Ballantyne Strong, Inc (BTN)

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Ballantyne Strong, Inc. (BTN)

Q2 2013 Earnings Conference Call

August 08, 2013 10:00 am ET

Executives

Robert Rinderman – Investor Relations

Gary L. Cavey – President and Chief Executive Officer

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

Analysts

Eric Wold – B. Riley & Co. LLC

Tristan M. Thomas-Martin – Sidoti & Co. LLC

Sheldon Grodsky – Grodsky Associates, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the 2013 Second Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, August 8h, 2013.

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

Robert Rinderman

Thank you, Sheryl, and 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, August 8, 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 it over to President and CEO, Gary Cavey, who's joined by CFO, Mary Carstens. Gary?

Gary L. Cavey

Thank you, Rob. Good morning everybody. Thanks for joining us. Earlier today, Ballantyne reported profitable results for the 2013 second quarter. Perhaps the key takeaway is that things have unfolded as we expected. Although top line revenue is coming down, we achieved a significant increase in gross margin percentage primarily resulting from a mix shift in revenue to higher margin screen, managed service and specialty lighting business.

Mary will provide more color on our financials and capital structure following my remarks. With the worldwide digital rollout in full force over the last years, the majority of our company’s net revenue has been driven by digital projection system sales in the Americas and Asia, including China. These transactions have generally been at a high average selling prices that is comparably low margin ranging from the low-teens to in some cases high-single digits.

In recent quarters, due to competitive pricing pressures, we sacrificed additional gross margin percentage on certain sales in order to secure bungled agreements that contributed to re-occurring revenue from a long time service and not contracts. In some cases, we also sold cinema screens and related equipment contributing towards the overall equipment package margins.

During Q2, our screen manufacturing division again achieved year-over-year growth largely due to replacement screen business and some incremental revenue from the sale of the high white screens related to the relationship we have with Real D.

Managed service businesses were down modestly compared to the year earlier period. During Q4 of 2012, our service team completed a very large multiyear digital integration and insulation project for the nations leading theatrical exhibitor. This includes the conversion from analog to digital of approximately 7,000 screens at hundreds of locations across the country.

Looking ahead, year-over-year service revenues resulted in Q3 and Q4 of this year will also being impacted by the comparisons, including non-reoccurring revenue derived from the final two quarters of our integration and installation work. But as evidenced, in our results this quarter we have been successful in replacing a good portion of the installation revenues associated with the digital rollout with our managed service business.

To reiterate, what I stated last quarter, we believe our 24x7x365 turnkey managed services offering is unique and unmatched within the cinema industry, not to mention in other verticals that we are also targeting. This includes retail where we recently won an installation agreement with a leading specialty jeweler [reseller]. Our service team will complete this initial pilot roll out for this retailer this year. And we will follow-up with other locations across the U.S., in 2014, if the performance metrics of the promotion meet the retailers’ expectations.

Our sales team is actively targeting additional clients in the retail space. As well as other verticals were strong technical service technicians can leverage their skills, if it is digital equipment and it has an IP address, Ballantyne can integrate, install, maintain, and monitor it.

In the Cinema space, we have a stellar reputation for providing turnkey products and services over more than eight decades, and our client base includes hundreds of large and small exhibiters throughout the world.

After-sale maintenance via on demand in annual contracts, as well as contracted NOC service monitoring service continues to be key areas for future expansion for us. We are continuing to provide demand and other services to the movie theater owners, and we believe we are in good position to win additional services when the current monitoring contracts to expire. These contracts typically less add-ons at the time of the initial purchase.

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