Ballantyne Strong, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Ballantyne Strong, Inc. Third Quarter 2021 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's conference is being recorded. I would now like to turn the call over to John Nesbitt of IMS Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Valentine Strong's earnings conference call for the third quarter ended September 30th, 2021. On the call today from Valentine Strong are Mark Roberson, 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 expectation as of today, and the company is under no obligation and 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 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-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 of our financial reporting before making any investment decisions. At this time, I'd like to turn the call over to Mark. Okay? Go ahead, Mark.

Thanks, John. Good afternoon, and thank you for joining us today. I'm pleased to report that the entertainment industry and our entertainment operating business continue to make meaningful progress, and our equity holdings continue to drive value. Box office results so far this fall have been encouraging, and in some cases, record-breaking. The slate of studio releases coming out over the next 24 months is impressive, and we believe those trends foretell a robust entertainment environment for 2022 and beyond. Our capital allocation strategies, namely our minority stakes in Green First, FG Financial, and Firefly, are well positioned, and we're excited about the potential capital appreciation opportunity in each of those holdings. This quarter, we began marking our Green First investment to market, reporting a pre-tax unrealized gain of $8.4 million based on the current market price as of September 30th. The combination of positive momentum in the entertainment operating business, controlled operating expenses, and the unrealized appreciation in our equity holdings resulted in significantly improved operating results with operating income near break even, positive net income and positive adjusted EBITDA, and EPS coming in at 38 cents per share for the quarter. On slides 5 through 11 of the presentation, Strong Entertainment is an established leader in the entertainment business. We have an industry reputation that's been built over the past 80 years. We have exclusive arrangements with IMAX, Cinemark, and we provide equipment and services to the majority of the cinema operators in North America. This business has historically produced solid and stable cash flows for many years. Obviously, COVID had a major impact on the industry and also on our business. We're now starting to see things strengthen and believe we're in the early innings of a robust recovery. As vaccination rates have continued to climb and government restrictions have continued to subside, consumer demand for all forms of entertainment and excitement about returning to the cinema has continued to strengthen. And the flow of high quality content into theatrical exhibition is expected to accelerate. IMAX reported their September box office had recovered and actually surpassed their pre-COVID September 2019 September results, with Shang-Chi and Free Guy leading the way. IMAX then broke their own all-time record in October on the global releases of Dune and Bond. Cinemark also recently announced that Venom was its best October opening ever. So, clearly, folks are coming back to the cinema. and industry revenues are starting to reflect increase in quality content from the studios. In addition, cinema operators are becoming more creative with new ways to leverage their investment with private showings, local language content, sporting events, and esports, among others, starting to find their way into the cinemas. Consumer demand for moviegoing remains strong, and the release schedule for the remainder of 2021, and especially 2022, is impressive. The Eternals, Ghostbusters, the latest Spider-Man, and Matrix are all on tap to close out the year. For 2022, the slate is even stronger with Doctor Strange, Thor, and Black Panther from Marvel, Batman, Flash, and Aquaman from DC, and new sequels for Jurassic World, Mission Impossible, Transformers, Top Gun, and Avatar, among others on deck for theatrical release. And 2023 is starting to take shape as well. We believe the backdrop is favorable for the industry rebound to accelerate as we look ahead for the next several years. In addition to our strong legacy in the cinema vertical, we've also been increasing the level of diversification in our screen business. Because we manufacture our own coatings and have in-house R&D capabilities, we've been able to expand our product line with the Eclipse immersive screens for theme parks and simulators. And our Eclipse business has been growing throughout COVID and is on target to double in 2021. And we've also been able to start selling paints and coatings and other screen products into more non-cinema attractions, such as the Van Gogh exhibits and the Illuminarium. These are growth areas that diversify our revenue and provide additional expansion opportunities. Because of our reputation for innovation, service, and quality, We've built strong relationships with industry leaders like Cineonic, iMac, Cinemark, Marcus, AMC, and many others. As part of the focus on innovation, we've been working to optimize our screens for laser projection. Laser projection provides meaningful operational efficiencies for the operator while also enhancing the premium experience for the viewer. We see the transition to laser from Xenon driving a lengthy upgrade cycle in the industry. As just one example, Cinemark has publicly stated that they plan to upgrade all their screens to laser projection over the next 10 years, and they're currently less than 10% into that cycle. On the services side, we're a leading provider of technical support, installation, and managed services. We see demand for services and distribution products increasing as studio releases and box office revenues accelerate. Service revenues increased 43% in this quarter as compared to the third quarter of last year. We're working to increase our market share post-COVID and see a favorable landscape for expansion. We expect to see outsourcing of technical services increase for exhibitors. especially as demand from the heavy slate of upcoming releases begins to put more pressure, more operational pressure on the cinemas. Moving on to our equity holdings, which is slide 12 through 15 of the presentation, Firefly, Green First, and FG Financial continue to execute their strategic plans, and we're excited about the potential future appreciation in the portfolio. Starting with Green First, which completed its acquisition of the lumber assets of Rainier Advanced Materials in August, making it one of the 10 largest lumber producers in Canada. We participated in the rights offering to backstop the acquisition, allocating additional capital to increase our position from 7 million shares to 15.3 million shares. We're bullish on the outlook for Green First, and we look forward to participating in their long-term success. We also hold 1 million shares of FG Financial. FGF recently launched its SPAC platform and has closed its first SPAC transaction with OPFI and also announced a merger agreement with Hagerty in its second SPAC. After the end of the quarter, FG Financial completed a $2.6 million capital raise and is commencing a follow-on rights offering under the same terms as the public offering. We intend to fully participate and plan to commit additional capital to the FGF rights offering to increase our stake. Firefly is also gaining momentum coming out of COVID. Their revenues have been increasing, and they've been successful in raising additional growth capital. Firefly recently announced the acquisition of Curb Taxi Media, making it the dominant mobility media company in the New York market. As Firefly continues to scale, and eventually looks towards a liquidity event, we believe this holding could deliver significant upside potential. Overall, a solid quarter, and we believe trends are strengthening as we look ahead. With that, I'll turn the call over to Todd.