Good afternoon, and welcome to Ballantyne Strong's earnings conference call for the first quarter ended March 31st, 2021. On the call today from Ballantyne Strong are Mark Roberson, Chief Executive Officer and Todd Major, Chief Financial Officer.

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 also encourage you to review and understand all of our financial reporting before making any investment decisions. At this time, I will now turn the call over to Mark.

Okay. Go ahead, Mark.

Good afternoon. Thanks for joining us.

We've had a busy first few months, and we'll start on Slide 2 with a brief overview. Ballantyne Strong is comprised of our wholly owned entertainment operating business, which is an industry leader in cinema screens and managed services and three non-control investments: GreenFirst Forest Products, FG Financial Group and Firefly Systems.

If you turn to Slide 3, last year at this time, we're at the very beginning of the COVID pandemic with three operating businesses. But very little visibility into the next 12 months.

Over the past year, we've successfully navigated the worst of the global cinema and theme park closures. We sold our two signage businesses, Strong Outdoor for equity and Firefly and conversion for cash and a note and assumption of debt.

We also completed an equity capital raise, further strengthening the balance sheet, with cash now over $20 million and stockholders' equity increasing 67% during Q1 to $45 million as of the end of March. Moving on to Slide 4.

As we now look forward into the second half of 2021 and into next year, we're increasingly optimistic about the outlook for entertainment operating business and our investment positions. With vaccination rates in the US improving dramatically over the past several months and major markets reopening more aggressively and easing restrictions, we're seeing increased bullishness and excitement in our cinema customer base.

We're also seeing positive momentum in our investment portfolio with GreenFirst announcing its definitive agreement to acquire the Forest Products business of Rayonier, FG Financial expanding its SPAC sponsor and reinsurance businesses and Firefly continuing to position itself for growth post COVID. Now turning to the cinema business, starting on Slide 5 and 6.

Strong Entertainment is a market leader in premium large format screens as well as in managed services. In the second half of 2020, we strengthened that position, signing new multi-year exclusive agreements with Cinemark for screens and with Marcus Theatres for services.

We continue to have a great relationship with IMAX and supply all of their screens worldwide on an exclusive basis. Eclipse, which is designed for immersive theme park and simulator applications also continue to perform despite COVID.

Revenues overall in our entertainment business have recovered from the low point in Q2 of last year, but they remain over 30% to 40% below normalized pre-COVID levels. Fortunately, we've been able to manage the business to relatively breakeven during this period of reduced revenues, and we're better positioned competitively post COVID.

After over a year with very little content for our exhibitors to drive people to the cinema, we expect the pace of blockbuster movie releases to be a positive catalyst for the industry starting in July with the release of Top Gun kicking off things in earnest. We also expect major exhibitors to rely more heavily on outsourcing post COVID, and we believe our managed services group is well positioned to provide that support as exhibitors prepare for return to the movies.

On Slides 7 through 10, we'd like to review our equity investments, which are comprised again of three positions: Firefly, FG Financial and GreenFirst. We became an investor in Firefly through our sale of our Strong digital media outdoor advertising business, and we currently hold approximately $13 million in preferred equity shares.

Firefly is a really interesting venture backed company with Google Ventures and NFX being the largest shareholders along with us. We met the guys at Firefly a couple of years ago, and we were very impressed with what they were doing in the outdoor advertising market, particularly their ability to adopt and deploy technology in the taxi and rideshare advertising space.

As a result, we decided it was better to join forces and go-to-market together rather than as competitors. As you can see, Firefly is doing some very innovative things to be a true leader, whether it's through their partnership with companies like Drive Sally or cutting-edge technology development, like their launch of Street.IQ this quarter.

Turning to Slide 9. We own approximately 21% of the outstanding shares of FG Financial.

FGF has gone through repositioning of its business and has an attractive business model focused on reinsurance and allocating capital to SPAC and SPAC sponsor related businesses. The reinsurance sector is strengthening and seeing increased rates, FGF wrote its first reinsurance contract in 2020.

And as a nimble reinsurer, led by an experienced management team, they're carefully looking at deploying additional capital in that sector. On the SPAC side, FGF had two recent SPAC investments, FG New America and Aldel Financial.

FG New America was backed by Joe Moglia, the former CEO and Chairman of TD Ameritrade and has announced a definitive agreement to acquire Opportunity Financial. OppFi is a leading fintech platform.

The acquisition is expected to close this summer. FG Financial holds approximately 1.4 million FGNA founder shares and approximately 430,000 warrants at an exercise price of $11.50.

Aldel is led by Rob Kauffman, the former founder of Fortress. FGF holds approximately 533,000 Aldel founder shares and approximately 321,000 warrants at an exercise price of $15 per share.

Turning over to Slide 10. GreenFirst, which is formerly Itasca Capital Ltd., recently announced the signing of a definitive agreement to acquire all of the forest and paper products and operating assets of Rayonier, which will make GreenFirst one of the top 10 lumber producers in Canada.

Because I think everyone listening to the call probably is already likely aware, this announcement has been well received, and the market cap of GreenFirst has increased from under C$10 million to well over C$200 million on the planned transaction with the share price increasing from roughly C$0.40 to well over C$9 today. GreenFirst also announced that as part of the financing of the transaction, it will be conducting a rights offering with current shareholders receiving three rights to purchase additional shares at C$1.50 for every share held.

Ballantyne Strong currently has just over 7 million shares, representing 30% ownership of GreenFirst and would anticipate receiving approximately 21 million rights based on information leased by GreenFirst. The rights are anticipated to be issued in June.

And at that time, we believe there will be a separate and distinct intrinsic value for those rights. We're currently evaluating our options with regards to the rights, and we could be a participant in the rights offering, increasing our investment in GreenFirst.

But we could also potentially sell some or all of our rights to generate additional investable cash to diversify our holdings. We'll evaluate that course of action in the coming weeks as the rights offering and the transaction proceed to an anticipated closing in Q3.

On Slide 11, the positive performance of GreenFirst has driven a meaningful increase in the market value of our investments. We currently hold the three investments in our balance sheet at $19 million, and the current market value is approximately $74 million, representing an unrealized gain of over $50 million.

Of course, I would caution that the unrealized gain is just that, it's unrealized and it will continue to fluctuate up and down as GreenFirst proceeds with these transactions and as FGF and Firefly continue to execute on their strategies. With that, I'll now turn the call over to Todd for a financial review.

Thanks Mark. As a reminder to everyone listening, the next few slides will present the operating results of our continuing operations and do not include Convergent and Strong Outdoor now that they have been classified as discontinued operations.

Slide 13 contains a summary comparison of Q1 2021 to the prior year. We began to feel the effect of the COVID pandemic late in Q1 2020 and continued to negatively impact our revenue and operating results.

Although both revenue and gross profit were down versus prior year, gross margins during Q1 2021 were relatively flat compared to the same period in 2020. Overall profitability improved during Q1 2021 compared to 2020, primarily due to a 33% decline in SG&A expenses as we continue to focus on cost management and as a result of lower bad debt expense.

Turning to Slide 14 now. Our MDI production facility in Canada was partially shut down for four weeks during the first quarter of 2021 as a result of a government mandate, which negatively impacted our revenue on a sequential basis from Q4 2020.

Our Eclipse screens product line continues to generate strong performance that has helped offset some of the declines in screens and services. Even after the significant impact of COVID, loss from operations and adjusted EBITDA during Q1 2021 both improved over the prior year.

In addition, our Strong Entertainment business has held steady throughout the pandemic and has operated on a near breakeven basis during the trailing 12-month period. This is a testament to the previously mentioned cost management efforts occurring across the company.

Slide 15 is a snapshot of the balance sheet as of the end of the March compared to the end of 2020. The sale of Convergent and the stock issuance in February were the primary contributors to the nearly $18 million increase in cash since the end of 2020.

As a result of the Convergent sale, we also significantly reduced our debt and lease obligations as these obligations were assumed by the purchaser. As Mark mentioned earlier, the recent performance of our investments has resulted in market values well in excess of our carrying value.

Overall, the health of our balance sheet has improved despite the negative impacts of COVID over the past year or so. Now let me put the call back to Mark to conclude our prepared remarks.

Thanks, Todd. To wrap up, we're increasingly bullish on the post COVID opportunities for both our entertainment operating business as well as our investments.

Our balance sheet is in the best shape it's been in quite a while. While our entertainment revenues continue to be impacted by COVID, we have maintained margins and decreased SG&A levels to manage that business effectively through the down cycle.

We're expecting a significant resurgence in cinema attendance in the US as studio releases accelerate. And we think that bodes well for our customers as well as for our entertainment business, particularly on the services side.

Our investments are making progress with their growth strategies, and I think the impact of GreenFirst speaks for itself. We'll now open up the call to any questions you may have.

Strong Entertainment, you've not seen any concrete orders from the cinema customers yet?

Yes. We're continuing to receive orders from our cinema customers, albeit it's certainly at a lower rate than it would have been pre-COVID.

Our overall cinema business is running probably at around 60% of pre-COVID levels from a top line standpoint. Obviously, cinemas are open in the US and most of the major jurisdictions are continuing to release or remove restrictions to allow them to operate more effectively.

But if you look at reported revenues for most of the large cinema exhibitors, their revenues are still down 70% to 80% from pre-COVID levels primarily because there's just a lack of content for them to show at this point, still to drive people into the cinemas. We expect that to begin to reverse as we get into the second half, particularly with Top Gun and other blockbusters starting to be released by studios and creating a lot of excitement of the cinemas.

As of right now, they're still operating with one hand tied behind their back due to lack of content. So I feel pretty good that we're getting the revenue we are given exactly where the cinema industry is today.

And we're becoming more optimistic about looking out post COVID as the cinemas are able to really ramp up with more content coming out. We definitely are receiving orders.

We have on the screen side again, just at a lower rate than we would have normally. And we're continuing to provide service to our exhibitors, both on a contract basis for some and a time and materials basis for others.

Now that the theme parks are opening up, do you anticipate some kind of pent-up demand orders that will benefit Eclipse?

I'm not sure that I would say that, Eclipse is more of a longer-term project type product. So it doesn't drop dramatically and it doesn't rise dramatically on a short turnaround.

So it is a little more steady long-term project. I would expect on the cinema service side to see some pent-up demand coming through cinemas in Europe to really reopen in earnest once they have a lot more people coming in, but they'll need a lot more service help, and we would expect to see a lot more demand coming through in the second half of the year.

Okay. Just two more for me and then I'll drop back in queue.

You did reduce your SG&A. Are you at breakeven?

You're at 60% of pre-COVID levels. Are you able to break even at that capacity?

So at the current revenue levels, our entertainment business is running pretty close to breakeven on an EBITDA basis. It was slightly negative in Q1 by - I think it was $80,000 negative EBITDA in Q1.

Our consolidated EBITDA was negative almost $1 million due to corporate overhead on top of the operating unit. So our operating unit is basically at breakeven at these levels.

We do have corporate overhead on top of the operating unit. That corporate overhead is down almost 50% from two or three years ago and down close to 30% from a year ago.

So we've taken a lot of actions to streamline corporate overhead and corporate costs. I guess the way that I would look at that is, currently, we've taken the actions that we felt we needed to minimize the burn during this COVID period.

As the entertainment business begins to ramp back up, we'll maintain our streamlined overhead structure would be up. So we'll be able to see more of the EBITDA from the entertainment business dropped to the bottom line as it would hopefully rebounds back to pre-COVID levels.

Yes. I noted on the 8-K that management took salary cuts, so you shared the sacrifice.

And so I applaud you for that. Last question, on the Firefly, one of the key metrics is their ability to continue to add Uber and Lyft cars with the digital platforms.

Do you get monthly reports as to how many cars have the digital ad platforms so that you can see the trajectory and pace with - hopefully, that is increasing? And can you share with us what those reports show?

Yes. I mean Firefly is a private company, so they don't release any of those metrics in a public fashion.

So we're really not able to share specific data about Firefly in their installed base.

Okay, thank you for answering my questions. I'll drop back.

Thank you.

Congrats first on the - obviously, the GreenFirst transaction is transformational. I'm just curious how it might change sort of your calculus as you go forward.

And I believe, as you discussed on the last call, you're really trying to transition into owning more operating businesses. So you had $20 million looking for an acquisition.

Now you potentially have completely different set of circumstances with this windfall. How does that change what you might be looking at or doing with respect to making acquisitions of operating businesses given your increased scale?

Well, we're certainly very pleased with the transaction that management agreed versus been able to line up and put in place. And we're certainly equally pleased with the market reaction to that transaction.

We think it will be significant event for Ballantyne and we're excited about it. But it does significantly increase our capital base going forward.

At this time, they still have a couple of months to get through the rights offering through closing the transaction. So that burden is that cash is not in the bank today, but it certainly does change the calculus on how much capital the company might have later this year in order to proceed with strategies.

At this time, we're continuing to evaluate opportunities and look at them, knowing it takes time to get deals done and to really evaluate deals. So we're continuing to look at opportunities and evaluate opportunities.

And we'll let the GreenFirst transaction play out over the next month or so, and we're continuing to evaluate exactly what's best for Ballantyne and its shareholders with regards to the rights, and we might deal with those as well as with the GreenFirst position. Now in anticipation of this question or a question like this, I'll ask Kyle Cerminara, our Chairman, to participate in the Q&A as well, given that he's on the Board of GreenFirst.

He's real closer to the transaction. So Kyle, I want to see if there's anything you want to add to that answer.

Yes. No, thanks.

I think that we probably shouldn't say too much about the actual GreenFirst rights offering. GreenFirst will be speaking about that separately.

So we'll have some communications out of GreenFirst. But as Ballantyne looks at their position in GreenFirst, so putting my Ballantyne hat on, I think that we're going to be in a really nice position with 7 million shares and 21 million rights.

And I think those 21 million rights are going to be very valuable. I think I've heard some questions about like will those rights be tradable?

And will they be liquid? And will there be a market for those rights?

So I can tell you as a Ballantyne Strong advocate and as the Chairman of GreenFirst, we're working very hard to make sure that we get value for, either value for that as a Ballantyne Strong shareholders. You probably saw that Paul Rivett and Larry Swets and Rick Doman gave up their rights, which I think was very admirable.

But we felt that at Ballantyne Strong, we couldn't do that on behalf of our shareholders. So we worked hard to make sure that Ballantyne maintained those rights.

They're going to end up, I think, being very valuable, whether we end up exercising the rights and becoming a larger shareholder of GreenFirst or monetizing those rights in some way. And I do believe that there'll be a market for them, whether that is through brokers or through an exchange.

So we're working very hard to make sure that, that happens. And the Board, like I don't want to get ahead of ourselves in terms of like what the Board is going to do because that will be a collaborative board discussion.

And I think it'll be premature for me to speak on behalf of the Board until we know exactly where the rights are going to trade and how much value there's going to be there. But we've committed to exercising a portion of the rights as part of the transaction.

The seller wanted Ballantyne Strong to commit to a portion of that and other parties to commit to that. So we committed to that, and we will evaluate whether we increase the position.

If the rights are less valuable, we'll increase it. You've probably seen the price of lumber is very strong.

It's increased even since then. And if you go 12 months out, the price of lumber, the future 12 months out are quite attractive.

We priced this transaction at GreenFirst for lower lumber prices, much lower lumber prices. So I think that GreenFirst generally is a very attractive position for Ballantyne to continue to hold and particularly at these prices.

So depending on where the stock is trading and where the rights are trading, we'll likely be an owner and potentially a buyer of more stock. So hopefully that's helpful.

And then just one quick question on Firefly. Where do you think Firefly is in its sort of journey towards an exit?

Where do you think we are in the continuum there? Is it three years, five years?

How do you see that playing out?

So I'm also a board member of Firefly. I would not want to say anything outside of the boardroom that I shouldn't.

But I guess, in looking at publicly available information, you can see on Crunchbase that Firefly apparently, it made it to Crunchbase that Firefly raised some additional capital recently. And we didn't impair our position, so you can assume that since we didn't impair our position that the value was at least at where we hold our position or greater.

That's a good fact that they're bringing in additional capital at a value that's at least where we're holding in a greater. We obviously bring a lot to the Board in terms of public company expertise in SPACs and other things.

So we think that there's a good opportunity for them to come public at some point, and we're sort of helping them. They're very ahead of the curve in terms of having PCAOB audited financials from Deloitte, and they're ready for a public offering at some point.

So that could be - I'm not sure if that's a 2021 event or not, but we'd love for it to be. And if it is, that would make that $13 million on our balance sheet liquid and perhaps worth more than $13 million, hopefully.

So that would be an ideal outcome for Ballantyne.

Thanks so much.

Mark, what's the current book value of Ballantyne stock now?

[Technical difficulty] to be precise.

Yes. The book value.

The book value is currently sitting at about $2.50 a share.

$2.50? Okay.

I'm not necessarily - certainly, I won't necessarily certify a great proxy for anything given the significant unrealized depreciation in the investments. It's not reflected in - it is in the assets on the books under GAAP.

But that's what it is today. So that doesn't require so much of a.

Okay. Have you ever thought about bringing the shareholder meeting back to Omaha?

We really hadn't thought about that. The company is headquartered in Charlotte at this point.

So we would anticipate having our shareholders meeting in Charlotte. Are you based in Omaha?

Yes, I am. What would you tell?

I get up to Omaha quite frequently. If you'd like to meet some time, I'd be happy to meet with you and anyone else, update that you'd like to have a meeting with the company as well.

How often do you get up here?

Well, it's obviously been less during COVID. It was two to three times a month a year ago this time.

It's been a lot less than that recently, but at least once a month.

Okay, okay. What would you tell the shareholders that had been like shareholders for like 20 years?

I have some friends that are retired now and are sitting on losses. What would you tell them?

Yes. I mean I would tell them that we appreciate their patience with the company and their long support of the company.

The company has evolved over time, and it definitely had some ups and downs. And we think the cinema entertainment business is obviously had its struggles through COVID.

Just like every other business that's impacted by shutdowns, we've got a bright future ahead of it. And we're excited about what's going on in the cinema space coming up in the second half of this year and really more saving into 2022, studios begin to really release content back to the cinemas and support those operations, which we think will make our products and services even more in demand going forward.

And obviously, yes, we're excited about, what you're probably hearing about on this call and in the filings about the happenings in our investment portfolio, and we think we're well positioned for it going forward. So we appreciate the support.

Last thing is I listened to the Berkshire Hathway meeting with Warren Buffett last week. And I didn't get the impression that he was really big on SPAC just because there sounds like there was a time limit that you have to put that money to work.

So what makes you so confident in this particular SPAC?

Well, first of all, Ballantyne as a company is not directly sponsoring SPACs that we owe an investment in FG Financial and FG Financial is an investor in SPAC sponsors. Yes, the two SPACs that they sponsored, FG New America and Aldel, we believe, are very high quality SPACs and not all SPACs are created equal.

FG New America's sponsor backed by Joe Moglia, you're probably familiar with that in Omaha. It's already identified.

Its target [ph], OppFi, which is proceeding towards that transaction. Aldel is a high quality SPAC backed by the founder of Fortress.

We believe that, that's a super high quality SPAC. And so we're pretty confident in the SPAC strategy and the way that FG Financial and some will go wondering about it.

Kyle, I don't know if that's the question that you want to provide any more color on than I did?

Yes. I heard Warren and Charlie's comments on SPACs as well.

And I am big fan of Warren Buffett and Charlie Munger and think very highly of them. I think one of the things I heard them say was that SPACs have created a lot of competition for them in terms of additional M&A teams going after deals that they have looked at.

But we see it differently, like we like the SPAC structure. And we think that we can add a lot of value for our shareholders by doing SPAC.

So that's our view. And we don't think SPACs are for everybody.

We think that there's a lot of SPACs out there - that there's a lot of people out there doing SPACs that shouldn't be. And I think that, that was maybe some of the cautionary language you heard from Warren and Charlie that there's too many SPACs and there's too many people doing SPACs.

There's celebrities doing SPACs that probably shouldn't be. But I think for high quality management teams and sponsors, I think it's a great alternative to an IPO.

Okay, thank you for taking my questions.

Mark, you've done a good job, and your IR firm has done a super job. Now you have three pieces here.

You have the Firefly, you have the Forest and you have the potential of a SPAC and you've raised money. And I'm basically for a SPAC or anything else that will increase the value.

And by selling the cinema, this may be a good time. You just have to find the right purchaser.

Good luck. And I'm not sure which comes first.

The Firefly is the sexy piece and the Forest is the dollars and cents. Do you have any thoughts on that?

Yes. I appreciate the question.

First of all, thanks for all the comments. We like all of our investments.

We like GreenFirst, we like Firefly, we like FG Financial. They're all different.

They have different business models, and they're all at different stages. But we're pretty excited about actually all of them particularly GreenFirst has gotten the most attention here recently and deserve given the major transformative transaction with that management teams.

But we're equally excited about the prospects for Firefly and supportive of them. And hopefully, there's some pretty new event in their future as well.

And same with FG Financial, who's really driving insurance and SPAC strategies. We think there's a lot of value to be created in actually all three of those investments.

Our cinema business, you mentioned, should we sell the cinema business. Certainly for sale at the right price.

And then we actually have at times entertained offers for the cinema business pre-COVID. I don't think in the middle of COVID is probably the right time to look to market that business.

We think the business is probably at its low point right now and has a lot of upside going forward as a post COVID play. And as we begin to see that business bounce back, we'll continue to evaluate the future of that business as we go forward.

But it may take a while for that business to really get back to a proper valuation in terms of marketability. But if at some point it will, and we believe that we believe the entertainment business pre COVID, again, as you know a $35 million to $40 million business, doing $7 million to $8 million of EBITDA.

It's currently running about half that in terms of revenue or 60% of that. And we believe that if we give it time and give us the right support over the next year, we'll be able to get back to do some numbers in that business as well.

Well good luck.

Could you discuss the status of the technology incubator? And does that contribute to cash flow?

Yes. So the Digital Ignition is our technology incubator based in Alpharetta.

That incubator basically originated from our Convergent line of business and actually shared about half the building or a little less than half the building down in Alpharetta with Convergent. Now that we've sold the Convergent business and they're no longer an occupant of that building, we're opening up the rest of the building to Digital Ignition so we can expand that incubator.

Quite frankly, it's a small part of the business today, from a revenue generation, $7 million in terms of revenue. So it's not a material contributor to the top line or the bottom line yet, but it does have opportunity to grow.

And it also gives us a view into some of the companies that are incoming technology companies in the area that are based in an incubator that may provide interesting investment opportunities somewhere down the road. So we like the business.

We like the fact we can expand that business through the rest of the building now that we have it free from Convergent. But in terms of top line, bottom line, it's certainly not nearly as much of a contributor to the entertainment business.

Understand. I'm not a fan of debt.

Do you have any plans to be debt free in the future? And then I noticed looking through on the website, there aren't any outside analysts that follow you.

Is there any way to - is that good or bad? I don't know.

Yes. As far as debt, when we sold Convergent, we did eliminate a fair amount of our debt at that time with the transaction.

So the current debt on the balance sheet was primarily debt of our Canadian subsidiary, MDI, who have roughly $3 million, $3.5 million of debt on the balance sheet. So we have very low leverage.

We have very little debt. We do have that debt up there.

It's pretty favorable terms, 2%, 3% interest rate. So we really haven't been in a big hurry to rush to pay off that debt in most of the quarter.

And what about the outside analysts? Any thoughts on that?

Yes. I mean in the microcap industry; analyst coverage has been challenging to say the least for all small companies.

The population of the analysts covering companies who have sub $500 million market caps and lower has certainly declined over the past few years or so. As we continue to expand our investment base and our strong entertainment operating business, it's certainly something that we've talked about and that we look at and we've entertained.

It is something we may consider down the road, and there maybe analysts who look at us and want to adopt coverage on us. As of today, we don't have coverage, and that's probably not changing in the next couple of months, but something that certainly may change as we continue to grow going forward.

Thank you.

Okay. Thank you, and thanks, everyone, for joining us today.

We appreciate all the questions today and the time and attention. If there are other questions, or if you'd like to have a follow-up at some point, feel free to reach out.

We'd be happy to chat on a one-on-one basis as well. Thanks.

Have a good evening.