Ballantyne Strong, Inc (BTN)

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Ballantyne Strong, Inc (BTN)

Q1 2013 Earnings Call

May 10, 2013 10:00 am ET

Executives

Robert Rinderman

Gary L. Cavey - Chief Executive Officer, President and Director

Mary A. Carstens - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Eric C. Wold - B. Riley Caris, Research Division

Aaron Syvertsen - Sidoti & Company, LLC

Michael Rindos

Edwin Fowler

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ballantyne Strong 2013 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, May 10, 2013.

I would now like to turn the conference over to Rob Rinderman, Ballantyne Strong Investor Relations. Please go ahead, sir.

Robert Rinderman

Thank you, Myra. Good morning, everyone. Today's call and webcast may contain forward-looking statements related to the company's future operating results. Listeners are cautioned that such statements are based upon current expectations and assumptions that involve certain inherent risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These risks and uncertainties are detailed from time to time in the company's SEC filings.

The company's actual performance may differ materially because of these or other factors as discussed in the Management's Discussion and Analysis section of Ballantyne's filings. Copies of which can be obtained from the SEC or via the company's website at strong-world.com. All information discussed on this conference call is as of today, May 10, 2013, and Ballantyne undertakes no obligation to update any statements or expectations from prior conversations. Today's call is being webcast live over the Internet, and a replay will be available on our website for a minimum of 30 days.

I will now turn the call over to President and CEO, Gary Cavey, who's joined this morning by CFO, Mary Carstens. Gary?

Gary L. Cavey

Thank you, Rob. Good morning, everybody. We appreciate you joining us. Earlier today, Ballantyne reported another quarter of profitable results. Mary will provide you more color on our Q1 financials and capital structure following my remarks.

Given the advanced stage of the digital cinema transformation in the Americas and the current position of our business, Ballantyne's financial performance was largely as expected, reflected our candid commentary on recent quarterly conference calls and in other public forums. Following Q4 2012, we noted that the year-end expiration of the virtual print fee programs had prompted a temporary boost in purchasing activity late last year. However, as anticipated, Q1 was lower.

Our cinema screen manufacturing division achieved year-over-year growth, largely due to a healthy replacement screen business. As recently announced, we have entered in a strategic supply arrangement with the cinema technology leader, RealD. Pursuant to this arrangement, we are manufacturing and marketing screens, featuring Precision White technology, which is a dramatic state-of-the-art improvement over previously available cinema screens.

With Precision White technology, improved screen efficiency results in 40% more brightness and reflectivity, a critical factor for 3D and 2D content. As mentioned in the release, initial customer response for the new technology has been very good. In addition to this initiative with RealD, we have been investing in Real -- in R&D with a goal of further enhancing cinema screen technology.

Turning to the cinema service business. Although there was a revenue decline from the prior year Q1 level, this was expected since our service team has finished the digital projection system installation and integration of nearly 7,000 screens across the country on behalf of the nation's leading theater exhibitors. That unprecedented multiyear project was completed during the fourth quarter of 2012.

We continue to focus our sales organization on capturing opportunities to grow our service business within the cinema. In addition, we've hired an individual who will focus exclusively on opportunities outside this segment.

The encouraging news is that we've been transitioning our service business to a more predictable revenue streams, including signing reoccurring annual projection system maintenance contracts and not clients, which we have been monitoring from our cutting-edge facility based at Ballantyne's Omaha headquarters.

Additionally, we believe our 24/7 service represents a compelling value proposition for cinema customers, including a number of the largest exhibitors in the world. The goal is to proactively target them as their initial monitoring contracts, which were included in the original projection purchase agreements, expire and before they go to renew them.

As detailed on past calls, there are also numerous opportunities to generate non-cinema NOC business, and our team is focusing on targeting a number of those opportunities. A portion of our Service business is in theaters but not in the auditoriums. For example, we are monitoring digital flat screens that show coming attractions and other advertising in the lobbies and hallways of the leading theater exhibitors. Our premise is simple. If it has an IP address, our NOC team can monitor and manage it. Our experienced team has the technical expertise to handle a vast array of digital and software and network applications.

I would like to take a minute to, once again, address our corporate return of capital policy, as this was a topic raised during the Q&A session on our last investor call. We understand and appreciate that some of you have different opinions of how our company should deploy its $40 million-plus cash balance. Some have suggested that we reinstate our share buyback, and others believe that paying a dividend would be the best, and still others prefer that we spend our capital on investment in organic and inorganic growth.

Read the rest of this transcript for free on seekingalpha.com