Strong Global Entertainment, Inc. Class A Common Voting Shares

Good afternoon and welcome to the Strong Global Entertainment Earnings Conference Call for the third quarter 2023. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jen Belladeau of IMS Investor Relations. Jen, you may begin.

Thank you. Good afternoon and welcome to Strong Global Entertainment's earnings conference call for the quarter ended September 30, 2023. On the call today are Mark Roberson, Chief Executive Officer, and Todd Major, Chief Financial Officer. I would like to remind everyone that there is a slide presentation accompanying today's presentation that can be accessed on the Investor Relations section of the company's website. Before we begin, I would 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 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 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'll turn the call over to Mark Robertson. Go ahead, Mark.

Thanks, Jen. Good afternoon and welcome to what is our second investor call since we completed the initial public offering back in May. At Strong Entertainment, we are the go-to partner for the cinema industry, and we're continuing to execute on our growth initiatives. We're seeing sustained demand from exhibitors for laser upgrades and other investments in upgrading to premium cinema. We're in the early stages of that cycle, and we see these trends continuing for the next several years. Our strong technical services team has done a really nice job listening to our customers, you know, tailoring our services to meet their needs, and increasing our market share. Installation revenues is just one example, are up over 68%, as you can see on slide five. And we added additional services and resources to help support our customers' upgrade and with their retrofit initiatives. Our screen business continues to perform. Laser upgrades are driving steady demand from our cinema exhibitors. The team is also expanding our non-cinema offerings, rolling out new products like our seismos flooring and our Ryan optical tiles. The seismos flooring is a new product that came, again, from listening to our customers and designing solutions to meet their specific needs. We introduced the new flooring product earlier this year, and we're already starting to see a contribution in revenue. We're also continuing to develop our content IP portfolio and our production services capabilities in our studios unit. Over the past year, we've spoken quite a bit about M&A as being a key component of our growth plan. We have a strong core business, and our objective is to leverage that foundation, add scale, and transform Strong into a much larger entertainment company. As an initial step in that direction, We closed our first two acquisitions recently. Unbounded closed in September, and this acquisition strengthens our production services capabilities and our content business. And just this week, we just announced the acquisition of Innovative Cinema Solutions, which provides additional scale and resources in our cinema services team. These are two very different deals, and we'll talk more about them in a moment. But the overall commonality is that we're doing what we said we'd do. We're driving organic growth and we're scaling the company through selective M&A. Acquisitions aside for a moment, the core services and screens business continue to perform nicely. The key organic growth drivers in our view include the continued overall resurgence in the cinema industry and the rebound in the box office. This is particularly evident at the premium end of the market. the increasing pace of laser upgrades and other enhancements to deliver a premium immersive experience, our strong and sometimes exclusive relationships and our increasing geographic reach, and the expansion and diversification, including the addition of studios and new products for non-cinema immersive applications. The industry backdrop continues to strengthen with exhibitors reporting growing revenues and improved financial results The box office continues to perform well, and we're seeing the industry evolve and adapt. We're seeing things like live events. Taylor Swift is one example. More flexible windowing. We now have Apple and Amazon developing content for both streaming and cinema. If you review the latest quarterly investor calls for folks like IMAX or Cinemark, for example, it's interesting to hear their view on the industry, and especially how the performance of premium large format auditoriums is driving their numbers. Premium auditoriums are over-indexing relative to the overall box office, and when consumers go to see Oppenheimer or Taylor Swift or Dune, for example, they want to see it on a large screen in an immersive environment with the best sound quality possible, and they're willing to pay a premium for it. Consumer demand for premium experience is driving, and we believe it will continue to multi-year cycle as exhibitors retrofit and upgrade existing venues and invest in laser projection, premium screens, and sound. In our studios business on slide eight, we have several projects under development. If you recall, we realized our first meaningful revenue transaction in that business last quarter with the sale of a portion of the IP for Safe Haven. Now, we also recently announced that we're developing Endangered, which are out shopping now and are receiving strong interest in the market. Our model, and this will be true for Endangered, is to develop projects and produce them only when we've received funding through presales, minimum guarantees, and other sources. That model minimizes the capital allocation and overall risk while creating a valuable IP portfolio. Moving to the recent acquisitions on Slides 9 and 10, Unbounded was our first deal post-separation. Unbounded was a strategic acquisition that positions our studios group with the resources and capabilities in the production services area. This is a small team with deep experience and represents a really nice step in our M&A strategy. We expect to begin seeing revenue contributions from Unbounded in 2024. And more importantly, we intend to use this as the tip of the spear in building a larger production services business. We also, as we just said, closed the acquisition of Innovative Cinema Services this week and are really excited about quickly onboarding the team there. This transaction adds immediate revenue and additional scale in our services group. ICS has historically generated over $6 million in annual revenue, and we have the ability to expand that number next year as we integrate their operations in our service group and we leverage their services across our customer base. So overall, we're very excited about the outlook. for the business, and we expect to see continued positive momentum. Todd?