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.

Services revenue benefited from the continuing momentum in installation services, which saw its seventh consecutive quarter with year-over-year increases as well as increases in revenue generated from field maintenance and monitoring. From a geographic perspective, sales outside of the U.S. increased approximately 70% from the prior year. This was primarily with the results of the large immersive flooring project in Asia that is expected to be completed by the end of the year. While gross margin generated from the sale of product was relatively flat year-over-year, gross margin from services was 26% during the third quarter as compared to 23% in the prior year. Margins on services benefited from the strategic move away from outsourcing the installation work to utilizing internal labor to complete the projects.

The increase in gross profit was offset by higher selling and administrative expenses including marketing and travel and entertainment expenses as revenue and business activity increased. General and administrative expenses were also higher as SGE now operates as an independent public company following its IPO in May. Flipping over to the balance sheet. Overall, we’ve healthy liquidity, enough to operate the business on a day-to-day basis. On a consolidated basis, working capital is being utilized to grow the SGE business. For example, the SGE accounts receivable balance is increasing as revenue continues to rise. We believe SGE’s customer base is stable with a solid mix of large international companies and some smaller regional players. SGE continues to work with each of its customers, both new and existing, as they look for additional solutions and efficiencies.

On the liability side, the debt that was related to the production of Safehaven that was added to the balance sheet in Q2 was fully repaid during the third quarter via receipt of the minimum guarantee and the tax rebates for shooting the series in Canada. That concludes the financial review for the quarter, and I’ll now turn the call over to Kyle for a few remarks.

Kyle Cerminara: Thank you, Todd and Mark. I want to start by addressing the recent performance of our stock. As the former CEO, the current Nonexecutive Chairman and the largest shareholder of the company, I think I can offer insight into each of our businesses and holdings. And I certainly have a vested interest in seeing our company and stock price succeed. It’s been a very challenging market for many micro cap and small cap stocks, but the market is no excuse, as many companies are executing and seeing their stock prices rewarded. While there are undoubtedly challenges in every business and our portfolio of holdings will no doubt change over time, I want to emphasize that we’re committed to thriving in any environment. The Strong Global Entertainment IPO was completed, but the value creation we are hoping for hasn’t been recognized by the market.

If this continues, we’ll need to consider our options in terms of the existing float that is outstanding and determine if it makes sense to be a buyer of our stock. The ultimate goal for GreenFirst remains to have the company sold. There’s no doubt that rising interest rates and lower lumber prices have impacted the stock price, but we believe there’s good value in the company. FG Financial is a critical part of our strategy both now and in the future, and we are excited about the financial services platform we’re building. Our team has demonstrated an uncanny ability to do deals in all environments. We are one of only a handful of SPAC teams getting deals done right now, which shows the strength of our team. Our merchant banking continues to create new opportunities as well, and I’m really excited about the future there.

Firefly continues to build a powerful technology model for the outdoor advertising space, and we are patient supporters of their long-term growth and value creation plans. We are constantly looking for ways to further reduce costs, increase scale and create the most possible value for shareholders. We will continue to work hard with urgency, and I look forward to taking any questions you may have.

Operator: [Operator Instructions] Thank you. We have a question on the line from Brett Reiss with Janney Montgomery Scott. Your line is live.

Mark Roberson: Hey, Brett. Good morning.

Brett Reiss: Good morning. Good morning. Of all of the stocks, I mean, the one with the greatest disconnect of valuation is the FG Financial. So I’ve got a couple of questions on that. Kyle, the $2 million investment in that FGC community housing, can you describe that a little bit? And is something like that throwing off cash to FG Financial?

Kyle Cerminara: Sure. I can describe that. So FG Communities is a company that we started about a little over a year ago, and it was to invest in manufactured housing communities to own them and operate them and to preserve them essentially. So the goal is to preserve and improve affordable housing, mainly in the Southeast United States as the initial focus. So we formed the company, we funded the company and we’ve now grown to over 20 communities that we own inside of FG Communities. The company is raising outside capital, has raised both common equity and preferred equity and is growing very nicely. I expect that to be one of our largest holdings over the next 12 to 24 months in terms of size and scale. So it’s been quite a success.

Manufactured housing is a wonderful industry that we are really excited about. The cash flows are extraordinary on that business. We have not paid any cash flows to the common shareholders yet because it’s still in growth mode. But as the company achieves critical scale over the next few years, I anticipate that common shareholders of FG Communities will receive cash flow and/or some type of an exit through an IPO or some type of a recapitalization transaction that results in return of capital to shareholders.

Brett Reiss: Okay. Now we still have — FGF still has, I think, shares in OppFi. OppFi seems to have turned themselves around. They had a very good quarterly release. Do you hold your OppFi? Or do you — are you inclined to opportunistically monetize that to bring cash in for other initiatives? What are your thoughts on something like that?

Kyle Cerminara: So I don’t want to get too much into detail on our thoughts on whether we’ll buy or sell OppFi in the future, but we certainly are pleased with the turnaround. Some of the things that happened post the SPAC transaction, we are surprised with the CEO leaving and the earnings disappointment. But they seem to be back on track. I’m not on the Board or an executive of the company and haven’t been so for a few years. But as an outside investor looking in, they certainly are starting to show signs of improvement. We currently think the stock is undervalued and I would be surprised if we are selling at this price. But it all depends, at that time, what opportunities we have and whether — does it have more upside or downside. So we run everything like a portfolio. And if there’s something that has more upside, then we’ll take that into consideration. But right now, we haven’t been a seller.

Brett Reiss: Okay. Could you share with me and the people on the call the current situation with Firefly as you know it?

Kyle Cerminara: Yes, sure. So Firefly, as you know, or if you don’t know, it was a company that we originally founded as they work out from — we had a business called Convergent Media Systems that we eventually sold to SageNet. But Convergent had a customer that defaulted on us. We had significant screens that we could use for a business. So I came up with the idea, like let’s use the — let’s turn lemons into lemonade and create a business that we can use this customer that defaulted on us and turn it into a business. So we created a company called Strong Digital Media LLC, which was branded as Strong Outdoor. And Strong Outdoor went and signed one of the largest contracts in New York City for taxi cabs, and we installed all of our screens on taxi cabs.

We grew that business. We then — we sort of learned in the marketplace that Google had funded a company called Firefly. And if you know anything about Google, Google is obviously really successful in the advertising space and they have lots of money. So we were in the advertising space trying to pursue a technology model with less capital than Google, obviously. And we felt that Google had much more experience in technology than we did and had much more experience in advertising than we did and probably more experience in both of those than anyone in the world. So we decided to partner with Google Ventures and merge our business, Strong Outdoor, into what is now called Firefly. Firefly has expanded well beyond New York City to — when we merged with them, they had lots of other cities as well like San Francisco and L.A. But now they’re not only just nationwide in the U.S., but they’re also global in terms of they have launched cities outside of the U.S. like London and others.

And it’s really become from what was a few million dollars of revenue when we started it to now a much larger company with great prospects. They’ve raised over $100 million of venture money from some of the best venture funds in the world like GV, which is Google Ventures, NFX and Pelion Ventures and others. It’s a really attractive cap table that we’re proud of. And beyond that, we expect them to continue to grow revenue and ultimately earnings and have exited in that company when the Board — I’m on the Board of Firefly. And when the Board feels that the company is ready to be a public company, that’s sort of the plan, is to at some point take the company public.

Brett Reiss: Great. I will drop back in queue. There may be other questioners on the call. Thank you.

Mark Roberson: Yes. Thanks for the questions, Brett.

Operator: Thank you. Our next question is coming from Bill Brewster, who is an Investor. Your line is live.

Bill Brewster: Hey, guys. How is it going?

Mark Roberson: Hey, Bill. Good morning.

Bill Brewster: I wanted to ask a couple of questions about the strategy in production. I think from the outside looking in, when I initially heard about getting into content production, I was concerned about the cash flow dynamics of the business and how much risk you all were taking. know that some of this has been disclosed in previous 10-Qs, but it might be helpful to lay out how you’re trying to minimize the potential outflow that is required in content production and how you’re minimizing the risk. I’d be curious to hear you talk a little bit about your strategy on that side of the house.

Mark Roberson: Yes. Bill, thanks for the question. I can start and Kyle may want to chime in on this as well. But yes, we are taking — our approach to content is pretty conservative in terms of the way we are approaching it. We are not allocating lots of capital to develop projects on the fly. It’s a pretty disciplined approach. The model that we deploy in the Studios group for developing content is we’ll spend small amounts developing projects to a certain stage where we have scripts and we have a marketable project that we can take out and determine how much interest there is. And the overall model is to develop these projects, build the portfolio, go out and market it, gauge interest and raise capital to support these projects either privately or through presales and minimum guarantees and then utilize those commitments as well as tax credits by producing these projects in tax-friendly jurisdictions to fund the production.

So before we Greenlight spending millions of dollars of capital on any given project, there has to be significant interest from the market. And there has to be either presales, minimum guarantees or other sources of funding through the tax credits that supplement the production and basically cover the cost of production. So that keeps our capital at risk very controlled and very low as well as this still gives us lots of upside and future benefit from participation in those projects when they do come to market from a royalty standpoint.

Bill Brewster: Can you expand a little bit on why now, right? Like why is the company sort of evolving into this business at this time in its life cycle?

Mark Roberson: Yes. Bill, I mean, it’s something that we have been looking at and talking about really for quite the last few years in terms of — before we pull the trigger on it. In terms of how we evolve our entertainment business from its core roots, which is a great business, solid cash flow, profitable business with a long operating history, and how we evolve that business into other areas of entertainment. This was a logical adjacency. We believe too that it has a fair amount of headroom for growth that adds on to our core business and where we can create value. And we see this cinema — really, the entertainment business overall continuing to evolve. That evolution was accelerated through COVID. It’s a disruptive — it’s an industry that’s being disrupted from a streaming standpoint.

And the demand for content is continuing to rise. The demand for content that can be made economically and efficiently, I think, is going to grow faster because at some point, these streamers have to make money. So you have to be more efficient, more effective in terms of your approach to producing high-quality content. And I think that’s where smaller nimble content producers like Strong Studios can excel.

Bill Brewster: Do you think — just looking at where the capital cycle is and whatnot, if streamers decide to start pulling back on their spend, is there — I mean, is this a fairly low risk? Like is there going to be demand at the end of the tunnel, no matter what? Or is this a project that can be shut down if necessary, without like big exit costs? Just kind of curious how you’re thinking about if aggregate content spend were to slow, how — what our exposure is there.

Mark Roberson: Yes. Bill, I think — go ahead, Kyle.

Kyle Cerminara: I can address that. So right now, we have very little capital invested in any specific project, and when I say very little, like less than a few hundred thousand dollars in any specific project. We did have more than — we had over $1 million invested in Safehaven. And we’ve now derisked Safehaven and received all of our money back, paid off everything related to the development cost, and we still own a substantial portion of the back end when that sells. So that’s a good model for us, where we can find projects that are interesting. It’s somewhat analogous to like an asset management business where we are building these ….

Bill Brewster: Kyle, I don’t mean to cut you off. But did — you went dark on my line. Did you go dark on everybody’s line?

Kyle Cerminara: I don’t know. I don’t think so.

Bill Brewster: Okay. I’m just — because — okay, sorry. I can read the transcript. But it was an interesting point you were making and I wanted to make sure that it was captured. So I apologize.

Kyle Cerminara: Sure. No worries. Well, what I was saying — can you hear me now, Bill?

Mark Roberson: Yes, yes.

Kyle Cerminara: Okay. What I was saying was that we have limited capital exposure right now to any of our projects. And when I say limited, I mean certainly less than $1 million, and in many cases, it’s a few hundred thousand dollars per project at most. And that’s like — when I say a few hundred thousand, that’s like our largest projects have like a few hundred thousand of exposure. And we’ve really fashioned it as like an asset management business that — like we’ve done with other businesses, where we raise capital for the projects or we don’t do them. And we let the market decide if the project is a good one or not. And if there is investor demand for the opportunity, we’ve presented it, we’ve given investors an opportunity to invest in it.

And we’ve built a model where Strong Global Entertainment, through Strong Studios, can make fees that are similar to what I would call like asset management fees, where we’re getting — we call them production fees, right? We’re producing the product. And then we are getting fees that are similar to performance fees on an asset management product in that we own a percentage of the back end, right? So there’s — and the more of these that we build, the better, particularly when we’re doing it like an asset management-like model where we have — it’s an asset-light asset management model. We’re not betting tons of our money on this, we are betting some of our money on this. And to your question about whether it’s possible to unwind, we could unwind it.

But we think that we’ll be able to build this out to a nice business. Now if a year from now, we — a year or 2 years from now we say, “Hey, you know what? We’ve tried and it’s not working.” Then certainly, we’ll — or if the market changes — and the market has changed in the couple of years that we’ve been involved. So we’ve been adapting and changing to it. We’ve also, through Unbounded, acquired a business that has more recurring potential revenue because they do not only movies and documentaries, but they also do a lot of advertising content. So they’re creating content for companies that need advertising content. So that’s much more regular jobs, smaller jobs, regular jobs that can really build a nice steady stream of cash flow when you’re not — while you’re waiting for the big win, on something like Safehaven.

So I feel very good about that model. I think it’s very consistent with what we are doing in other businesses, where we are not deploying tons of our capital. And eventually, when — ideally when GreenFirst is sold or if GreenFirst is sold, we’ll have a lot more capital to do more of these types of things and/or buy our stock because we’ll still have to make a decision when that happens. So right now, I’m really pleased with the progress we’ve made in that business.

Bill Brewster: All right. I’m going to ask you one quick follow-up on GreenFirst and then I’ll drop in the queue, but I got a couple more if there’s no one after me. GreenFirst is obviously in the middle of the storm that the Fed is targeting real estate and lumber, obviously goes into real estate. But I’m curious, as you look at where the investment is today and given the sales of assets and the monetizations, how do you feel about the price paid for GreenFirst and using the FGH capital to purchase that asset given sort of how the facts have unwound? I’m curious, your thoughts of whether or not you’re still pleased with the transaction or whether or not you would have done something differently.

Todd Major: So we originally purchased GreenFirst when it was ITASCA. Actually before it was ITASCA Capital, it was called Quebec’s Capital and we bought it as a cash shell in Canada with the idea that we could do something interesting with it, not much different than a Canadian SPAC with no time line to do a deal. So it was a pretty attractive structure. But it didn’t have a promote like a SPAC and it didn’t have a deadline like a SPAC did. So there is — SPAC has a promote for the sponsors and it has typically a 12- to 24-month time period for which you can do a deal. This was different because we had a cash shell that had tax NOLs, that had the ability for us to look for something really interesting to do but we had time.

And — but we don’t have infinite time, because as time went on, we started to get impatient and wanted our capital back. So we invested originally in the — like at a much lower price than the current stock price. And when the opportunity to do the deal with Paul Rivett came along, we jumped on it and thought it was a really good opportunity. The question might then follow and say, was it a good use of capital to exercise the shareholder rights that we are given as part of the transaction to acquire those assets from Rayonier. And if you remember back then, we were under tremendous amounts of pressure to exercise all of them. And in fact, we were like chastised for not exercising all of them by our shareholders. Like they were angry that we didn’t exercise every single one of them.

How could you do this? It was like we had — so I recused myself from that decision to let the Board make the decision because I knew it was going to be a controversial decision. And I wanted the Board to have insight into that, particularly since I was on the Board of GreenFirst. And I wanted to make sure it was a purely independent decision that was made. So they made the decision that they made, which was to exercise part of the rights but not all of them. There was a period of time where that was a great decision. And I left the Board of GreenFirst shortly after that to — I thought that I had done what I was put on the Board to do, which was find a deal, close the deal and then let the operators of that company thrive. I — as an investor in the company, I’ve certainly been involved in looking and trying to help the company find ways to monetize because we want to monetize our position at some point, obviously.

And we went about that with — I went about that with great urgency. Over the last 12 to 24 months, I’ve been very much in contact with lots of the other potential buyers of the company. I’ve flown around the world. I’ve gone to Vancouver. I’ve gone to all kinds of other places to meet with these — with potential buyers. And I feel like I have a pretty good sense for what the company should do. I’m not on the Board so — others are. But I think that they have more access to information about why or why not those things have not happened yet. I can tell you, I’m personally frustrated that they have not happened. I do understand the idea behind monetizing the Quebec mills and monetizing the land that they did first. I — you can look back with 20-20 hindsight and say, “oh, they should have just sold the whole company when all of the prices were high.” Sure, I don’t disagree.

That would have been great if they had sold it at a much higher price. The fact of the matter is, interest rates have gone from 2.5% to 7% or 8% or whatever they are now as of today, I think like 7.5% average mortgage rates. And that’s impacted the housing market and that’s — lumber prices have fallen some. So that’s not been great. A lot of the other publicly traded lumber companies have gotten hit as well. And that doesn’t mean that it was a bad decision for the Board to do what they did. They were trying to maximize — I’m guessing that they were trying to — I wasn’t involved in this decision, but my guess is that they were trying to maximize value for shareholders and get the best possible price. So now you say, well, where do we go from here?

And I say, well, they have a CEO in place that’s an operator that they just put in place. I have not spoken to him and I don’t know him. So hopefully, he’s good. I trust the Board that they’ve done a good job selecting him. And I think that as an ongoing concern, you’ll likely have to run your company properly until there’s a strategic transaction to do. There’s other things that they can do like monetizing some of the assets that we purchased, like the Kenora mill, land around that. There’s other things that they can do like that. I think that a lot of people have been wondering like when they will monetize or sell or get rid of the newsprint mill. And I think that some of these things are really important for them to do so that, going forward, we can be in a position to best maximize value for shareholders.

I have no view on whether interest rates will go up or down or lumber prices will go up or down. That is better than your view or anyone else’s on this call. I’m sure everyone has their own view if interest rates are going to stay high, they’re going to go down, lumber prices are going to go up or down. I think that my view is as educated as everyone on this call. But beyond that, I think that there’s more value in the company than the stock price. And I’m hoping that we can have a favorable transaction at some point in the next few months or a year. But that’s what we want as shareholders. But again, we also don’t want to be desperate as shareholders. If it takes multiple years to monetize, I guess, that will be the course. Like that’s what we’ve said with Firefly, but hopefully, they do something very soon.

Bill Brewster: Thank you all for your time.

Todd Major: Thank you, Bill.

Operator: [Operator Instructions] Okay. As we have — sorry, we do have a question. Bill has come back into queue. Your questions are coming from Bill Brewster, who is an Investor.

Bill Brewster: All right. One more. So Kyle, on iCoreConnect, I’m curious how that deal — what your perception of that deal is now that it’s closed and how you think after you have structured that deal. I think from the outside looking in, it’s kind of hard to maybe understand exactly what happened, but my sense is it turned out pretty well. So I’m curious for your thoughts.

Kyle Cerminara: So I think that there’s a lot of companies on the — that trade on the pink sheets or over the counter that are not great companies. But there’s also some companies that are good companies, and many of them would like to have access to more capital to grow. And it’s very hard to raise lots of capital as a pink sheet traded company or OTC-traded company without SEC filings and other things. I think investors sometimes don’t realize like all the laws related to raising capital when you’re not an SEC filer. Being an SEC filer generally makes it easier to raise capital, if that’s your desired goal, to raise capital and grow. So the SPAC market, as you know, had hundreds of SPACs that were launched in 2020, ’21 and got oversaturated with people looking for deals.

We had been very firm with the view that we were long-term dedicated to the SPAC market, that we’ve been in this market for a long time. We have a team that has been doing SPACs since — as early as 2005, ’06, ’07 time period. And that regardless of SPAC market, whether it’s booming like it did in 2020 or whether it’s bust like it did over the last year or two and like it did previous to 2020, it’s really not, in our view, a bust of the SPAC market, it’s really like a return to the normal. And I’m actually quite happy that we had this boom so that it brought awareness and understanding of SPACs. Now we’ve had a bust so that now a lot of the participants that should not have been in SPACs have kind of been fleshed out. We think that we are — we have a very experienced team in SPACs just from the actual knowledge of how to get a SPAC transaction done.

We think we have a great team from the perspective of getting — due diligencing and really working hard to find the right transaction to do. And then we also think we have some really good experience with people like Joe Moglia and Larry and myself that can sort of guide our team to what we think is the right type of transaction for us to do and build a franchise around FG as a SPAC company. I think we’ve done a good job with that. What’s really neat about the iCore transaction, one, is that we got a deal done in a very difficult environment; but two, is how we did it. And this was a company that wanted to raise capital, wanted to uplist to the NASDAQ. And we helped them raise capital. We helped them do so in a very innovative way. We went to the marketplace and understood what capital might be available.

And then we structured a transaction with them where we have convertible preferred that has a ratchet feature down that, essentially, our conversion feature goes lower down to, I believe, low as $2 per share if — in the event that we decide to convert. But we are protected with the preferred principles. So it’s a really nice feature that we built into that for investors. And we — rather than just giving it to us, we made it available to anyone who invested in the IPO of the SPAC. So I think it was a really innovative structure. I’m proud of our team for the way they innovated, and I’m very happy that the capital markets were supportive of it. I’m thankful to the investors that we’ve had that continue to support us. So I think that all in all, it worked out to be a good transaction.

I think iCore now needs to execute on their business model that they laid out in terms of executing on that pipeline of potential software deals. And if they do that, I think that they’ll be successful. So I think it’s — we are not on the Board anymore. We are not management. We are getting them sort of do what they need to do. We got our job done, and now it’s their turn to execute. So hopefully, the management team and Board executes.

Bill Brewster: Okay. And just one follow-up. To the extent that it’s — FG’s capital at risk and there’s a vested interest in the outcome, are you thinking about this as the preferred is likely covered in most scenarios and then the conversion to common is the upside? Like is that how you think about protecting your own capital? Or am I misreading that?

Kyle Cerminara: I think that we certainly view it as though we have more downside protection, a lot more downside protection than you would normally have in that if the stock price falls, which it has, but it also rallied. It’s been all over the place. So there’s not a whole lot of public float so the stock has been everywhere, that we have downside protection in the preferred and we also have downside protection in the conversion feature. But if we have significant upside like we did, it can really be material. So I think we’re very happy with that structure of — and by the way, that structure is consistent with the way we try and do everything. We try and do everything with protect the downside, preserve the upside, protect the downside, preserve the upside, protect the downside — we do that again and again and again.

Every time we do a deal, protect the downside, preserve the upside. Sometimes it’s not perfect, but that’s our goal on every transaction. But it’s not always going to be foolproof.

Bill Brewster: Yes. Well, that’s risk. Right. But — all right, cool. Appreciate your thoughts and I hope you all have a good day.

Kyle Cerminara: Yes, thank you.

Operator: Thank you. As we have no further questions in queue, I will turn the call back to management for closing remarks.

Mark Roberson: Thank you for joining the call today. Thanks to Bill and Brett. Those are great questions. If there are any other questions that you guys have, as you digest the material or listen to the call or read the transcript, feel free to reach out. We’d be happy to answer any other questions you might have. Otherwise, again, thanks for joining the call and hope you have a great weekend.

Operator: Thank you. This concludes today’s conference and you may disconnect your lines at this time, and we thank you for your participation.