FG Group Holdings Inc. (NYSE:FGH) Q3 2023 Earnings Call Transcript

FG Group Holdings Inc. (NYSE:FGH) Q3 2023 Earnings Call Transcript November 10, 2023

Operator: Good morning, and welcome to the FG Group Holdings Earnings Conference Call for the Third Quarter of 2023. At this time, all participants are in a listen-only mode, and a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, John Nesbett of IMS Investor Relations. John, you may begin.

John Nesbett: Thank you. Good morning, and welcome to FG Group Holdings earnings conference call for the quarter ended September 30, 2023. On the call today are Mark Roberson, Chief Executive Officer; Todd Major, Chief Financial Officer; and Kyle Cerminara, Chairman of the Board of Directors. Before we begin, I would 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 in today’s call.

An executive presenting share and portfolio performance of the investment management company to a boardroom full of investors.

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 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. I’d also like to remind everyone that there is a slide presentation accompanying today’s presentation on the company’s website. So at this time, I’ll turn the call over to Mark Roberson. Please go ahead, Mark.

Mark Roberson: Thanks, John. Good morning, and thank you all for joining us today, and Happy Veterans Day to those of you who served. We’ve been transitioning FG Group Holdings into a holding company really over the past several years. A few of the key steps in that process and accomplishments including: turning around and then monetizing the Convergent operating business, converting our digital signage business into what is now our investment at Firefly, investing in ITASCA Capital and then turning that into GreenFirst. And, most recently, completing the separation and the initial public offering at Strong Global Entertainment. When you look at FGH today, our core holdings include the controlling stake in Strong Entertainment, where we hold approximately 76% of the common shares; and non-controlling stakes in GreenFirst, FG Financial and Firefly.

We also still have commercial real estate holdings in Georgia as well as in Quebec. These valuable real estate holdings were retained when we sold the Convergent business and when we spun out the Strong Entertainment business earlier this year. We will start with Strong Global Entertainment which, again, continues to be consolidated as part of the FGH financial statements and represents the majority of the operating results that you’ll see in our financial statements. I know that many of you may have listened to our call last night for Strong Global Entertainment, which is also available for replay on their Investor Relations site. So we’ll keep things pretty high-level this morning. If you want to refer to Slides 5 through 7, at Strong, we are continuing to see strong organic growth with increasing demand from our exhibitors for laser upgrades and other investments they’re making in upgrading their auditoriums to premium cinema.

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Q&A Session

Our Technical Services group continues to perform at a high-level and they’ve really done a nice job of expanding market share and becoming the go-to service partner for the cinema industry. One example is our installation services group. Our revenues there are up 68% quarter-over-quarter. This is a direct result of the team there listening to our customers’ needs and then customizing our services and solutions to meet those needs. Our screen business continues to perform well with laser upgrades driving steady demand from cinema exhibitors. The team there is expanding our non-cinema offerings as well, rolling out new products this year like our Seismos flooring as well as Orion optical tiles. The flooring product came again from listening to our customers and designing solutions specifically to meet their needs.

We introduced the new flooring product just earlier this year and it’s already starting to contribute revenue. And we are also continuing to develop our content IP portfolio and production services capabilities in our Studios unit. An important part of the Strong Entertainment growth strategy is M&A. And over the past few weeks, Strong completed its first two acquisition transactions post IPO. Unbounded was a strategic acquisition and it positions the Studios group with resources and capabilities in the production services area. Unbounded focuses on shorter form video production, things such as commercials, and building this part of our business will help establish a more consistent revenue stream for Studios. The Unbounded team is a small team but they have deep experience, and it represents a nice first step in our M&A strategy.

More importantly, it’s a foundational piece as we build a larger production services business. We also, just this week, closed the acquisition of Innovative Cinema Services (sic) [Innovative Cinema Solutions]. This transaction will add immediate revenue and additional scale with their run rate over $6 million in annual revenue, and we expect to grow from that base level. Overall, we are very excited about the outlook for Entertainment business, the increasing demand for premium immersive experiences, and we expect to see continued positive momentum. Moving over to our nonconsolidated holdings. We have equity positions in three other operating companies: GreenFirst, FG Financial and Firefly. Over the past year, GreenFirst has continued to successfully execute on its strategy to monetize noncore assets, streamline operations and strengthen their balance sheet.

Earlier this year, GreenFirst announced the sale of private forest land for $49 million, and then that transaction was followed by the sale of sawmills in Quebec for $90 million. These operations were in regions that contain higher costs, and the sale of those operations not only added cash to the balance sheet, but also bring down the average cost per board foot of their remaining operations and allows the team there 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. The reinsurance business is performing very well and continuing to patiently grow and allocate capital. The merchant banking operations have been very active with Craveworthy and FG Communities.

And FGF also completed the DE-SPAC of iCoreConnect recently, which is a cloud-based company. We are very excited about FGF and the potential for the reinsurance and merchant banking as they continue to scale and add value. Turning to Firefly. They’re quietly continuing to expand their digital out-of-home advertising solutions, growing their footprint into new markets in the U.S. as well as abroad. Recently, Firefly expanded its footprint in the U.K., Canada and Abu Dhabi, for example. And Firefly, it’s more than an out-of-home advertising company. It’s really more of a technology company that’s enabling advertisers to use data to target and measure the effectiveness of their ad spend in very unique ways. Todd will now walk us through the financials.

Todd?

Todd Major: Thanks, Mark, and good morning, everyone. As Mark mentioned, since FGH continues to hold the majority of the outstanding shares of Strong Global Entertainment, FGH consolidates SGE’s results. And 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. As you can see on Slide 14, consolidated revenue was up 8% from the prior year with increases in both product and services. On the product side, increases in traditional cinema screen sales and higher revenue from the newly launched Seismos flooring and ORION Optical Tiles product lines were partially offset by a small decline in the sale of digital equipment.