Ballantyne Strong, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Ballantyne Strong, Inc. Third Quarter 2022 Earnings Conference Call. We'll open the floor for your questions and comments after the presentation. If you do have a question or a comment, you would simply hit star 1 on your touchtone phone. Pressing star 2 will remove you from the queue should your question be answered. 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, 2022. On the call today from Valentine Strong are Mark Robertson, Chief Executive Officer, Todd Major, Chief Financial Officer, and Kyle Sermonara, Chairman. 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 that differ materially from those described in today's call. Risks and uncertainties are also described in the company's SEC filings. Today's presentation discussion also contained certain 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 Invest Relations section of the website. Our non-GAAP measures may not be comparable to those used in other companies, and we encourage you to review and understand all our financial reporting before making any investment decisions. At this time, I'd like to turn the call over to Mark. Please go ahead, Mark.

Thanks, John, and good afternoon. If you're following the PowerPoint, we'll start on slides three and four. As most of you already know, Ballantyne is a holding company, and we currently have four primary business holdings. We're the leading supplier of projection screens and managed services in our entertainment segment, and we've allocated capital to equity holdings in real estate and currently have three primary equity holdings, FG Financial, Firefly, and Green First. We also have a real estate holding in Georgia with our digital ignition business that we're incubating, And you'll start to hear more about that line of business as well soon. There are a few key themes to keep in mind as we go through today. We are, again, the largest producer of premium cinema screens in North America, and we're a leading provider of managed services in our entertainment business. Business has been growing with Q3 revenues up 68%, and we see several exciting growth catalysts in that entertainment segment. Our equity holdings each have unique value propositions and growth drivers, and the potential for meaningful capital appreciation. That said, we're currently trading at a discount to book value and to the sum of our parts. Starting first with entertainment operating business, we've seen business levels really improving through the year, and we expect to finish the year strong as exhibitors are gearing up for the release of Avatar 2 at the end of the year, and are expecting a robust 2023 content schedule and are also commencing on a major multi-year capital upgrade cycle. We've been strengthening our industry relationships and positioning the business for accelerated growth post-COVID. On slide six, the six largest exhibitors in North America, which account for over 70% of the screens in the region, are all customers of Strong Entertainment. In addition to the six largest exhibitors shown here, we've literally hundreds of other equally important regional and independent exhibitors and other customers. I would note that we supply AMC, Cinemark, and IMAX with all of their screens on an exclusive basis, and we've been strengthening those relationships even more over the past couple of years. We believe those relationships are important for growth, both as the box office and industry returns to post-COVID levels, and as the upgrades from xenon projection to laser projection begin to accelerate and drive capital spin in the industry. First, with regard to the industry and the box office, we saw a very strong recovery this summer, and it was really driven by a handful of large blockbusters. As we close out this year, we see a strong finish ahead with Black Panther and Avatar 2 closing out the year, And then looking ahead, expectations for next year in the industry are that the box office will be much stronger and the content is much broader and more diverse. There are some familiar names and blockbuster releases scheduled for the next 12 months. Some of those include John Wick, Captain Marvel, the next Indiana Jones sequel, Guardians of the Galaxy, Dune, Little Mermaid, Fast and Furious 10. There's a Hunger Games prequel. And then Tom Cruise is back with the first of two Mission Impossible sequels. So 2023 looks to be a very solid year for theatrical. Turning to slide eight with regard to the laser upgrade cycle, this is a really big deal for the industry and it's a big deal for us as well. We're already starting installations this past quarter as AMC began their initial upgrades really focused on the New York and California markets. of AMC's first 3,500 planned upgrades will complete around 150 to 200 this year. So there's a long way to go, and I expect we'll be deeply entrenched with those projects for the next several years at least. Cinemark is also underway with their plans to change over 100% of their circuit to laser. And we're starting to see some of the other exhibitors just now gearing up and starting to follow suit. This is one of the most important catalysts in the industry in the past 20 years, and it's going to drive industry spin over the next five to 10 years on projection, audio, screens, and services. We spent the past several years optimizing our screens and optical coatings for laser projection, and we've been expanding our services. As a preferred partner for Cineonic, who's the leading manufacturer of laser projection and the exclusive supplier to many of the largest exhibitors, as we mentioned, We believe our screen and services business is very well positioned. Turning to the studios business on slide nine, Strong Studios is a new line of business for Entertainment Group, and it adds content and opens up meaningful new growth opportunities. We acquired a portfolio of projects, and we started production on two of those already, Safe Haven and Inside the Black Box. Safe Haven wrapped principal photography recently, and I would expect the first 10 episodes to be completed and delivered in the first half of 2023. Inside the Black Box also completed and is now in the process of delivering 10 episodes, and those are expected to air on Crackle before the end of this year. So as you can see on slide 10, we've been working on several other projects, both from the acquired portfolio as well as adding additional projects to the pipeline. And the overall business model here and the overall goal of Strong Studios is really to build a content library, creating longer-term royalty revenue streams, while also utilizing co-production, distribution of pre-sales, as well as refundable tax credits to minimize our capital at risk and drive near-term revenue. Over time, this part of the business has the potential to scale immensely and emerge into a very meaningful growth engine for the entertainment group. Turning now to the equity holdings on slides 12 through 14, our equity holdings each have unique value propositions and growth drivers and potential for meaningful capital appreciation. At FG Financial, FG recently announced the launch of its merchant banking platform. Over the past year or so, FG has been busy building its reinsurance team and has already completed seven loss cap reinsurance contracts. On the SPAC side, They've forged four SPAC transactions with OpFi and Hagerty now complete and two SPACs IPO this year. Those are all compelling assets, but more important is really the team and the platform that FG Financial is building as it evolves into an asset management and merchant banking business and scales over time. During the third quarter, we transferred our shares of FGF common stock into an LLC, which collectively will hold over 60% of the outstanding shares of FGF. This LLC is an equity method investment and was structured to be a good asset under the 1940 Act for Ballantyne, and it provides a means to finance future purchases of FGF stock outside of the Ballantyne capital structure to the benefit of shareholders of Ballantyne. Firefly, as you may recall, is a private venture-backed mobile media company, and we're invested there alongside Google Ventures and FX, We merged our digital advertising business into Firefly to attain our position, and we've been really pleased with our growth. Firefly has grown significantly since our deal, and they're now in over 10 major markets. They announced a new program with Hyundai over the summer where Firefly is enrolling professional drivers and fleet operators at the point of purchase at the dealership, so basically drivers can earn advertising revenue to help subsidize their car purchase. In July, Firefly also announced their entry into the European market with the acquisition of the UK's leading taxi advertising company. As Firefly continues to grow and acquire, they're also able to amplify the revenue per top as they convert from non-digital to digital, and this really multiplies the revenue potential as they enter new markets. GreenFirst has been performing exceptionally well. Following the transaction last summer, you know, GreenFirst has evolved from a small shell to one of the leading lumber producers in Canada with a capacity to produce over 9 million board feet. In the second quarter, Green first reported net earnings of almost 30 million and adjusted EBITDA of over 50 million. They also just today announced the sale of their private forest land for 49 million. So they're performing very well. They're generating cash, monetizing non-core assets, and reducing debt at a very nice rate. This is also an industry that has seen quite a bit of M&A recently. so we're watching that closely. Overall, our equity holdings represent meaningful intrinsic value and growth potential. And in our entertainment operating business, we're seeing a rapid rebound in revenue growth, and we believe we're well positioned for strong 2023, with the box office looking strong and the laser upgrade cycle in its infancy. With that, I'll turn it over to Todd.