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Edited Transcript of BTN earnings conference call or presentation 12-Nov-19 1:30pm GMT

Q3 2019 Ballantyne Strong Inc Earnings Call

OMAHA Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Ballantyne Strong Inc earnings conference call or presentation Tuesday, November 12, 2019 at 1:30:00pm 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 Ballantyne Strong Inc. Third Quarter 2019 Earnings Call. (Operator Instructions) Please note, this conference is being recorded.

I'll now turn the conference over to Kyle Cerminara, Chief Executive Officer and Chairman of the Board of Directors; and Mark Roberson, Chief Financial Officer of Ballantyne Strong. Thank you. You may begin.

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

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Welcome to Ballantyne Strong's Earnings Conference Call for the Third Quarter ended September 30, 2019. 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 views 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 that 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 contains references to non-GAAP financial measures.

The definitions of non-GAAP terms and reconciliations to GAAP measures are available in the earnings release posted in the Investor Relation's section of our 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 reportings before making any investment decisions.

At this time, I'd like to turn the call over to Kyle.

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

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Thanks, Mark. Good morning, and thank you for joining us on our call today. Today, I'm going to spend a few minutes talking about our business and strategy and then hit on the key financial highlights before I turn it over to Mark to go on to the financials in more detail.

We started doing quarterly conference calls shortly after Mark joined us a year ago, and we plan on doing calls going forward on a regular quarterly basis. Investor Relations will continue to improve as we build on our key strategic initiatives and have more to share with the investment community.

We expect to expand our Investor Relations to include additional opportunities from our current and prospective shareholders to learn more about the company.

There are a few key business, strategic and financial items I would like to highlight today. All 3 of our businesses have shown improvements in their financial results. We focused on transitioning to higher margin, recurring revenue where we see opportunities to grow.

At the same time, we've made decisions to exit businesses where the long-term economics on the products and services we offered did not justify the expenses associated with the business. These were decisions that were made to improve the long-term financial performance of the company and to improve the overall value for shareholders.

We're excited about where we stand today with our current product suite. Our goal is to position the company as a more focused and profitable company.

Strong Cinema results have improved from earlier this year, and we're making investments in the business so that we can serve our current and new customers better and provide for additional revenue opportunities for the company.

Our Eclipse screens acquisition is beginning to benefit from investments we started making a year ago, and we're expanding our facility and team to accommodate growth that we see coming in theme parks, flying theaters and other solid curve screens. We're also making investments in a new global sales force to build up a strong sales force. We'll have a new screen facility opening in other parts of the world with our China facility expected to be operational in January 2020.

Our Managed Services business have made significant investments in technology and training, and we look to leverage our unique sales service and network operations center teams in new and interesting ways.

Convergent has made significant progress over the last few years and is becoming a very valuable business for the company. Our Digital Signage as a Service product offering has become the most unique product offering in the digital signage industry and has led to an improvement in our margins and profitability.

We're very pleased with the improvement in profitability, and we continue to focus on growing our recurring revenue at Convergent, though we believe it creates a better relationship with our customers and improves the long-term valuation of the company, as we build more valuable business.

Earlier this year, we completed an M&A transaction and combined our Strong Outdoor digital advertising business with the San Francisco-based company called Firefly Systems, with the result being that we became a significant shareholder of Firefly.

Firefly has raised over $50 million of capital from prominent funds, including Google Ventures or GV and NFX. We felt that Firefly had the team and financial backing to take our digital platform to the next level, and we're excited about the global platform of the Firefly in major cities around the U.S. and world.

Strong Outdoor maintains a static advertising platform and has made significant progress in improving its margins and reducing its operating losses, while continuing to invest in the business with some key hires in sales and marketing. We continue to believe that M&A makes a lot of sense for Ballantyne Strong, and we've been hard at work evaluating a few potential combinations that could add significant value for our shareholders.

Over the course of the last year or 2, we've reviewed opportunity to do transactions in each of our businesses, and we've worked with investment bankers and strategy consultants to identify the best outcomes. Our goal is do the best possible transaction for our shareholders, so that we can maximize value.

To be clear, we had no specific motivations to do a transaction or not to do a transaction other than to do the best possible transaction for our shareholders. We welcome the opportunity to discuss an opportunity with our competition, and we're working tirelessly and diligently to find the right combination for our shareholders.

In the meantime, we've made progress in each of our businesses over the last few quarters, and we'll work to improve the value of each of our businesses until we find the right opportunity for our shareholders.

The final point I'll make before I turn it over to Mark. Over the last few years, we've made investments in technology, systems and processes that will ideally help us understand and forecast our business better in the future. But we still have some additional investments to make in our systems. We've made substantial progress. We also believe we're finally able to begin benefiting from our zero-based budgeting efforts that began a few years ago.

Corporate overhead continues to be too high, and we're working to reduce it. Some of the investments we made match the actual progress we made in reducing cost, and we still have additional opportunities for cost reduction that we're working on today and in the next few months. This will be an important initiative in 2020. It's been a lot of work to get the company positioned to where it is today. We have a lot more work to do to execute on our future business plans.

I'm going to now turn it over to Mark to walk you through our financial performance. If anyone would like to spend time with us, I'd encourage you to reach out to us and schedule some time for a call or an in-person meeting in North Carolina.

With that, I'd now like to turn the call over 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. Overall consolidated operating results improved significantly on both the quarter-over-quarter and year-to-date basis.

If you refer to Slides 12 and 13, you can see the consolidated results compared to prior year as well as on a trend basis over the past 5 quarters. Total revenue increased 2.4% for the quarter and decreased 2.2% for the first 9 months with Cinema rebounding in Q3 after a lower first half.

Gross profit margins on a consolidated basis improved to 34.5% for Q3 from 21.5%. On a year-to-date basis, they improved to 25.7% from 16.5%. Operating income was positive $66,000 for the quarter from a loss of $1.8 million in the prior year. On a year-to-date basis, operating loss improved by over 50% to $4.8 million from $10.4 million in the prior year.

Adjusted EBITDA improved to $1.8 million for the third quarter from 250 -- $250,000 last year. And on a year-to-date basis, adjusted EBITDA improved to negative $600,000 from negative $5.2 million in the prior year period.

The improvement in consolidated operating results were primarily driven by 3 factors. Number one, our Cinema results rebounded in Q3 following the first half headwinds, increasing 39% sequentially from Q2 to Q3. Convergent continues to deliver better comps with the transition to our DSaaS business model, and the business is now generating positive income from operations and adjusted EBITDA following years of losses.

Strong Outdoor is much better positioned following the Firefly transaction with a lower operating cost structure and an increasing of focus on scaling the nondigital ad business while leveraging Firefly's expertise and resources in digital.

On Slide 14, we present the operating trends in our Cinema business over the past 5 quarters. Revenues and profitability dipped significantly in Q1 and Q2, following the roof issue in our manufacturing plant. However in Q3, revenues began to bounce back as MDI orders and production returned closer to normalized levels.

Income from operations and adjusted EBITDA followed suit with operating income and adjusted EBITDA both nearly doubling from Q2 to Q3 on increased volume. Construction and upgrades to the screen production facility are nearing completion, and we expect to be back at full capacity for 2020.

We also recently added 10,000 square foot in a separate facility to accommodate increased Eclipse screen production. And the China finishing plant will be operational in the next few months, which will allow us to better serve our existing customers while positioning for growth in that region.

On Slide 15, moving to Convergent. Convergent's operating results turned the corner with significant improvement over the past year. As you saw in the graph in Kyle's section, Convergent has a long history of operating losses, while 2019 has been consistently positive operating income and adjusted EBITDA. Gross margins have improved each quarter and the revenue mix is now predominantly recurring in nature.

Looking at the revenue trends, you may ask why revenue decreased from Q1 and Q2 to Q3, while gross margins and profitability as a percent of revenue improved. The business is moving more towards a recurring revenue model. Q3 revenue is approximately 67% recurring while Q1 and Q2 contain more revenue from nonrecurring projects and installation work at lower margins.

On Page 16, Strong Outdoor's financial results strengthened significantly in Q3 following the Firefly M&A transaction. We're now focused on selling nondigital ads and generating better utilization on those assets. We also have a lower fixed cost structure, which allows for better gross margins and overall profitability at the current scale of the business.

Q3 was Strong Outdoor's first quarter with positive gross margin since we started the business. SG&A increased as we invested in additional sales and marketing, and adjusted EBITDA was approaching breakeven coming in at negative $75,000 for the third quarter after running over $1 million negative in each of the previous 4 quarters.

As Kyle mentioned, we also now have an investment in Firefly, which we carried on the balance sheet on the cost basis and could potentially provide longer-term upside based on the performance and future liquidity events in their business.

Thank you again for your time and your interest in Ballantyne Strong. My contact information is included in the earnings release distributed today, and we welcome your questions and input. We're always available and look forward to speaking with you. Thank you and have a good day.

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Operator [5]

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