Ballantyne Strong, Inc (BTN)

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Ballantyne Strong, Inc. (BTN)

Acquisition of Convergent Media Systems

October 1, 2013 10:00 AM ET

Executives

Tricia Ross - SVP and IR

Gary Cavey - President and CEO

Mary Carstens - CFO

Analysts

Eric Wold - B. Riley

Tristan Thomas - Sidoti & Company

Kyle Cerminara - Fundamental Global Investors

Presentation

Operator

Ladies and gentlemen, welcome to the Ballantyne Strong Conference Call, following today’s announcement of the acquisition of Convergent Media Systems. During the presentation, all participants will be in a listen-only mode. Following the prepared comments, we will open the call for a short question-and-answer session. As a reminder, this conference is being recorded, Tuesday, October 1, 2013.

I would now like to turn the call over to Tricia Ross, Ballantyne Strong’s Investor Relations representative. Please go ahead.

Tricia Ross

Thank you and good morning everyone. Today’s call and webcast may contain forward-looking statements related to the Company's future operating results. Except for the historical information in this conference call, this call includes forward-looking statements that involve risks and uncertainties, including but not limited to quarterly fluctuations and results, customer demand for the Company’s products, the development of new technology for alternate means of motion picture presentation, domestic and international economic conditions, the management of growth and other risks detailed from time-to-time in the Company’s Securities and Exchange Commission filings. Actual results may differ materially from management’s expectations.

I’d also like to mention, that we will only have limited time for the Q&A session today. Management has a number of other meetings scheduled with employees related to today’s announcement. If we do not get to your questions on today’s call, we will be sure to follow-up with you in the coming days.

Joining us today from management are President and CEO, Gary Cavey and CFO, Mary Carstens.

At this time, I would like to turn the call over to Gary. Gary?

Gary Cavey

Thank you, Tricia. Good morning everybody. And thank you for joining us this morning. Earlier today, we announced the acquisition of Convergent Media Systems which was a subsidiary of Sony Electronics. This is an all cash transaction valued at approximately $16 million. As we have indicated for quite a while, we’ve been looking for acquisitions that would enable us to extend our core expertise and assets into adjacent markets experiencing strong growth. In particular, we’ve been focusing on industries where a network operation center or NOC plays an integral role in customer service, which would enable us to leverage the robust infrastructure we have developed with our own NOC.

Convergent Media Systems is a perfect fit for the criteria we indentified. Convergent was founded in 1980 and has become a leading player in digital signage and content creation and distribution systems. If you’ve been in a Safeway or a Kroger store, you’ve probably seen Convergent’s digital signage at work. In total, Convergent manages digital solutions for over 95,000 displays, more than 22,000 locations that are viewed by more than 10 million people every day.

Like Ballantyne, Convergent has a strong presence in the cinema market and while also having customers in retail, hospitality, financial services and government markets. Convergent has a strong presence in two attractive segments of the digital solutions industry; first, the digital out-of-home or DOOH market, which provides digital technologies for out-of-home messaging, advertising, communication; second, the enterprise video solutions or EVS market, which provides enterprises with infrastructure to allow for communication, collaboration, training and education of employees.

In aggregate, the domestic DOOH and EVS markets are estimated to be more than 4 billion annually and growing quickly. Industry reports project that the DOOH market and EVS market to grow at a compound annual growth rates of 26% and 16% respectively through 2015. The dynamics driving the growth in the DOOH market in particular are quite interesting. With the proliferation of DVRs and online video streaming, fewer people are actually watching commercials on televisions. Some recent data indicates that 79% of the viewers skip the commercials when watching televisions. So, advertisers are looking for new ways to get their messages in front of the consumers which is why the digital out-of-home market is seen more add dollars following its way.

Advertisers recognize that people standing in line of [indiscernible] is a rare opportunities these days to market to a captive audience and we put our ads on a digital display in those locations you’re going to get your message seen by a lot of people. This presents a really big growth opportunity for a company like Convergent which has established itself in the DOOH market and has a blue chip client base.

As the DOOH market is still in its relative infancy, its high fragmented with no clear market leader which creates a great opportunity for the larger better finance companies to take market share. Convergent has a distinct competitive advantage and that it’s the only company in the market that can provide customers with an end-to-end single source solution with digital signage campaigns.

Convergent has a the creative abilities to develop content, it has the technical capabilities to provide the hardware, software and system integration necessary for these campaigns and it has the infrastructure and staff in place to provide the network monitoring in field services required to manage the digital campaigns on an ongoing basis. No other company in the industry provides the entire spectrum of services.

Over the past several years, Convergent has focused primarily on Sony’s specific objectives for their vertical segments. They’ve continued to maintain service and legacy customer relationships but did not grow the business. As a result revenues and profitability at Convergent has declined over the past few years.

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