Fundamental Global Q1 2023 Earnings Report

Fundamental Global EPS Results

• Actual EPS: $2.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Fundamental Global Revenue Results

• Actual Revenue: $6.53 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Fundamental Global Announcement Details

• Quarter: Q1 2023
• Date: 5/12/2023
• Time: N/A
• Conference Call Date: Wednesday, May 17, 2023
• Conference Call Time: 8:30AM ET

Fundamental Global (NASDAQ:FGF) engages in reinsurance, merchant banking, and asset management business. The company offers initial public offering services. It also offers specialty property and casualty reinsurance services. In addition, the company provides investment advisory services. The company was formerly known as Ballantyne Strong, Inc. and changed its name to FG Group Holdings Inc. in December 2022. Fundamental Global Inc. was founded in 1932 and is based in Mooresville, North Carolina.

Fundamental Global Q1 2023 Earnings Call Transcript

[Operator]

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. Please note this conference is being recorded. I will now turn the conference over to your host, Jen Belodeau of IMS Investor Relations.

[Operator]

Jen, you may begin.

[Speaker 1]

Thank you. Good morning, and welcome to FG Group Holdings earnings conference call for the Q1 ended March 30 1, 2023. On the call today from FG Group Holdings are Mark Roberson, Chief Executive Officer Todd Major, Chief Financial Officer and Kyle Terminera, 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.

[Speaker 1]

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.

[Speaker 1]

At this time, I'll turn the call over to Mark Robertson. Go ahead, Mark.

[Speaker 2]

Okay. Thanks, Jin. 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 Global Entertainment this week.

[Speaker 2]

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 NYC 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 Accelerate growth in the industry 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.

[Speaker 2]

The new Strong Studios division also adds an important additional growth driver to that business, and we're expecting M and A to be also be an important element 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 34 to start with in the presentation. Overall, at FGH, we have capital currently allocated Across several holdings, in addition to SGE where we now hold 6,000,000 shares providing a more tangible and more easily measurable indicator of value We also own equity positions in 3 other operating companies, Feet Financial, Firefly and GreenFirst. And through our digital ignition business, we own a 44,000 square foot building and 11 acres in Atlanta area.

[Speaker 2]

We retained that building from the sale of conversion a couple of years ago. And as part of the strong entertainment spin, FGH Also retaining ownership of 80,000 square foot screen manufacturing facility in Quebec, which is being leased to SG and A under a long term operating lease. In the Q1, 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 Our strengthening customer relationships and increasing market share, as well as the early ramp up of the laser upgrades, Yes, which we see is really just starting to drive the replacement for screens and demand for services.

[Speaker 2]

Flipping over to Slide 6, looking at it from an industry standpoint, the domestic box office receipts grew about 64% in 2022. In the Q1 of 2023, we'll continue 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.

[Speaker 2]

If you look on Slide 7, 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 2023 As well as into 2024 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.

[Speaker 2]

That team has been very busy with several projects progressing nicely. Safe Haven is 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 Adam Aaron Kaplan. And we see tremendous growth potential for Straum Studios as we create this library of projects with the capability of driving both upfront revenue as well as Back end royalty revenues. On Slide 9, you can see the details of our Equity Holdings.

[Speaker 2]

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 of Jimmy John's. It's a restaurant brand platform. It currently owns and operates And franchises 7 distinct brands over 24 states. In addition, FG Merger announced its business in combination with Ichor Connect And FG Acquisition Corp.

[Speaker 2]

Announced its business combination with Bank Markets. So a lot of progress at FG Financial during the quarter. And GreenFirst recently announced several transactions to monetize their non core assets With the sale of private forest land for $49,000,000 and then that transaction was followed by the sale of 2 sawmills in Quebec for $90,000,000 Those deals further strengthen GreenFirst 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. Now 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?

[Speaker 3]

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 Q1 of 2023 were consistent On a year over year basis. That being said, and 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 Q1 of 2023.

[Speaker 3]

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 Q1 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 spring sales in the Q1 of 2023.

[Speaker 3]

This improvement was offset by lower margins in the services business where we incurred additional travel over time and outside contractor costs to meet customer demand. The 3rd party strain 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 continue to maintain adequate liquidity. In addition, net cash flows from operations during the Q1 of 2023 was the strongest since Q3 last year.

[Speaker 3]

We marked the carrying value of our GreenFirst and FG Financial Equity Holdings to market each quarter and the value of our equity holdings At the end of the Q1, it's reflective of the recent pullback across the broader markets. However, 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.

[Speaker 4]

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 and A.

[Speaker 4]

Please ask any question, and we'll do our best to answer it. Operator, can you open up for Q and A?

[Operator]

Thank you, Kyle. At this time, we are conducting a question and answer session. Now. Thank you. Your first question is coming from Adam Leifton of Rising Tide Partners.

[Operator]

Adam, your line is live.

[Speaker 5]

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?

[Speaker 2]

Yes, Adam. Thanks for the question. Good morning. Yes, we're pretty excited about the international markets. As you Probably known, 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.

[Speaker 2]

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. And we've established finishing and warehousing operations in both of those regions over the past year or so. And particularly in Europe, we're starting to see real signs of acceleration in the Cinema market there as well as the beginnings of the conversion to ladies our investments in 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. 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 and Barcelona in June.

[Speaker 2]

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.

[Speaker 3]

Got it. Got it. Great.

[Speaker 5]

Thanks for taking my question.

[Speaker 2]

Thanks, Adam.

[Operator]

Thank you very much. There don't There appear to be any further questions in the queue. I will now hand back over to the management for any closing remarks.

[Speaker 2]

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.

[Operator]

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.