Ballantyne Strong Reports Financial Results
for Third Quarter 2016
OMAHA, Nebraska (November 8, 2016) –Ballantyne Strong, Inc. (NYSE MKT: BTN), a holding company with diverse business activities focused on serving the cinema, retail, financial and government markets, today reported financial results for the third quarter ended September 30, 2016.
Net revenues were $18.7 million in the third quarter of 2016, compared with $19.7 million in the same period of the prior year. Income from operations was $0.3 million in the third quarter of 2016, compared with a loss from operations of ($1.0) million in the same period of the prior year. Net loss from continuing operations totaled ($0.5) million, or ($0.03) per share, in the third quarter of 2016, compared with a net loss from continuing operations of ($2.5) million, or ($0.18) per share, in the same periodof the prior year.
The financial results for the third quarter of 2016 include certain items that had a disproportionally negative impact on our third quarter of 2016 results. These items included ($0.4) million related to warranty expense, ($0.3) million related to an inventory revaluation and ($0.8) million related to a volume rebate.
Kyle Cerminara, Chairman and CEO of Ballantyne Strong, Inc. commented, “I am pleased with our progress during the third quarter of 2016. While the third quarter of 2016 was negatively impacted by a few items, the timing of which disproportionally impacted this quarter, we continue to make a great deal of progress with the turnaround of the company and we are excited about the revenue and earnings prospects as we move into 2017. Our team continues to focus now on building from the foundation we’ve laid out in the last year, and though this work takes time, we are confident in the long-term shareholder value we are creating. We have made thoughtful investments that we believe have significant potential over the long term. In the past several quarters, we’ve begun reinvesting in areas that have potential to deliver high returns. Some of the most important investments we’ve made have been in our sales force, digital media software, new businesses, R&D and in our corporate infrastructure. Though these investments will impact our earnings in the short term, our expectation is that they deliver high returns for us in the long term. I’m very excited about the potential impact of these investments over the coming quarters and years.”
Q3 2016 Financial Summary
Cinema revenues were $11.1 million in the third quarter of 2016, compared with $11.0 million in the same period of the prior year. The increase is due to higher screen sales, which was partially offset by a decrease in sales of distributed products.
Digital Media revenues were $7.9 million in the third quarter of 2016, compared with $9.0 million in the same period of the prior year. The decrease is attributable to the prior year period including revenue generated by a few large installation projects and equipment sales.
Consolidated gross profit was $4.4 million in the third quarter of 2016, compared with $3.8 million in the same quarter of the prior year. Gross margin was 23.4% in the third quarter of 2016, compared with 19.1% in the same quarter of the prior year. The increase in gross margin percentage was driven by more effective management of operating costs and a more favorable sales mix. There were several items in the third quarter that negatively impacted gross profit including a warranty reserve adjustment of ($0.4) million, or (1.9%), an inventory reserve adjustment of ($0.3) million, or (1.4%) and a volume rebate of ($0.8) million, or (4.1%).
Selling, general and administrative expenses (SG&A) were $4.1 million in the third quarter of 2016, compared with $4.8 million in the same quarter of the prior year. The decrease in SG&A was driven by a prior year charge of ($0.6) million related to the impairment of software intangibles. Expense reductions in several areas of SG&A in the third quarter of 2016 in comparison to the same period of the prior year were offset by investments in areas that are expected to drive revenue growth and operating efficiencies.
Nine Month Results
For the nine months ended September 30, 2016, net revenues were $56.3 million, compared with $56.7 million for the same period in 2015. Gross profit amounted to $15.8 million, or 28.0% of net revenues, compared to gross profit of $11.5 million, or 20.3% of net revenues in the prior year period. Net earnings from continuing operations were $0.5 million, or $0.03 per share, for the nine months ended September 30, 2016, compared to a net loss from continuing operations of ($15.2) million, or ($1.08) per share for the same period of the prior year.
Discontinued Operations
As a result of the plan to pursue a sale of the Strong Westrex operations, the financial results of the Strong Westrex business are being reported as discontinued operations in the condensed consolidated statement of operations. All prior period results have been reclassified to reflect results from continuing operations. Net loss from discontinued operations was ($8) thousand in the third quarter of 2016, compared to a net loss of ($0.7) million in the same quarter of the prior year.
Balance Sheet
Excluding assets held for sale, Ballantyne’s cash and cash equivalents balance at September 30, 2016 was $13.8 million, which was lower than $17.9 million at December 31, 2015. The decrease in cash was driven by cash utilized for the purchase of equity investments. The cash balance for the Strong Westrex operations, classified under assets held for sale, was $1.4 million as of September 30, 2016. Investments in equity method investments had a book value of $7.8 million and a market value of $10.5 million as of September 30, 2016. Investments in marketable securities had a book and market value of $2.0 million as of September 30, 2016.
Conference Call and Webcast
A conference call to discuss 2016 third quarter financial results will be held on Tuesday, November 8, 2016 at 5:00 p.m. Eastern Time / 4:00 p.m. Central Time. Investors and analysts are invited to access the conference call by dialing 866-652-5200 (domestic) or 412-317-6060 (international), and referencing “Ballantyne Strong”. A link to the third quarter presentation and a live webcast of the call is available on the Investors – Financial Reports & Webcasts section of http://www.strong-world.com.
After the live webcast, a replay will remain available in the Investor Relations section of Ballantyne Strong’s website. A replay of the call will be available at 877-344-7529 (domestic) or 412-317-0088 (international) through November 22, 2016, conference ID 10091963.
About Ballantyne Strong, Inc. (www.strong-world.com)
Ballantyne Strong and its subsidiaries engage in diverse business activities including the design, integration and installation of technology solutions for a broad range of applications; development and delivery of out-of-home messaging, advertising and communications; manufacturing of projection screens; and providing managed services including monitoring of networked equipment. The Company focuses on serving the cinema, retail, financial, and government markets.
Forward-Looking Statements
Except for the historical information in this press release, it includes forward-looking statements which involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section contained in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and the following risks and uncertainties: the Company’s ability to expand its revenue streams to compensate for the lower demand for its digital cinema products and installation services, potential interruptions of supplier relationships or higher prices charged by suppliers, the Company’s ability to successfully compete and introduce enhancements and new features that achieve market acceptance and that keep pace with technological developments, the Company’s ability to successfully execute its investment strategy, the Company’s ability to retain or replace its significant customers, the impact of challenging global economic environment or a downturn in the markets, economic and political risks of selling products in foreign countries, risks of non-compliance with U.S. and foreign laws and regulations, cybersecurity risks and risks of damage and interruptions of information technology systems, the Company’s ability to retain key members of management and successfully integrate the new executives, acquisition-related risks, the Company’s ability to assert its intellectual property rights, the impact of natural disasters and other catastrophic events, the adequacy of insurance, and the impact of having a controlling stockholder. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except where required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
CONTACT:
| Ryan Burke | | Elise Stejskal |
| Chief Financial Officer | | Investor Relations |
| 402/829-9434 | | 402/829-9423 |
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Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
| | | September 30, 2016 | | | December 31, 2015 | |
| | | (Unaudited) | | | | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 13,834 | | | $ | 17,862 | |
| Accounts receivable (net of allowance for doubtful accounts of $1,117 and $1,207, respectively) | | | 12,501 | | | | 11,032 | |
| Inventories: | | | | | | | | |
| Finished goods, net | | | 6,307 | | | | 5,651 | |
| Work in process | | | 669 | | | | 190 | |
| Raw materials and components, net | | | 1,127 | | | | 1,351 | |
| Total inventories, net | | | 8,103 | | | | 7,192 | |
| Recoverable income taxes | | | 539 | | | | 85 | |
| Other current assets | | | 1,757 | | | | 2,556 | |
| Current assets held for sale | | | 1,684 | | | | 7,219 | |
| Total current assets | | | 38,418 | | | | 45,946 | |
| Property, plant and equipment (net of accumulated depreciation of $8,326 and $6,578, respectively) | | | 11,284 | | | | 11,703 | |
| Marketable securities | | | 1,967 | | | | 2,101 | |
| Equity method investments | | | 7,811 | | | | 4,001 | |
| Intangible assets, net | | | 847 | | | | 235 | |
| Goodwill | | | 910 | | | | 863 | |
| Notes receivable | | | 1,669 | | | | 1,669 | |
| Other assets | | | 68 | | | | 281 | |
| Noncurrent assets held for sale | | | — | | | | 65 | |
| Total assets | | $ | 62,974 | | | $ | 66,864 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 5,236 | | | $ | 4,948 | |
| Accrued expenses | | | 4,131 | | | | 3,583 | |
| Customer deposits/deferred revenue | | | 3,375 | | | | 3,550 | |
| Income tax payable | | | 82 | | | | 1,291 | |
| Current liabilities held for sale | | | 606 | | | | 4,395 | |
| Total current liabilities | | | 13,430 | | | | 17,767 | |
| Deferred revenue | | | 1,231 | | | | 1,288 | |
| Deferred income taxes | | | 1,548 | | | | 1,716 | |
| Other accrued expenses, net of current portion | | | 811 | | | | 1,581 | |
| Total liabilities | | | 17,020 | | | | 22,352 | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock, par value $.01 per share; Authorized 1,000 shares, none outstanding | | | — | | | | — | |
| Common stock, par value $.01 per share; Authorized 25,000 shares; issued 17,023 and 16,925 shares at September 30, 2016 and December 31, 2015, respectively; 14,255 and 14,191 shares outstanding at September 30, 2016 and December 31, 2015, respectively | | | 169 | | | | 169 | |
| Additional paid-in capital | | | 39,614 | | | | 39,157 | |
| Accumulated other comprehensive income: | | | | | | | | |
| Foreign currency translation | | | (4,901 | ) | | | (6,229 | ) |
| Postretirement benefit obligations | | | 74 | | | | 74 | |
| Unrealized gain on available-for-sale securities of equity method investment | | | 62 | | | | — | |
| Retained earnings | | | 29,345 | | | | 29,595 | |
| | | | 64,363 | | | | 62,766 | |
| Less 2,768 and 2,734 of common shares in treasury, at cost at September 30, 2016 and December 31, 2015 | | | (18,409 | ) | | | (18,254 | ) |
| Total stockholders’ equity | | | 45,954 | | | | 44,512 | |
| Total liabilities and stockholders’ equity | | $ | 62,974 | | | $ | 66,864 | |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2016 and 2015
(In thousands, except per share data)
(Unaudited)
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| Net product sales | | $ | 13,071 | | | $ | 13,732 | | | $ | 39,668 | | | $ | 39,750 | |
| Net service revenues | | | 5,597 | | | | 6,014 | | | | 16,672 | | | | 16,976 | |
| Total net revenues | | | 18,668 | | | | 19,746 | | | | 56,340 | | | | 56,726 | |
| Cost of products sold | | | 11,172 | | | | 11,693 | | | | 31,210 | | | | 33,834 | |
| Cost of services | | | 3,119 | | | | 4,273 | | | | 9,368 | | | | 11,362 | |
| Total cost of revenues | | | 14,291 | | | | 15,966 | | | | 40,578 | | | | 45,196 | |
| Gross profit | | | 4,377 | | | | 3,780 | | | | 15,762 | | | | 11,530 | |
| Selling and administrative expenses: | | | | | | | | | | | | | | | | |
| Selling | | | 1,128 | | | | 1,015 | | | | 3,302 | | | | 3,948 | |
| Administrative | | | 2,992 | | | | 3,739 | | | | 9,128 | | | | 11,194 | |
| Total selling and administrative expenses | | | 4,120 | | | | 4,754 | | | | 12,430 | | | | 15,142 | |
| Gain (loss) on the sale or disposal of assets | | | — | | | | (14 | ) | | | 1 | | | | (392 | ) |
| Income (loss) from operations | | | 257 | | | | (988 | ) | | | 3,333 | | | | (4,004 | ) |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest income | | | 59 | | | | 21 | | | | 99 | | | | 351 | |
| Interest expense | | | (41 | ) | | | (12 | ) | | | (81 | ) | | | (43 | ) |
| Foreign currency transaction gain (expense) | | | 23 | | | | 765 | | | | (982 | ) | | | 1,321 | |
| Change in value of marketable securities | | | (34 | ) | | | — | | | | (400 | ) | | | — | |
| Excess distribution from joint venture | | | — | | | | — | | | | 502 | | | | — | |
| Fair value adjustment to notes receivable | | | — | | | | (1,595 | ) | | | — | | | | (1,595 | ) |
| Other income (expense), net | | | (7 | ) | | | (2 | ) | | | 36 | | | | 22 | |
| Total other income (expense) | | | — | | | | (823 | ) | | | (826 | ) | | | 56 | |
| Earnings (loss) before income taxes and equity method investment income | | | 257 | | | | (1,811 | ) | | | 2,507 | | | | (3,948 | ) |
| Income tax expense | | | (748 | ) | | | (669 | ) | | | (2,085 | ) | | | (11,365 | ) |
| Equity method investment income | | | 29 | | | | — | | | | 70 | | | | 94 | |
| Net earnings (loss) from continuing operations | | | (462 | ) | | | (2,480 | ) | | | 492 | | | | (15,219 | ) |
| Net loss from discontinued operations, net of tax | | | (8 | ) | | | (721 | ) | | | (742 | ) | | | (1,065 | ) |
| Net loss | | $ | (470 | ) | | $ | (3,201 | ) | | $ | (250 | ) | | $ | (16,284 | ) |
Net earnings (loss) per share - basic | | | | | | | | | | | | | | | | |
| Net earnings (loss) from continuing operations | | $ | (0.03 | ) | | $ | (0.18 | ) | | $ | 0.03 | | | $ | (1.08 | ) |
| Net loss from discontinued operations | | | (0.00 | ) | | | (0.05 | ) | | | (0.05 | ) | | | (0.07 | ) |
| Net loss | | $ | (0.03 | ) | | $ | (0.23 | ) | | $ | (0.02 | ) | | $ | (1.15) | |
| Net earnings (loss) per share - diluted | | | | | | | | | | | | | | | | |
| Net earnings (loss) from continuing operations | | $ | (0.03 | ) | | $ | (0.18 | ) | | $ | 0.03 | | | $ | (1.08 | ) |
| Net loss from discontinued operations | | | (0.00 | ) | | | (0.05 | ) | | | (0.05 | ) | | | (0.07 | ) |
| Net loss | | $ | (0.03 | ) | | $ | (0.23 | ) | | $ | (0.02 | ) | | $ | (1.15 | ) |
Ballantyne Strong, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2016 and 2015
(In thousands)
(Unaudited)
| | | Nine Months Ended September 30, | |
| | | 2016 | | | 2015 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (250 | ) | | $ | (16,284 | ) |
| Net loss from discontinued operations, net of tax | | | 742 | | | | 1,065 | |
| Net earnings (loss) from continuing operations | | | 492 | | | | (15,219 | ) |
| Adjustments to reconcile net earnings (loss) from continuing operations to net cash (used in) provided by operating activities: | | | | | | | | |
| Provision for doubtful accounts | | | 1 | | | | 92 | |
| Provision for obsolete inventory | | | (101 | ) | | | 1,645 | |
| Provision for warranty | | | 260 | | | | 434 | |
| Depreciation and amortization | | | 1,658 | | | | 1,622 | |
| Fair value adjustment to notes receivable | | | — | | | | 1,595 | |
| Impairment of intangibles | | | — | | | | 638 | |
| Excess distribution from joint venture | | | (502 | ) | | | — | |
| Equity method investment income | | | (70 | ) | | | (94 | ) |
| Change in value of marketable securities | | | 400 | | | | — | |
| (Gain) loss on disposal or transfer of assets | | | (1 | ) | | | 392 | |
| Deferred income taxes | | | (195 | ) | | | 8,374 | |
| Share-based compensation expense | | | 357 | | | | 269 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts, unbilled and notes receivable | | | (439 | ) | | | 6,074 | |
| Inventories | | | (733 | ) | | | (81 | ) |
| Other current assets | | | 113 | | | | (62 | ) |
| Accounts payable | | | (205 | ) | | | (1,009 | ) |
| Accrued expenses | | | 348 | | | | (644 | ) |
| Customer deposits/deferred revenue | | | (233 | ) | | | (438 | ) |
| Income taxes payable | | | (1,708 | ) | | | 1,425 | |
| Other assets | | | 33 | | | | (62 | ) |
| Net cash flows from operating activities – continuing operations | | | (525 | ) | | | 4,951 | |
| Net cash flows from operating activities – discontinued operations | | | (1,624 | ) | | | (359 | ) |
| Net cash (used in) provided by operating activities | | | (2,149 | ) | | | 4,592 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of equity securities | | | (4,107 | ) | | | — | |
| Dividend from equity method investment | | | 206 | | | | — | |
| Capital expenditures | | | (1,102 | ) | | | (1,051 | ) |
| Proceeds from sale of assets | | | — | | | | 38 | |
| Net cash used in investing activities – continuing operations | | | (5,003 | ) | | | (1,013 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Purchase of treasury stock | | | (155 | ) | | | — | |
| Proceeds from exercise of stock options | | | 100 | | | | — | |
| Payments on capital lease obligations | | | (239 | ) | | | (14 | ) |
| Excess tax benefits from share-based arrangements | | | 6 | | | | 10 | |
| Net cash used in financing activities – continuing operations | | | (288 | ) | | | (4 | ) |
| Effect of exchange rate changes on cash and cash equivalents –continuing operations | | | 763 | | | | (1,241 | ) |
| Effect of exchange rate changes on cash and cash equivalents – discontinued operations | | | (120 | ) | | | (78 | ) |
| Net (decrease) increase in cash and cash equivalents | | | (6,797 | ) | | | 2,256 | |
| Discontinued operations cash activity included above: | | | | | | | | |
| Add: Cash balance included in assets held for sale at beginning of period | | | 4,208 | | | | 3,190 | |
| Less: Cash balance included in assets held for sale at end of period | | | (1,439 | ) | | | (2,772 | ) |
| Cash and cash equivalents at beginning of period | | | 17,862 | | | | 19,301 | |
| Cash and cash equivalents at end of period | | $ | 13,834 | | | $ | 21,975 | |
| Supplemental disclosure of non-cash investing and financing activities: | | | | | | | | |
| Capital lease obligations for property and equipment | | $ | — | | | $ | 935 | |
