4 million and our unadjusted gross margin percentage was 16.9%. Adjusted selling and administrative expenses were down 13% in comparison to the same period in the prior year, adjusted SG&A was $4.3 million compared with $4.9 million in the prior year. The decrease in adjusted SG&A when compared to the same quarter the prior year was primarily attributable to reductions in compensation related expenses. These expense reductions were driven largely by the cost savings efforts that have been underway the past several months. Unadjusted SG&A expenses were $5.2 million. Ballantyne’s cash and cash equivalents balance is $24.7 million as of September 30, 2015 which was in line with our balance at the end of the prior quarter and up from $22.5 million at the end of the prior year, the increase compared to the end of the prior year was primarily due to strong cash flows from our systems integration business. We continue to have good liquidity and strong cash flows providing additional capital resources for the future. During the quarter, we have recorded $3.9 million charges for several items that are expected to be nonrecurring. Most of these charges were non-cash in nature. We have excluded these charges from our adjusted gross profit, adjusted gross margin percentage and adjusted SG&A measures for comparable only purposes. These charges include a $1.6 million charge related to the valuation of notes receivable or $1 million charge related to the valuation of inventory. A $0.6 million charge related to the impairment of software intangibles, a $0.4 million charge associated with the valuation allowance per tax assets and other net charges of $0.3 million. There were no similar charges for the same quarter of the prior year. I will turn the call over now to Kyle Cerminara to talks more about the progress we've made in our plan going forward.

[Kyle Cerminara:]

Thanks Nate, Good afternoon everyone, thanks again for joining us. As Nate mentioned earlier, I'll be sharing update on the new board of directors and the progress we've made since May along with details regarding recently announced changes to our management team. To start I would like to provide an update on the new board of directors elected in May, I am very pleased with the progress we've made in the path forward we've laid out as a new board. We've been working diligently with management meeting often to ensure we're driving forward on our path to improving shareholder value. The third quarter’s the first full quarter with the new board of directors at the helm while there were some nonrecurring charges in the quarter but we're very pleased with the progress we've made on the expense side. Since our appointment we've been through thorough review of each of our businesses with the management team. We've begun the process of identifying areas for expense reductions as well as implementing the strategies to begin recognizing savings in those areas as soon as possible. We've also begun the process of implementing zero based budgeting. We're confident that this process and our continued focus on identifying and removing unnecessary expenses will yield greater value for our shareholders. We have spent a great deal of time recently evaluating new investments and business opportunities. We've made some strategically investments in the business but we're just getting started in this area and we expect to ramp up our focus on this over the coming quarters. Our net NOI savings are already at $3.6 million, I'll talk more about that in detail in a few minutes. In addition to our continued work and commitment around strategic cost savings and investments, we've also shown a strong commitment to building a world-class team and creating an ownership culture within the company. We've seen this evolution began over the past several months and are excited about the impacts we believe this kind of team and culture will have on our results. Insiders and related parties currently own approximately 22.5% of our shares, I will also talk about that more in a minute but I’d like to highlight some of the changes we've made recently. This week Ballantyne Strong announced several leadership changes in the management team. We feel strongly that these changes will streamline reporting lines and enable us to intensify our focus on our key markets as part of these changes Ray Boegner has been named president of the cinema business. Ray with a 30 year veteran of the company and his knowledge of the cinema industry is unmatched. His leadership in this business has been invaluable and we look forward to his continued contribution and the contribution probably making in the future. Additionally Steve Schilling has been named president of the digital media business. Steve has been working with us as a consultant over the past several months to evaluate and make recommendations our new strategies for our digital media business. We've been impressed with Steve's experience and leadership and we look forward to the growth we believe he will drive in our digital media business. As a result of these changes, Chris Starc and Dave Anderson's positions have been eliminated. We appreciate their contributions and wish them well. We believe these changes are the next step in our evolution that we began making earlier this year. We feel strongly that the leadership of Ray and Steve will bring that will help us move forward on our path to delivering greater value for our shareholders and customers. Next, I'd like to talk more specifically about the progress we've made since May. Since the appointment of the new board of directors in May we have realized $3.6 million in net annualized savings. This net savings has been recognized in cost savings of $5.1 million, partially offset by strategically investment in the business of $1.5 million, cost savings were largely driven by working with the management team to identify strategic headcount reductions, these reductions are driving $4.5 million in annualized savings, additional cost savings of 224,000 have been realized through a facility consolidation project in our Omaha office. The reinvestment of $1.5 million was primarily driven by strategic headcount additions in areas and roles that we believe will help us drive revenue and profit growth going forward. The new board is working closely with the management team to build a culture committed and focused on a continuous evaluation of our cost and investments that we can be confident we're doing what's best to create value for our shareholders. As we begin to build the Ballantyne Strong strategic roadmap, it's important to note the strength of the proposition we are in today. We have a strong balance sheet. We have approximately $25 million of cash and equivalence on our balance sheet. We have no debt and we are real estate free and clear. Our building and land in Georgia was recently valued between $4.3 million at the low end and $6.8 million at the high end. We also have cash value in our receivables and inventory, in addition to the strengthen our balance sheet; we have a strong market position in our cinema business and this business continues to be highly cash flow generative. We believe our digital media business presents an interesting growth opportunity for us and has great potential under the new leadership we have announced recently. Additionally, we're continuing to work towards further reducing our corporate overhead which one turn generate even stronger cash flows. Lastly, we have operating loss carry forwards that could have value the company returns to profitable position in the United States. We're committed to driving improvements in our return on invested capital and creating value for shareholders. One of the things we're proud about and striving to continue building upon is our ownership culture. Earlier I mentioned the 22.5% of our shares outstanding are under closely held ownership, closely held ownership includes executive officers, board members, employees and other affiliated parties such as [indiscernible] Global Investors and CWA Asset Management Group. We strongly believe that this ownership measure is a testament to the strength of our alignment between the leadership of our company and the interests of our shareholders. We’re committed to continuing to foster a culture that is focused on creating long term shareholder value. Finally I'd like to share more with you around our plans going forward, over the coming months we will be continuing our relentless evaluation of cost savings and investment opportunities. We will also be very actively focused on identifying new investment opportunities. From a team perspective, we are focused on building a culture of zero complacency, ownership and accountability throughout the businesses. Related to this, we will work to hire and retain the best people and lastly we're committed to incorporating long term thinking and to all the decisions made in the business. This concludes our prepared remarks and at this point we'd like to open the lines to answer your questions. Operator please up in the lines.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Kyle Cerminara for any closing remarks. Please go ahead.

[Kyle Cerminara:]

Thanks again everyone for joining us this afternoon. We appreciate your time and look forward to speaking with you next quarter.

[Operator:]

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