Ballantyne Strong, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Ballantyne Strong Inc. second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the call over to John Nesbitt of IMF Investor Relations. You may go ahead.

Good afternoon and welcome to Ballantyne Strong's Earnings Conference Call for the second quarter ended June 30th, 2021. On the call today from Ballantyne Strong are Mark Robertson, Chief Executive Officer, and Todd Major, Chief Financial Officer. 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 view and expectations as of today, and the company is under no obligation or expressly disclaims any obligation to update forward-looking statements, except as required by law. These statements are also subject to risks and uncertainties and may cause actual results to differ materially from those described on today's call. Risk and uncertainties are also described in the company's SEC filings. Today's presentation and discussions 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 our financial reporting before making any investment decisions. At this time, I would like to turn the call over to Mark. Okay, go ahead, Mark.

Thanks, John. Good afternoon, and thank you all for joining the call today. Let's jump right in, and we'll discuss our strong entertainment operating business first, and then we can provide an update on the holdings on our balance sheet. It's certainly been a busy few months. Starting on page three, if you're following the PowerPoint, we've seen a robust recovery in our entertainment business, with revenues more than doubling from the low point last year. On a sequential basis, we saw revenues increase 28% from Q1 to Q2 of this year. The primary drivers have been increased demand for managed services as a result of theaters reopening, and our Eclipse Immersive Screen Division has shown good signs of growth through the past year. Post-close of Q2, we also announced a couple of very significant initiatives We announced our intention to pursue an IPO for the Strong Entertainment division. We also announced that we'd increased our holdings in Green First through their rights offering. We'll talk about both of those in more detail in just a few moments. Referring to pages four through seven, as you may know or do know, Strong Entertainment is our primary operating business following the divestiture of Convergent and Strong Outdoor. Through our STS and MDI subsidiaries, we're the industry leader in projection screens and managed services. With multiple blockbusters already released and many more to come in the second half of 21 and into 2022, moviegoers are returning to the theaters and proving that at-home streaming is really not a replacement for the premium experience of a theater. As we look forward, we're obviously watching the Delta variant, but we're optimistic and continue to see signs that the favorable tailwinds in the industry are strengthening. A good indicator is if you listen to the conference calls of our major customers and hear what they're saying. IMAX, Cinemark, and AMC all posted solid quarters with almost all their domestic locations open and operating and expectations for a really busy second half of the year as the release schedule intensifies. One thing that the largest and the most successful exhibitors all have in common is the focus on innovation and creating a premium guest experience. Our products and services are focused on creating that premium viewing experience, and we're well positioned as those trends continue. As a market leader, we believe we're well positioned to capitalize on the recovery demand. Over the past year, we've strengthened our market leadership position with multi-year exclusive agreements with Cinemark on the screen side and with Marcus Theatres on the managed services side. And we supply all of IMAX screens worldwide on an exclusive basis, leveraging our best in class premium large format screens. As the pace of new releases picks up, we also expect exhibitors to increase focus on up times for projection equipment and to rely more heavily on outsourcing. We've been ramping back up our nationwide field service team as demand increases. And we're expanding our capabilities with mock services starting to gain traction internationally as well as in the U.S. We've also been diversifying our entertainment revenue base, building on our core strengths and expertise in cinema projections, screens, and coatings. One example is our immersive eclipse screen for theme parks and simulators and other non-cinema applications. In addition, our proprietary paints and coatings are also being used in venues like the Illuminarium in Atlanta. and the Van Gogh exhibit in major cities around the U.S. Our Eclipse Immersive Screen Division is a smaller but rapidly growing segment of our business, and revenues there remain on target to double this year. On page eight, as we mentioned earlier, we announced the intent to pursue a separate listing in IPO for the Strong Entertainment Group. Under securities law, we're extremely limited in what we're able to say about the planned IPO at this time. So we'll apologize in advance if we're not able to fully respond to your questions on the topic at this time. The proposed offering is expected to occur later this year, subject to satisfactory market and other conditions. The timing, class, and number of securities to be offered and their price have not yet been determined. Valentine Strong does intend to remain the majority shareholder of the subsidiary post offering. Moving on to our holdings, There was a lot of activity there as well over the past few months. Starting with Green First on page 10 of the PowerPoint, as I'm sure most of you are aware, Green First announced the planned acquisition of the lumber assets of Rainier and recently completed a rights offering as part of that financing transaction. Green First expects to complete the acquisition in Q3, which will make them a top 10 lumber producer in Canada. Prior to this transaction, Ballantyne owned 7 million shares of Green First common stock. We issued 21 million rights to acquire additional shares of Green First at $1.50 Canadian. During July, we exercised 8.3 million rights, which will bring our ownership up to 15.3 million shares upon the closing of the transaction. Based on the information that's been publicly disclosed by Green First, we expect that $15 million share position to represent approximately 10% of Green First post-deal. We allocated approximately $10 million of capital to increasing our position of Green First and continue to maintain a strong liquidity position with just under $10 million of consolidated cash in the balance sheet following this investment. We're bullish on Green First and look forward to participating in their success as they complete the transactions and become a major player in the Canadian lumber industry. Based on recent market prices, the value of our 15.3 million shares would be approximately $35 million, compared with a book value of approximately $12 million. On page 12, moving on to FG Financial, we hold 1 million common shares, or approximately a 21% ownership interest as of June 30th. FGF is a reinsurance and investment management holding company focused on opportunistic, collateralized, and lost cap reinsurance while allocating capital to SPAC and SPAC sponsor-related businesses. FGF wrote its second reinsurance contract recently and has launched its SPAC platform to provide strategic, administrative, and regulatory support services to newly formed SPACs. On April 12th, FG completed an IPO of its first back-platform investment, Aldell Financial. FGF's potential beneficial ownership in Aldell is approximately 533,000 Aldell founder shares and 321,000 warrants. FGF also recently announced that FG New America has closed on the acquisition of OpFi, a leading fintech platform. And FG New America now operates as OPFI effective July 21st. FG Financial holds 861,000 shares of Class A common shares of OPFI and 358,000 Class A warrants. On page 13, Firefly, which is a venture-backed private company focused on innovative street-level digital media advertising, is a company we invested in through the merger with our outdoor advertising business last year. Firefly is growing aggressively and recently announced the acquisition of Curb Taxi Media, making Firefly the dominant mobility media company in its market. Clearly, it's been a lot of activity and momentum over the past few months, and we're excited about the positive trends in our holdings as well as in our operating business. With that, I'll now turn the call over to Todd.