Business Overview and History
Fundamental Global Inc. (FGF) is a diversified holding company engaged in reinsurance, asset management/merchant banking, and managed services. The company has undergone significant changes in recent years, including a merger with FG Group Holdings Inc. in 2024 and the sale of its subsidiary StrongMDI Screen Systems, Inc. to Saltire Holdings, Ltd. for approximately $30 million. Despite these transformations, Fundamental Global remains focused on streamlining operations, reducing costs, and reinforcing its balance sheet to position the company for long-term growth and stability.
Fundamental Global’s roots can be traced back to its predecessor, FG Financial Group, Inc., which was established in 2016. The company initially focused on specialty insurance and reinsurance, particularly in property and casualty lines. In 2020, FG Financial Group expanded its business model to include asset management and merchant banking activities, launching FG SPAC Solutions, LLC to provide support for newly formed special purpose acquisition companies (SPACs).
A significant milestone in the company’s history occurred in February 2024 when FG Financial Group, Inc. merged with FG Group Holdings Inc. (FGH), with FGH being the accounting acquirer. This merger resulted in the creation of Fundamental Global Inc., which continued to trade on the Nasdaq Stock Market under the ticker symbols FGF for common stock and FGFPP for Series A cumulative preferred stock. As part of this merger, FGH common stockholders received one share of FGF common stock for each share of FGH held.
Prior to the merger, FG Financial Group operated a technology incubator and co-working facility called Digital Ignition in Alpharetta, Georgia. However, in April 2024, the company divested this asset by selling the Digital Ignition building and its wholly-owned subsidiary.
FG Group Holdings Inc., which became the accounting acquirer in the merger, brought with it a rich history in the managed services sector. Its wholly-owned subsidiary, Strong Technical Services, Inc. (STS), had been providing comprehensive managed service offerings to cinema exhibitors and entertainment venues for over 90 years.
The merger of these two entities created a more diversified company with operations spanning reinsurance, merchant banking, and managed services. This strategic move aimed to streamline operations, reduce costs, and consolidate multiple public companies into a single, more efficient holding company structure.
It’s worth noting that both FG Financial Group and FG Group Holdings faced challenges prior to their merger. FG Financial Group had experienced significant losses in recent years and struggled to grow its reinsurance and asset management businesses. Meanwhile, FG Group Holdings, particularly through its STS subsidiary, was impacted by the COVID-19 pandemic, which severely disrupted the cinema and entertainment industry.
The merger was seen as an opportunity for the combined entity to leverage the strengths of both companies and position itself for future growth in a challenging business environment.
On May 3, 2024, Strong Global Entertainment, Inc., a subsidiary of Fundamental Global, entered into an agreement to sell its wholly-owned subsidiary StrongMDI Screen Systems, Inc. to FG Acquisition Corp. Subsequently, on May 30, 2024, Fundamental Global and Strong Global Entertainment entered into an arrangement agreement to combine the companies in an all-stock transaction. This transaction closed on September 30, 2024, with Strong Global Entertainment stockholders receiving 1.5 common shares of Fundamental Global for each Strong Global Entertainment share.
Financial Performance and Liquidity
As of September 30, 2024, Fundamental Global reported total assets of $115.96 million, a significant increase from the $62.14 million reported at the end of 2023. This growth was largely driven by the merger with FG Group Holdings Inc., which added $60.75 million in identifiable assets to the company’s balance sheet.
For the nine months ended September 30, 2024, Fundamental Global reported total revenue of $23.58 million, up from $10.56 million in the prior-year period. The increase was primarily attributable to the addition of $8.77 million in reinsurance premium revenue and a $4.70 million rise in revenue from the managed services segment, partially offset by a $0.20 million increase in net losses on equity securities and other holdings.
Despite the revenue growth, Fundamental Global reported a net loss from continuing operations of $16.17 million for the nine-month period, compared to a net loss of $14.93 million in the same period of 2023. The higher net loss was primarily due to increased reinsurance expenses, general and administrative costs related to the merger and public company operations, and a $1.40 million non-cash impairment charge related to the sale of the Digital Ignition business.
For the most recent quarter ended September 30, 2024, Fundamental Global reported revenue of $3.12 million and net income of $17.66 million. The company’s operating cash flow for the quarter was $2,000, while free cash flow was negative $30,000. It’s important to note that as this is the first quarterly report since the merger of FGF and FGH, year-over-year comparisons are not available.
Fundamental Global’s liquidity position remains strong, with cash and cash equivalents of $6.46 million as of September 30, 2024, up from $6.00 million at the end of 2023. The company’s current ratio stood at 6.98, and its quick ratio was 6.66, indicating a healthy ability to meet its short-term obligations. The debt-to-equity ratio was 0.03, reflecting a conservative capital structure.
Fundamental Global maintains a revolving credit facility with CIBC, with a current limit of CAD $1.4 million (approximately $1.0 million USD). As of September 30, 2024, there was CAD $52,000 (approximately $38,000 USD) outstanding on the revolving credit facility.
The company’s long-term debt, net of debt issuance costs, decreased to $369,000 as of September 30, 2024, from $5.46 million at the end of 2023, primarily due to the repayment of the Digital Ignition building loan.
Segment Performance
Reinsurance Segment
The reinsurance segment, which includes the operations of FG Reinsurance Ltd. (FGRe), generated $8.77 million in net premiums earned for the nine months ended September 30, 2024, compared to zero in the prior-year period. This significant increase was due to the addition of the reinsurance business as a result of the merger with FG Group Holdings Inc. The reinsurance segment reported a pre-tax income of $7.57 million for the nine-month period.
FGRe, a Cayman Islands-based reinsurance company, provides specialty property and casualty reinsurance and has been granted a Class B iii insurer license in the Cayman Islands. As of September 30, 2024, the company had eight active reinsurance contracts, including participating in a Funds at Lloyd’s (FAL) syndicate covering risks written during the 2021, 2022, and 2023 calendar years.
Merchant Banking Segment
The merchant banking segment, which includes the operations of FG Management Solutions LLC (FGMS), reported a pre-tax income of $2.30 million for the nine months ended September 30, 2024, compared to a pre-tax income of $8.69 million in the same period of 2023. The decrease was primarily due to higher equity method losses from the company’s investments in SPAC-related entities.
FGMS, formerly known as FG SPAC Solutions, LLC, provides various strategic, administrative, and regulatory support services to newly formed SPACs as part of the company’s SPAC platform. Additionally, Fundamental Global co-founded a partnership, FG Merchant Partners, LP (FGMP), to participate as a co-sponsor for newly formed SPACs and other merchant banking clients.
The merchant banking segment also facilitated the launch of several new companies, including FG Communities, Inc., a self-managed real estate company focused on manufactured housing communities, and Craveworthy LLC, an innovative fast casual restaurant platform company. For the three and nine months ended September 30, 2024, the company recorded an equity method loss from FGMP of approximately $2.4 million and $2.3 million, respectively.
Managed Services Segment
The managed services segment, represented by Strong Technical Services, Inc. (STS), generated $15.10 million in product sales and $9.77 million in services revenue for the nine months ended September 30, 2024, compared to $11.20 million in product sales and $9.24 million in services revenue in the prior-year period. The segment reported a pre-tax income of $946,000 for the nine-month period, up from $703,000 in the same period of 2023, driven by improved gross profit contribution.
STS is a leader in the entertainment industry, providing mission-critical products and services to cinema exhibitors and entertainment venues. The company offers comprehensive managed service offerings with 24/7/365 support nationwide to ensure solution uptime and availability. During the three and nine months ended September 30, 2024, the managed services segment generated $8.8 million and $24.6 million in revenue, respectively, representing a significant portion of the company’s total revenue.
Outlook and Strategic Initiatives
Fundamental Global’s management team is focused on streamlining operations, reducing operating costs, and bolstering the company’s financial position. The consolidation of FG Financial Group, Inc. and FG Group Holdings Inc. was a significant step in this direction, allowing Fundamental Global to alleviate the financial and administrative demands of operating multiple public companies.
Additionally, the company’s decision to sell its wholly-owned subsidiary, StrongMDI Screen Systems, Inc., to Saltire Holdings, Ltd. for approximately $30 million was in line with its strategy to simplify its business and concentrate on its core reinsurance, merchant banking, and managed services operations. The proceeds from this divestiture will further strengthen Fundamental Global’s balance sheet and provide the company with additional financial flexibility to pursue strategic initiatives.
Looking ahead, Fundamental Global is committed to maintaining a strong liquidity position and exploring opportunities to enhance shareholder value. The company’s merchant banking division will continue to support the launch and growth of new SPACs, while the reinsurance and managed services segments are expected to contribute to the company’s overall financial performance.
Risks and Challenges
Fundamental Global’s diversified business model exposes the company to a variety of risks, including those inherent in the reinsurance, asset management, and entertainment industries. The company’s reliance on a limited number of large customers in the managed services segment, as well as the cyclical nature of the cinema industry, could adversely impact its financial results. Additionally, Fundamental Global’s investments in SPACs and other private companies carry inherent risks, including the potential for underperformance or the failure of these entities to complete their initial business combinations.
The company also faces regulatory risks, as its reinsurance operations are subject to oversight by the Cayman Islands Monetary Authority, and changes in laws and regulations could impact Fundamental Global’s ability to conduct business in certain jurisdictions. Moreover, the company’s international operations expose it to foreign currency fluctuations and geopolitical risks, which could affect its financial performance.
Conclusion
Fundamental Global Inc. (FGF) is a diversified holding company that has undergone significant changes in recent years, including a merger and the sale of a subsidiary. The company’s focus on streamlining operations, reducing costs, and reinforcing its balance sheet positions it to navigate the uncertain economic environment and pursue growth opportunities in its core business segments of reinsurance, merchant banking, and managed services.
The addition of the reinsurance business from the merger with FG Group Holdings, combined with the continued growth and profitability of the managed services segment, have been the primary drivers of Fundamental Global’s financial performance in 2024. The company continues to invest in its merchant banking activities as part of its diversified business strategy, although this segment has reported losses during the periods presented.
While Fundamental Global faces a variety of risks, its strong liquidity position and commitment to enhancing shareholder value suggest that the company is well-positioned to weather industry challenges and deliver long-term value for its investors. The company’s conservative capital structure, as evidenced by its low debt-to-equity ratio, provides financial flexibility to pursue growth opportunities and navigate potential economic headwinds.
As Fundamental Global continues to integrate its recent acquisitions and streamline its operations, investors will be closely watching the company’s ability to generate synergies across its diverse business segments and translate its strategic initiatives into improved financial performance. The company’s success in leveraging its strengths in reinsurance, merchant banking, and managed services will be crucial in determining its long-term prospects in an increasingly competitive and dynamic business environment.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.