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Edited Transcript of BTN earnings conference call or presentation 14-May-19 8:30pm GMT

Q1 2019 Ballantyne Strong Inc Earnings Call

OMAHA May 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Ballantyne Strong Inc earnings conference call or presentation Tuesday, May 14, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Kyle Cerminara

Ballantyne Strong, Inc - Executive Chairman & CEO

* Mark D. Roberson

Ballantyne Strong, Inc - Executive VP & CFO

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Presentation

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Operator [1]

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Greetings. Welcome to the Ballantyne Strong First Quarter 2019 Earnings Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Kyle Cerminara, CEO (sic) [Mark Roberson, CFO]. Mr. Cerminara (sic) [Mr. Roberson], you may begin.

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Mark D. Roberson, Ballantyne Strong, Inc - Executive VP & CFO [2]

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Good afternoon and welcome to Ballantyne Strong's earnings conference call for the first quarter ended March 31, 2019.

During today's call, we will make forward-looking statements regarding trends, strategies and anticipated performance of the business. These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook, except as required by law. These statements are subject to a number of risks and uncertainties. Actual results may differ materially from management's expectations. Please refer to the risk factors in our most recent Form 10-K and Forms 10-Q filed with the SEC.

Today's presentation and discussion also contains references to non-GAAP financial measures. The full definition, GAAP comparison and a reconciliation of these measures are available in Ballantyne Strong's earnings press release. Our non-GAAP measures may not be comparable to those used by other companies. We encourage you to review and understand all of our financial reporting before making any investment decision.

With that, let me turn call the over to Kyle.

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Daniel Kyle Cerminara, Ballantyne Strong, Inc - Executive Chairman & CEO [3]

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Hello. Good afternoon and thank you for joining us today.

Similar to last quarter, I want to take a few minutes to give you an overview of the company. We have 3 operating businesses and also hold several other strategic assets under the Ballantyne Strong holding company. Our Strong Cinema business is the largest producer of premium screens in North America and a major provider of managed services to the cinema industry. In business for more than 80 years, we've established a strong market position with the largest exhibitors in the industry. This is a strong cash flow business operating in a consolidating industry.

Convergent is a premier provider of interactive digital signage and managed services to large enterprise customers in North America. This is a high-margin recurring revenue business where we see significant growth opportunities.

Strong Outdoor is a new line of business that we started in 2018, providing outdoor advertising services and experiential marketing services. This business is emerging from the start-up investment stage, just recently starting to generate revenue.

We also have investments in 1347 Property Insurance Holdings and Itasca Capital. PIH recently announced the sale of its homeowners insurance business to FedNat Holdings for $69 million, which includes a mix of cash, stock and the repayment of debt. PIH expects to maintain its public listing and pursue opportunities in reinsurance, investment management and other investment opportunities. The deal is expected to close in June 2019, and book value at closing is expected to be approximately $8.61 per share. Itasca holds a preferred security in a partnership that holds shares of Limbach Holdings whose shares have appreciated from below $5 per share to over $8 per share over the last few months.

As we've previously discussed, we see Ballantyne Strong evolving into a holding company and ultimately operating as a publicly traded private equity investment platform. We've had conversations with numerous parties about each of our businesses, both directly and through an investment bank that has been engaged for M&A opportunities. We believe there are attractive opportunities to monetize parts of our businesses, acquire or merge with other companies, but we're actively evaluating those opportunities. We'll continue to evaluate merger, sale and acquisition opportunities for each of our businesses. And as we've said before, we'll only pursue deals that we believe add value for our shareholders.

With that, I'd like to turn over to call to Mark to walk you through our results.

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Mark D. Roberson, Ballantyne Strong, Inc - Executive VP & CFO [4]

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Thanks, Kyle. As we review the financial results for the quarter, please refer to the press release distributed today.

Overall, we saw strong revenue growth at Convergent and at Strong Outdoor as both of those lines of business continued to gain momentum. Revenues in our Cinema business were lower in Q1. The Quebec area saw heavier-than-normal snowfall this winter, and as a result, a section of our Joliette facility where we weld and seam our cinema screens sustained significant roof damage from the weight of the snow. This was an older part of the plant, and we are fortunate to have backup capacity in the facility where we were able to shift production while taking time to rebuild the affected section. However, revenues and contribution were negatively affected in the quarter as we temporarily closed the facility for several weeks.

We carry comprehensive insurance programs, and the carrier has informed us that they have set internal insurance reserves at greater than CAD 5 million for property and casualty and business interruption. Those reserves are preliminary estimates and will be subject to upward or downward revision as the claim is processed. During the quarter, we received the first $250,000 as a partial advance on the claim and have been told that another CAD 1.5 million has been approved and in process.

During Q1, we wrote off all the physical assets and inventory affected by the incident, and we also incurred out-of-pocket costs specifically related to the incident. Those write-offs and incremental expenses totaled CAD 500,000, and we have recorded insurance recoveries of CAD 500,000, offsetting those write-offs and incremental costs in the Q1 financials. We have not however reflected any expected proceeds from insurance for lost revenue profit or cost of construction in excess of our incurred costs as these claims are not yet final and will be recognizable only as contingencies are resolved and the amounts are collected under U.S. GAAP.

As the insurance claim approval process continues, we expect to receive additional proceeds to cover the replacement cost of the building, equipment and inventory as well as for lost profit under the BI policy. Those additional insurance recoveries will amount to several million dollars and will be reflected as gains in the P&L in future quarters as those amounts become finalized and collected and the contingencies are resolved.

With that as background, we'll walk through the detailed results for the quarter. On a consolidated basis, total revenue decreased 9.6% to $14.3 million for the quarter. Revenue growth at Convergent and incremental revenue from the start-up of Strong Outdoor were offset by the unfavorable comparison at Cinema for the quarter.

Revenue at Convergent increased over 20% as the rollout of our DSaaS program continued to drive increased recurring revenue and installation fee income. We also had favorable revenue from customer installation projects and overall new business growth. Strong Outdoor was a start-up business in early 2018, and revenue comparisons are favorable as we continue to ramp that business.

Gross profit decreased 3% to $2.6 million. Favorable contributions from Convergent, where the 20% revenue growth was accompanied by an increase in the gross profit percent from 14.5% to 28.3%, were offset by the flow-through of the decreased revenue at Cinema from the temporary plant closure. The favorable trend at Convergent is due to a combination of growth in high-margin recurring revenue and cost reduction initiatives.

Operating loss improved by $0.5 million for the first quarter to $2.6 million as improved operating performance at Convergent and reductions in administrative expenses were partially offset by increased investment in start-up operating costs at Strong Outdoor and by the lower contribution from Strong Cinema. Administrative expenses decreased 13% primarily on initiatives to reduce professional fees and overhead.

Adjusted EBITDA, a non-GAAP measure, improved to negative $1.6 million for the first quarter of 2019 from negative $2.1 million last year due to the operating improvements at Convergent and the reduced administrative expenses.

Net loss was $4.2 million or $0.29 per share for the first quarter as compared to $3.8 million or $0.26 per share in the prior year. The improvements in operating performance were offset by noncash fair value adjustments and equity method investment losses for the quarter.

Overall, the turnaround at Convergent continued to generate a strong trend of improved operating results, turning losses into a second consecutive quarter of strong operating income and EBITDA performance. At Strong Outdoor, we're continuing to invest in building the leadership and sales team and expect revenues to increase in future quarters.

For Strong Cinema, the current period was impacted by the temporary facility disruption, which impacted the reported numbers for the quarter. We expect several million in insurance recoveries, which will fund the upgrade of our facility and significantly increase reported profitability in upcoming quarters. Looking beyond the quarter, we resumed shipping in March and expect to see revenues and operating performance bounce back over the next few quarters in the Cinema business.

We appreciate your interest in Ballantyne Strong and look forward to reporting our second quarter results in early August. If you have any questions or would like to speak with management, please feel free to reach out. My contact information is included in the earnings release distributed this afternoon.

Thank you and have a good evening.

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Operator [5]

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This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.