Fundamental Global Inc.

Q1 2023 Earnings Conference Call


spk00: Good morning and welcome to the FG Group Holdings First Quarter 2023 Earnings Conference Call. 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 phone 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.
spk01: Thank you. Good morning and welcome to FG Group Holdings earnings conference call for the first quarter ended March 31st, 2023. On the call today from FG Group Holdings are Mark Roberson, Chief Executive Officer, Todd Major, Chief Financial Officer, and Kyle Cermonera, Chairman of the Board of Directors. 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 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.
spk05: Okay, thanks, Jen. Good morning, and thanks, everyone, for dialing in. We're holding this quarterly conference call a few days later than our normal schedule. As I think most of you are hopefully aware, we are completing the spin-out IPO of Strong Globe Entertainment this week. So it's a busy week. This transaction, we believe, is an important step for the company. It transitions Strong Entertainment from a wholly-owned subsidiary of FG Group Holdings to an independent operating entity. And the shares of SGE began trading yesterday on NYSE under the ticker symbol SGE. As a leader serving the North American cinema market, as well as other industry verticals, we believe Strong is well positioned to accelerate growth with the industry in the midst of a robust rebound. And we're really on the front edge of a large new capital upgrade cycle with the conversion to Laser. The new Strong Studios division also adds an important additional growth driver to that business. And we're expecting M&A to also be an important element of Strong's growth strategy looking ahead. We could not be really more excited about the growth prospects as we look at Strong Entertainment. And operating now as a separate public company, that will provide Strong Entertainment with access to the capital markets, as well as the opportunity to execute on its growth potential with the goal of scaling it into a much larger company. If you flip over and look at slides three and four to start with in the presentation, overall at FGH, we have current capital currently allocated across several holdings. In addition to SGE, where we now hold 6 million shares, providing a more tangible and more easily measurable indicator of value going forward, we also have equity positions in three other operating companies, FT Financial, Firefly, and Green First. And through our digital ignition business, we own a 44,000 square foot building and 11 acres in Atlanta area. We retained that building from the sales conversion a couple of years ago. And as part of the strong entertainment spin FGH is also retaining ownership of the 80,000 square foot screen manufacturing facility in Quebec, which is being leased to SGE under a long-term operating lease. In the first quarter, the strong entertainment segment continued to see strong demand, really strengthening especially on the cinema side of the business. Our cinema screen revenues were up 23% for the quarter, and services revenue was up 36%. This growth in the cinema services and the screen revenue is really related to the increasing demand that's being driven by the accelerating rebound in the overall cinema industry. Our strengthening customer relationships and increasing market share, as well as the early ramp up of the laser upgrades, which we see is really just starting to drive the replacement for screens and demand for services. Flip it over to slide six. Looking at it from an industry standpoint, The domestic box office receipts grew about 64% in 2022. And the first quarter of 23 continued to outperform expectations, coming in at the highest quarterly level since 2019. The overall number of wide releases coming to theaters already scheduled is up 30 to 40% from 2022. And in addition to the studio releases, which are accelerating, it's really encouraging to see Amazon and Apple committing production to theatrical releases now, as opposed to sending all their content directly to Prime and Apple TV. With consumers returning to the movies and exciting new content coming to the big screens, we're seeing a solid tailwind behind the industry. If you look on slide seven, this is a sampling of our cinema customers and partners, and we remain focused on capturing market share. Internally, we've expanded our sales and operating teams over the last year, which has resulted in the addition of new accounts and stronger relationships with our existing customers. And we believe the rollout of laser upgrades will drive increased demand for screen replacements and services for the rest of 23, as well as into 24 and beyond. With that in mind, we've been adding to our headcount and we're training up new staff on the service side, as well as in our screen business to meet this demand. On the content side of the business, we launched Strong Studios last spring. That team's been very busy with several projects progressing nicely. Safe Haven's wrapping up post-production, and we expect episodes to be ready for delivery later this year. Additionally, we reacquired the global distribution rights to Flagrant, and we're actively out shopping that project now with producer Aaron Kaplan. And we see tremendous growth potential for Strong Studios as we create this library of projects, with the capability of driving both upfront revenue as well as backend royalty revenues. On slide nine, you can see the details of our equity holdings. FG Financial had a really nice first quarter generating positive net income with growth in its reinsurance premiums and continued expansion of its merchant banking platform. This included the formation of Craveworthy led by the former CEO, Jimmy Johns. It's a restaurant brand platform. It currently owns and operates and franchises seven distinct brands over 24 states. In addition, FG Merger announced its business combination with iCorp Connect, and FG Acquisition Corp announced its business combination with Think Markets. So a lot of progress at FG Financial during the quarter. And Green First recently announced several transactions to monetize their non-core assets, with the sale of private forest land for $49 million, And then that transaction was followed by the sale of two sawmills in Quebec for $90 million. Those deals further strengthen Green First balance sheet, bringing down the average cost per board foot of operations and allows the team to focus their attention and resources on the more valuable and more efficient Ontario mill operations. Overall, we're really pleased to see the accelerating progress in both our strong entertainment segment, now operating as a standalone public company, as well as our equity holdings as they execute on their strategic plans. Todd, you want to walk us through the financials?
spk04: Sure. Thanks, Mark, and good morning, everyone. I'll start on slide 11, which has our consolidated results for the quarter compared to the prior year. On a consolidated basis, most of the results for the first quarter of 2023 were consistent on a year-over-year basis. That being said, in nearly all of the operating results of Strong Entertainment, improved over the prior year as the industry momentum we benefited from throughout 2022 continued into the first quarter of 2023. As Mark mentioned, we saw growth in both our cinema screen products and service revenues in the current period, while the prior year benefited from several large non-cinema immersive product sales. As we previously stated, the first quarter is historically our slowest from a seasonality standpoint, so we expect the improvements we are seeing in Strong Entertainment to continue as we progress through 2023. Service revenues in the entertainment business increased as the demand from our cinema customers continued to strengthen. We're capitalizing on opportunities in the cinema services market by increasing the scope of our service offerings and are adding to our headcount to better support our customers and capital market share in this area. Gross margins on our product sales increased as the mix improved with a greater proportion of the revenue derived from our higher margin cinema screen sales in the first quarter of 2023. This improvement was offset by lower margins in the services business, where we incurred additional travel, overtime, and outside contractor costs to meet customer demand. The third-party screen installation costs are expected to be replaced with internal labor as we continue to onboard the recently added installation team, which is expected to improve margins on the services side as we move through the year. Our most recent balance sheet is on slide 12, The first thing I'll point out here is that with our cash on hand as of the end of March and the availability under our credit facility, we've continued to maintain adequate liquidity. In addition, net cash flows from our operations during the first quarter of 23 was the strongest since the third quarter last year. We marked the carrying value of our green first and FG financial equity holdings to market each quarter, and the value of our equity holdings at the end of the first quarter is reflective of the recent pullback across the broader markets. All three of our equity holdings continue to execute against their business plans, and as a result, we expect to see appreciation of the value of these assets. And lastly, our book value at the end of March was approximately $2.19 per share. That wraps up the quick review of the financials, and I'll flip the call over to Kyle for a few remarks.
spk02: Thanks, Todd. FT Group Holdings has built a strong portfolio of businesses and equity holdings that enable us to participate in the diverse and growing industries. While the current economic landscape is not without its challenges, with the breadth of our operations, we also believe there's a great opportunity to drive progress and success as we fully transition to a holding company. We're excited about what the future holds and remain committed to creating shareholder value. We're going to open it up for Q&A. Please ask any question and we'll do our best to answer it. Operator, can you open up for Q&A?
spk00: Thank you, Kyle. At this time, we are conducting a question and answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate your question is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please hold a moment whilst we poll for questions. Thank you, your first question is coming from Adam Liefdom, of Rising Tide Partners. Adam, your line is live.
spk03: Hey, guys. Thanks for taking my question. How should we think about the international opportunity for your business? Are you guys seeing opportunity in any particular overseas markets?
spk05: Yeah, Adam. Hey, thanks for the question. Good morning. Yeah, we're pretty excited about the international markets. As you probably know, and we've said this many times, in North America, In the entertainment business and strong entertainment, we have truly a dominant market share across the screens and service side of the business in this region. When we look outside of this region, we see a lot of opportunity for us to leverage that position and really grow the market share, particularly in Asia as well as in Europe. We've established finishing and warehousing operations in both of those regions over the past year or so. And, you know, particularly in Europe, we're starting to see, you know, real signs of acceleration in the cinema market there, as well as, you know, the beginnings of the conversion to laser, you know, our investments in, you know, the facility and the local operations there, as well as some local sales and operational resources on the ground are really starting to bear some fruit. It takes a little time, but it's starting to really come through. You know, we were recently at the trade show in Baden-Baden, and the guys were there, and there's another trade show coming up in Europe in Barcelona in June. And given the activity that we're seeing in the region, I would be very surprised if you don't see some decent customer announcements from us in the near future, and really an increase in our share of revenue coming from the European and Middle Eastern regions going forward.
spk03: Got it. Got it. Great. Thanks for taking my question. Thanks, Adam.
spk00: Thank you very much. Just as a reminder, if anyone has any remaining questions, please press star 1 on your phone keypad now. Okay, there don't appear to be any further questions in the queue. I will now hand back over to the management for any closing remarks.
spk05: Thanks again, and thanks for joining us this morning. If you do have additional questions, feel free to reach out directly to the team here, and we're happy to take your calls and talk to you at any time. So thanks again. Look forward to talking some more.
spk00: Thank you, everybody. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.

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