Ballantyne Strong, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Ballantyne Strong, Inc. First Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To join the question queue, press star, then one on a touchtone phone. To withdraw yourself from the queue, press star, then two. Please also note this event is being recorded. And now I would like to turn the call over to Jen Belladeau of IMS Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Ballantyne Strong's earnings conference call for the first quarter ended March 31st, 2022. On the call today from Ballantyne Strong are Mark Robertson, Chief Executive Officer of and Todd Major, Chief Financial Officer. There is also a slide presentation that management will be referencing that is available on the investor relations section of the Ballantyne Strong website. 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 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 on today's call. Risks and uncertainties are also described in the company's SEC filing. 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 post 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 Robertson. Go ahead, Mark.

Thanks, Jen. Good afternoon, everyone, and thanks for joining the call today. On our year-end call about a month and a half ago, we discussed the positive momentum we were seeing in our entertainment business as well as in our equity holdings. If you're following along with PowerPoint, I'll start on slide 45 to go through the quarter. This year is off to a strong start, and Q1 revenues are more than double from where they were last year. We're witnessing a robust reopening recovery in cinema, and the current outlook for entertainment business continues to be strong. Revenues increased 110% for the quarter to just over $10 million. while EBITDA and results from continuing operations improved 83% and 68% on the flow through from the resurgence in the cinema space. As we look ahead to the rest of this year and beyond, we expect those industry trends to continue to provide a favorable backdrop. Moving to slide seven through nine, over the past couple of years, we've been working hard to diversify our revenue streams in the entertainment business So in addition to the rebound in revenues from our cinema customers, our Eclipse product line, which is for immersive theme parks and simulators, also continued to generate growth. And most recently, we added content with the addition of Strong Studios, which we expect to be a meaningful contributor going forward. Two weeks ago, all the major exhibitors and studios gathered together in Las Vegas for the annual CinemaCon trade show. It was kind of a reunion with the industry finally back together in large numbers. And there was a tangible level of increased optimism and confidence coming from both the exhibitors as well as from the studios. There were several key referring themes from the conference that I thought were useful and would like to share with you. Number one, people are coming back to the cinema and are coming back in large numbers. Box office results are strong and breaking records. Sony, for instance, reiterated that from August of last year, which was the last CinemaCon, through this March to this CinemaCon, they generated over $3 billion at the box office. IMAX and Cinemark have announced record-setting box office performances. Spider-Man No Way Home was the sixth largest global opening ever. Just this past weekend, Doctor Strange drove large audiences back to cinema and was the second largest opening weekend since COVID started. Yesterday, AMC reported its revenues were up 5x. Two, the major studios were all united in voicing their commitment to the theatrical experience. During COVID, there was a lot of well-publicized experimentation with direct-to-streaming and day-and-date releases and other models. Without exception, the major studios all expressed their commitment to the theatrical window. and the reality that blockbuster releases generate more revenue and profit when they can have multiple bites of the apple and create a strong opening in the theater. For cinema customers, that's obviously welcome news, and it's really just part of the continuing evolution as exhibition and streaming coexist and optimize the revenue opportunities for each project. Three, the backlog of new blockbuster releases coming this year and future years is enormous. We just had Dr. Strange open up, as we mentioned this past weekend, to really strong numbers. We have Top Gun coming out at the end of this month. And as you look out, the slate of content to The Feminist doesn't show any signs of slowing down. We've got Thor, Black Panther, Flash, another Venom, Aquaman, their sequels to Jurassic Park, a couple of Mission Impossible, Transformers, a new Buzz Lightyear, continuing the Toy Story lineage. And there are many, many more that I won't try to name. And then we also have the re-release of Avatar in September, which will be followed by the new Avatar, Way of Water, which will close out the year in December. And word is that James Cameron is already completing production or working on production on three additional Avatar sequels that will follow. And if you recall, the original Avatar drove a meaningful upgrade cycle in industry 10 years ago when it first came out. And as the industry confidence is returning, We're also seeing exhibitors starting to reinvest in their businesses again. AMC just announced a major upgrade to laser projection. As you may recall, we are the exclusive supplier of screens to AMC, and we're excited to support them as they invest in bringing the best premium experience to their audiences. We would expect this first round of upgrades in the middle to back half of the year, and believe this represents the first phase of a longer cycle. Cinemark, who we also supply on an exclusive basis, has also committed to upgrading all of their cinemas to laser as well. So coming out of COVID, with industry beginning to reinvest and with our leadership position, we feel that we're well positioned. Moving over to slide 10, our Eclipse immersive screen business has continued to perform well, and we continue to explore additional unique applications for paints and coatings in that product line. The Navy Simulator projects have been a nice addition. We've completed two projects recently and have several more coming over the next couple of years. And again, the Eclipse line is a smaller but potentially faster growing part of the screen business. And it's one where I believe we're really just getting started on marketing and creating awareness in the market for the Eclipse line. On slide 11, with our services business, We're also seeing demand pick up. Our recurring monthly revenue maintenance contracts are back to pre-COVID levels now. And project and installation work are starting to pick up as well. We're also seeing increased demand for sales of projection and audio equipment as exhibitors are upgrading to improve the consumer experience and starting to prepare for the upcoming releases. We're also striving to become a broader one-stop shop and increase our share of business with our existing customers. With the laser upgrades, for example, we're working to capture a broader array of project management and installation activities that we really haven't done in the past, which should provide a complimentary boost to our service revenues as well as screen as we support the laser upgrade project. Moving over to slide 12 and 13, with the announcement of the launch of Strong Studios this quarter, We're excited to add content as a new line of business in the entertainment group. This opens up a brand new growth driver for the business. As you may recall from our last year-end discussion, we acquired a portfolio of 12 projects from Chicken Soup as part of the deal. We plan to start production on two of those projects in the coming months. They're already greenlit and ready to go. For those two projects, we've licensed the distribution rights to screen media and in return for a $9 million minimum revenue guarantee upon delivery. Our overall business model and the goal with Strong Studios is to build our content library over time and to do so in a financially disciplined manner. We'll be utilizing co-production and pre-sales to secure production funding while we're building out the content library, creating both near-term revenue as well as longer-term participation and value. Moving over to slide 15 and 20, we'll talk about equity holdings. In addition to the entertainment business, we hold equity stakes in three operating companies, Green First Forest Products, FG Financial, and Firefly. Green First reported its first quarter, which was profitable, I might add, since completing their acquisition. We hold 15.3 million shares, and Green First is a leading lumber producer in Canada. with the capacity to produce over 900 million boards each annually. We believe Central Canada is a great place from a lumber supply standpoint and believe Green First is well positioned both in the current cycle as well as in the longer term. Green First recently uplisted at the TSX, and just last week Interfor, which is one of the largest lumber producers in North America, announced that they had acquired a 16% stake in Green First. We view Interfor's investment as a positive long-term indicator for holding a green purse. FG Financial continued to expand its reinsurance SPAC platforms. Again, we hold 1.6 million common shares with FGF. During the quarter, FGF completed two SPAC IPOs. Those are the third and fourth IPOs supporting FG's SPAC strategy. If you recall, Alldale completed its business combination with Hagerty in December of And FG New America completed its combination with OpFi back in July. Additionally, FG's reinsurance business is patiently deploying capital, and they entered into two new contracts as well. We also hold shares of Firefly, which is a private VC-backed company. Firefly continues to grow post-COVID and continues to be innovative. They recently announced a new program where they're partnering with Hyundai have Firefly's in-car as well as their on-screen screens installed, generating advertising revenue to subsidize for fleet and drivers. Firefly will enroll professional drivers and fleet operators when they purchase new Hyundai vehicles in the program so that the drivers can earn advertising revenue to subsidize the cost of the purchase of the car. Just another way that Firefly is intending to build their relationships and strengthen their position as well as driving scale. As they continue to grow and eventually look towards a form of liquidity event, we believe the firefly holding could deliver significant upside potential for us down the road.