Ballantyne Strong, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Ballantyne Strong Inc. Second Quarter 2022 Earnings Conference Call. All participants are in 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 your telephone keypad. To withdraw your question, please press star then two. Please also note this event is being recorded. And now I'd like to turn the call over to John Nesbitt of IMS Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Ballantyne Strong's earnings conference call for the second quarter ended June 30th, 2022. On the call today from Ballantyne Strong are Kyle Sermonera, Chairman of the Board, Mark Robertson, Chief Executive Officer, and Todd Major, Chief Financial Officer. There's also a slide presentation that management we'll be referencing that is available in the investor relations section of the Valentine 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. 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 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, John. Good afternoon, and thanks for joining today. Before we jump into the details for the quarter, we'll just step back and throw out all context starting on slides three and four of the PowerPoint. Now, Ballantyne is a holding company. We have operating businesses and real estate holdings primarily in our strong entertainment group. And our equity holding portfolio includes FG Financial, Green First Forest Products, and Firefly. Overall, we've seen a strong post-COVID rebound, and our business has really been performing well, with consolidated revenues increasing by 50% to $9.1 million for the quarter and 76% to just over $19 million on a year-to-date basis. This increase in our revenues has been directly correlated to the recovery in the entertainment industry, particularly in the cinema space, with increase in both the quality and content of studio content driving record-breaking box office results for our customers. On the slide deck, if you refer to slides 3 through 10, we'll walk through the entertainment business. Our strong entertainment operating business is the largest supplier of cinema screens in North America. We're a market leader in managed services, and we recently launched a new content division. With the macro climate becoming more favorable and the backlog of movies coming to the cinema increasing, we're seeing our cinema customers starting to do two very important things. Number one, they're relying more heavily on outsourced technical support and services rather than hire and build up staffing internally. And two, they're beginning to accelerate capital investments, particularly as it relates to the upgrade cycle from xenon projection to laser. Cinemark, for example, started a 10-year project to upgrade all of their cinemas to laser prior to COVID, and we're now seeing them restart those projects. AMC announced just this spring that they would be starting the first phase of their laser upgrade this summer. And without getting too deep into the technical aspects of laser versus xenon, what we're seeing is as the industry recovery continues, we're seeing exhibitors starting to deploy capital on upgrades like laser projection, as well as other investments to drive the customer experience. The increase in laser projection was a positive catalyst for both our screen business and for our service and distribution revenues, and we expect the laser upgrade cycle to be a positive industry catalyst for at least the next several years. As we see demand for projection and audio equipment increasing, We're also seeing increased service installation demand, and our recurring monthly revenue maintenance contracts are largely back to pre-COVID levels now, with project and installation revenues starting to pick up as well. Our Eclipse immersive screens were a significant contributor to the first half results, primarily from the military projects. Eclipse was a larger contributor in the first quarter for our screen business, And we started to see the product mix shift actually more heavily towards cinema in the second quarter, which we believe is a good sign for the second half of the year as exhibitors prepare for the large slate of releases, including the next installment of Avatar, and increase their investments in projector and screen upgrades. Strong Studios, which adds content and opens up new growth opportunities, is a new line of business for the entertainment group. We acquired a portfolio of projects and started production on one of those projects, Safe Haven, this summer. We're working on several other projects, both from the acquired portfolio as well as adding other new projects. Our overall business model and the goal with Strong Studios is to utilize co-production and distribution pre-sales as well as refundable tax credits for production funding, which minimizes our capital at risk as we build out the content library. creating both near-term revenue as well as longer-term value. We're partnering with other production companies and production services companies on these early projects, which minimizes our capital at risk and increases our ability to execute and be nimble with minimal fixed staffing. Over time, we expect this business to evolve into a meaningful revenue producer for the entertainment group. Turning to our equity holdings on slides 11 through 14, We increased our stake in FG Financial this quarter and hold 2.9 million shares, or approximately 31% of the common shares outstanding. FG Financial has continued to invest in expanding its reinsurance and its SPAC platforms. So far this year, FGF has completed two SPAC IPOs, FG Merger Corp and FG Acquisition Corp, and are currently evaluating acquisition targets. FGF's reinsurance business is patiently deploying capital and entered into two new contracts this year. FGF also holds equity stakes in Hagerty and OpFi as a result of completed SPAC transactions from 2021. We hold $13 million in preferred equity in Firefly, which is a private VC-backed company, and we acquired those shares through our sale of Strong Outdoor last year. Firefly has continued to grow and innovate post-COVID, They announced a new program with Hyundai just recently where Firefly will be able to enroll professional drivers and fleet operators at the point of purchase, and drivers can earn advertising revenues which helps to subsidize their purchase of the vehicle. In July, Firefly also announced their entry into the European market with the acquisition of Ubiquitous, which is the UK's leading taxi advertising company. Ubiquitous has been a leader in the outdoor advertising for over 40 years. And they've been focused on using technology and data analytics, which improves their advertising effectiveness and fits right into the Firefly visual advertising and digital transformation strategy. We hold 15.3 million shares in GreenFirst, which is traded on the Toronto Exchange. Following the transaction last summer, where GreenFirst acquired the lumber assets and saw mills from Rainier, it's now a leading lumber producer in Canada. and has the capacity to produce over 9 million board feet annually in central Canada. This quarter, another large player in the North American lumber market, Inter4, announced today it acquired a property 16% stake in Green First. We believe Green First is well positioned, both in the current cycle as well as for the longer term. Overall, the entertainment industry reopening is accelerating. The backlog of movies coming to the cinema is unprecedented, and our revenues have rebounded as a result. We're entering a major capital upgrade cycle that will drive spending over the next five to ten years, and we're well-positioned to gain share domestically and internationally looking ahead on both the screen as well as the services side of the business. And the upside on Eclipse and the additional strong studios further increases our growth opportunities. With regard to the planned spinoff of the entertainment group, a registration statement on Form S-1 is on file with SEC. In terms of timing of the IPO, for the group, we're evaluating market conditions as to the appropriate timing, and we'll continue to do so on an ongoing basis. And I'll turn it over to Todd.