Fundamental Global Q2 2023 Earnings Report

Fundamental Global EPS Results

• Actual EPS: -$8.75
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Fundamental Global Revenue Results

• Actual Revenue: $2.19 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Fundamental Global Announcement Details

• Quarter: Q2 2023
• Date: 8/10/2023
• Time: N/A
• Conference Call Date: Friday, August 11, 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 Q2 2023 Earnings Call Transcript

[Operator]

Good morning, and welcome to the FG Group Holdings Earnings Conference Call for the Second Quarter 2023. At this time, all participants have been placed on a listen only mode, Please note this conference is being recorded. I will now turn the conference over to your host, John Nesbitt of IMS Investor Relations. John, you may begin.

[Speaker 1]

Thank you. Good morning, and welcome to FG Group Holdings' earnings conference call for the quarter ended June 30, 2023. On the call today are Mark Roberson, Chief Executive Officer Todd Major, Chief Financial Officer and Kyle Cerminera, Chairman of the Board of Directors. As a reminder, there is a slide presentation accompanying today's call, which can be accessed at the FG Group Holdings website. Before we begin, I would like to remind everyone that some statements made on this call will be forward looking in nature.

[Speaker 1]

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 in today's call. Risk 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 our financial reporting before making any investment At this time, I'll turn the call over to Mark Roberson.

[Speaker 1]

Go ahead, Mark.

[Speaker 2]

Thanks, John. Good morning and thank you for joining the call today. Overall, this is a very good quarter for FTH. The major accomplishment was the closing of the separation and IPO at Strong Local Entertainment, which is now operating as a standalone entity and its common shares are now trading under the symbol SGE. Following that transaction, our core holdings at FGH now include a controlling stake in Strong as well as non control stakes in Green First Forest Products, FG Financial and Firefly Media.

[Speaker 2]

We also have commercial real estate holdings in Georgia Through our digital ignition operation and we retained the screen manufacturing facility in Quebec. Following the IPO, FGH continues to hold approximately 84% ownership in Strong Global and we will continue to report SG and A consolidated basis in our financial results. Overall, on a consolidated basis, the financial results for the quarter reflect the strong performance is strong And consolidated revenues doubled and adjusted EBITDA increased from a loss of $370,000 last year to $2,400,000 in the current quarter. Starting with an overview of StrongGold Entertainment on Slides 5 through 7, we provided quite a bit of detail on Strong's performance yesterday after the market closed And I'd encourage you to review their results separately and listen to the call. But to recap, revenues grew as we continue to see increased demand from cinema exhibitors for We're also continuing to add new customer accounts and new services, increasing our market share.

[Speaker 2]

And as a result, screen systems were up 24%, while technical service revenues grew over 40%. And we had our 1st initial sale of IP in our strong studios group this quarter, which contributed over $6,000,000 to consolidated revenue. There are few key drivers to growth. 1, the continued resurgence in the cinema industry and the rebound in the box office. Cinemark, IMAX and AMC all reported strong quarterly profits over the past week or so.

[Speaker 2]

AMC reported its 1st quarterly profit in several years. IMAX reported a 30% increase in revenue And recently had its 4th best box office weekend ever and Cinemark delivered the 2nd highest EBITDA quarter in its history. 2, they're increasing investments by exhibitors in premium auditoriums, which includes the laser upgrades, which are just starting to roll out through the industry. Auditoriums at premium large format screens and premium audio such as IMAX, for example, are driving an increasingly large share of the box office. AMC, Cinemark, Cineplex, Cineplex are among the larger exhibitors who have all publicly announced their plans to upgrade the laser.

[Speaker 2]

And we saw upgrades really just getting started in the second half of twenty twenty two with just a few exhibitors and we believe those activities will increase In the second half of this year and continue on into next year. Several exhibitors including Cinemark and IMAX, for example, Noted in their earnings calls this week that they expect capital spending and upgrades to be back end loaded this year, which is consistent with our expectation for second half demand and we're staffing up to meet that demand. 3, our position in the industry, our strong exclusive relationships and increasing market share and geographic reach. We have a leading position in North America in the cinema industry. And over the past couple of years, we further strengthened and formalized those relationships And we've increased our sales efforts.

[Speaker 2]

We supply all of IMAX's screens on a worldwide basis and we're the exclusive screen supplier for AMC, Cinemark and Marcus, and we're the preferred supplier to many other exhibitors. We also announced our 1st major European customer win this quarter. And as the rollout of laser and other upgrades accelerate, we believe we're well positioned. 4th, the expansion and diversification of our revenue base, which includes the addition of strong studios, theme parks and immersive. We've expanded our revenue base, expanding into theme parks and immersive attractions.

[Speaker 2]

We've been Our service offerings to be more of a one stop shop for the exhibitors. We've been expanding internationally as well as we launched strong studios last year, which also realized its first meaningful revenue transaction this quarter with a portion of the IP for Safe Haven. Moving on to our non consolidated holdings on Slides 9 through 11. Again, we have 3 equity positions in 3 other operating companies, GreenFirst, FG Financial and Firefly. And we also have commercial real estate holdings, which includes a 44,000 Building and 11 Acres in Atlanta, which if you recall, we retained from the sale of Convergent a couple of years ago.

[Speaker 2]

And as part of the strong entertainment spin out, we retained ownership of the 80,000 square foot screen facility in Quebec, which is being leased to SGE on a long term operating lease. GreenFirst recently announced several transactions to monetize our 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 strengthened GreenFirst balance sheet, Bringing down average cost per board foot of operations and allows their team to focus their attention and resources on the more valuable and more efficient Ontario mill operations. FG Financial continues to grow its reinsurance and asset management business. FGF had a really nice first quarter With its growing reinsurance business reporting over $1,000,000 in underwriting profits and on the merchant banking side, FG recently launched Craveworthy and FG Communities. Craveworthy is a fast growing restaurant brand platform led by the former CEO of Jimmy John's and F.

[Speaker 2]

G. Communities is a self managed real estate company That's acquiring manufactured housing communities. Also in the merchant banking side, their SPAC FTE merger Announced the merger agreement with Ichor Connect, which is a cloud based SaaS company focused on the medical and dental industries And FG Acquisition Corp. Recently announced this combination with Think Markets, which is an online brokerage with an established global partnerships and a scalable business Turning to Firefly. Firefly continues to grow their business as a leading provider of mobility based digital out of home media solutions.

[Speaker 2]

Digital out of home media is an attractive market, it's projected to continue to grow at about 11% over the next 10 years. And Firefly continues to execute on its plans, it's growing and it's been expanding its international reach recently into markets like the UK, Canada and Abu Dhabi. So overall, we're really pleased to see the accelerating progress in both our strong repayment segment, which is now operating as a standalone public company, As well as our equity holdings as they execute on their strategic plans. Todd, would you like to walk us through the financials?

[Speaker 3]

Sure. Thanks, Mark, and good morning, everyone. I'll start on Slide 13 and we'll run through a quick overview of the financial results As Mark mentioned, as a result of our majority ownership in Strong Global Entertainment, we are consolidating SGE's results into our financials. Since SGE is by far the largest part of our operating business, my prepared remarks today will include a good amount of discussion on the SGE results that were released yesterday afternoon. Consolidated revenue was up nearly 100% from the prior year with several key drivers.

[Speaker 3]

The first is the revenue resulting from the sale of a portion of the IP and safe haven. 2nd, there were meaningful increases in revenue across nearly all of our product and service offerings With screen sales, digital equipment and installation services leading the way. Screen sales were up 24% over the prior year, Digital equipment was up 32% and installation revenue increased more than 120%. Most recent quarter turned into 6th consecutive quarter with year over year increases in installation revenue. That is due in large part to the expansion of our nationwide team of technicians to include a dedicated installation team.

[Speaker 3]

Not only do we expect the top line revenue number to improve as a result of the additional service offering, we're also expecting margins on these services to improve as we move away from Consolidated operating income improved even after the recognition of some non recurring transaction related expenses. Excluding these one time costs, operating for the quarter would have been approximately $350,000 a significant improvement from last year's operating loss of 900,000. Flipping over to the balance sheet, we ended the quarter with just under $5,000,000 in cash and continue to maintain adequate liquidity. Now that the entity that owns and controls the Safe Haven production is consolidated as part of SGE's results, those assets and liabilities are also now part of our consolidated balance sheet. We recorded an intangible asset that represents the net cost of production of Safe Haven that will be amortized as the series is monetized.

[Speaker 3]

In addition, the production was financed, so we have some additional non recourse debt to the balance sheet. However, subsequent to June 30, the debt balance was fully repaid via receipt of the minimum guarantee and the tax credits received for shooting the series in Canada. That concludes the financial overview for the quarter. I'll now turn the call over to Kyle Sermodata. Go ahead, Kyle.

[Speaker 4]

Thank you, Todd and Mark. During the first half of the year, there's been significant progress made across our businesses. As the largest shareholder, I'm confident We hold some extraordinary businesses that will be much more valuable over time. Strong Global Entertainment completed its IPO Last evening reported a very strong quarter. Their business is benefiting from a market leading position, expansion to new verticals And also the initial success of the Strong Studios business.

[Speaker 4]

As Mark reviewed, the other businesses are generally executing across their plans. GreenFirst is focused on optimizing their core assets in Ontario. They've strengthened their balance sheet and the drop in duty rates should positively impact profitability. We view GreenFirst as a very valuable asset and are confident that over time this value will be realized either organically or via consolidation. With FG Financial, this business has come a long way in a short period of time since we essentially restarted the business a few years ago.

[Speaker 4]

The reinsurance business is methodically growing, and I'm excited about the business on the merchant banking side. With our specs, we're innovating with new structures that are more attractive to investors and issuers alike. We also are excited about the crave worthy business, which has a proven CEO and some attractive scalable restaurant brands. Finally, Firefly continues to grow and build a powerful economic model for the outdoor advertising space. I'm sure at this point, many of you have seen their product on the roof of cabs in major metro areas such as New York.

[Speaker 4]

My focus is not only to build value, but to build

[Operator]

Certainly, everyone at this time will be conducting a question and answer session. Your first question is coming from Jack Snyder from Grayfinch Capital. Your line is live.

[Speaker 5]

Hey, guys. Appreciate you taking the question.

[Speaker 2]

Good morning.

[Speaker 5]

Just had a quick question. How should we think about the anticipated length of the laser upgrade cycle?

[Speaker 2]

Yes, good question. We think the when you look at the laser upgrades, we're really Pretty early in the early innings, maybe in the 1st inning, if you're analogizing the timeline here. Really, the current laser installations are being driven by just a couple of large exhibitors who are driving the initial Roll offs and upgrades in major markets. The major exhibitors have a long way to go in terms of upgrading their circuits. And we're starting to see the regional exhibitors just now starting to formalize and announce their plans with regards to Their laser upgrade plan, so this is a cycle that's just starting.

[Speaker 2]

It's going to be a multiyear upgrade cycle through the industry. If you listen to some of the earnings calls from AMC and Cinemark and some of the others, they were Pretty explicit about the benefits of premium auditoriums, the premium audio and visual experience And their desire is to continue to invest even more heavily in upgrading their auditoriums over the next several years. So we're pretty early in the phase right

[Speaker 5]

Got it. Got it. Great. I think that's all for me. Thanks, guys.

[Speaker 2]

Thank you.

[Operator]

Your next question is coming from Brett Weisz from Janney Montgomery Scott. Your line is live.

[Speaker 2]

Good morning, Brett.

[Speaker 6]

Good morning. Can you guys hear me?

[Speaker 2]

Yes, yes, loud and clear.

[Speaker 6]

Okay. Great, great, great. I'm not in the office. With the market share that strong entertainment has, do you have Pricing power versus your customer base or will you need to be Even more of a consolidator to attain pricing power with some of the secular Ed wins your customer base is facing longer term.

[Speaker 2]

Yes. It's a good question, Brett. With regards to pricing power, it varies in different markets and obviously with products and different products and different Customers, but overall within North America, we have a pretty dominant market share, but it's not that we're not without competition. So we certainly don't have the power to price at whatever levels we'd like. It has to be competitive.

[Speaker 2]

It has to make sense. We do have a premier product. We have a premium product and I think we're able to charge for that. In some of the service areas, we have in recent periods been passing along Some cost increases that we're seeing on the inflationary side. Yes, there's definitely been some adjustments to pricing.

[Speaker 6]

Great. And on Fireflies, assuming In the future, at some point, the IPO markets open up a little bit more. Is there any not To the calendar date, but is there any timetable on a potential IPO on FIREFLY That you can share with us.

[Speaker 2]

Yes. I mean, I don't think there's a specific target date or quarterly timetable that I could lay out In terms of their growth, they're continuing to expand. They've raised additional capital a couple of rounds since our investment And Fireflies, so we like what they're doing, they're continuing to execute, continuing to grow. And when the time is right, I'm sure that they will be ready to go.

[Speaker 6]

Great. That's all for me and very nice quarter. So

[Speaker 2]

Thank you, Brett. Really appreciate it.

[Operator]

Thank you. That concludes our Q and A session. I will now hand the conference back to management for closing remarks. Please go ahead.

[Speaker 2]

Well, thanks so much for joining the call today. Overall, good quarter. We're excited about a lot of the things that are going on at

[Operator]

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.