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spk04: Greetings, ladies and gentlemen, and welcome to the Dolphin Entertainment first quarter 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Carbonara. Sir, the floor is yours.
spk02: Thank you. And once again, welcome to Dolphin's first quarter 2022 earnings call. With me on the call are Bill O'Dowd, Chief Executive Officer, and Myrton O'Graney, Chief Financial Officer. I'd like to begin the call by reading the Safe Harbor Statement. This statement is made pursuant to the Safe Harbor Statement for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurances that such expectations will prove to have been correct. Actual results may differ materially from those expressed or implied in the forward-looking statements due to various risks and uncertainties. For discussion of such risk factors and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in the company's annual report on Form 10-K, contained in subsequent filed reports on Form 10-Q, as well as in other reports that the company files from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances. Now, I'd like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.
spk07: Thanks, James, and hi, everyone. Good afternoon, and thank you for joining us today. As always, we'll start with a review of some financial and operating highlights, followed by a full financial review, and then we'll open it up for Q&A. So starting with the financials, Q1 revenue of $9.2 million represented a 28% increase year over year. This increase represents pure organic growth derived from the cross-selling of services within our supergroup of entertainment marketing companies. We feel this strong start to the year positions Dolphin to exceed $40 million in annual revenue for 2022. Commensurately, we continue to expect to generate a larger EBITDA profit in 2022 versus last year. Turning back to Q1, on the operating line, though our operating loss for the quarter ended March 31st, 2022 was $963,709. That includes non-cash items from depreciation and amortization of $407,238. It also includes nearly $440,000 in one-time investments related to our NFT business, and our marketplace is now completely finished. More on our upcoming NFT collections in a little bit. Finally, that Q1 operating number also includes approximately $400,000 of one-time non-recurring professional fee expenses related primarily to our annual audit, which was ultimately filed in May and Dolphin 2.0 initiatives. Even with those non-cash and one-time charges, Q1 was an improvement of over $600,000 from the from Q1 2021, which also included non-cash items from depreciation and amortization of $482,712 and changes to fair value contingent consideration of $365,000. Now I would like to move to the balance sheet. Let's stop and pause on this for a few minutes because this is possibly the most important point to make on today's call, something we didn't get a chance to do on the call after our 10K. Our balance sheet improvement is worth extra focus. At the apex of our acquisition strategy to build the super group, our debt reached a high of over $16 million. It has now reached a record low of below $6 million, $5.7 million to be exact. That is a dramatic reduction. Furthermore, the vast majority of our debt is long-term, and even so, the $5.7 million of remaining debt is far less than our cash on hand of $9.6 million. But that only tells part of the story. It's also extremely important to point out that all puts, all puts, and all but one earn-out contingent consideration has been paid from all six of our acquisitions. And we now have shareholders' equity of just under $25 million. This complete transformation of our balance sheet has allowed us to remove our financial statement disclosure ongoing concern, and we believe serves as a differentiating factor for us in the marketplace. Simply put, financially speaking, we have moved to the next milestone for Dolphin. No going concern, more cash on the books than all remaining debt, which is at the lowest amount it's been since we listed on NASDAQ in 2017, and almost all of the debt remaining is long-term anyway. All puts have been paid, all but one earn-out paid. Basically, we finished paying for the supergroup, and we can now look to building profits and diversifying our investments. At this point in our company's history, And continuing with our financial update, in June, we announced a change of auditor to Grant Thornton, LLP. Grant Thornton is a firm with more entertainment industry experience, providing professional services to 65% of Fortune 1000 companies in the media and entertainment space, 65%, and half of the major studios. Dolphin is growing, and we believe Grant Thornton best understands where we are heading and has the systems and procedures in place to ensure timely filing of queues in case. Now let's move to some operational updates on our super group, the companies that are making those great numbers happen. We'll start with Surefire Media, Dolphin's industry-leading music PR firm, which has had a great start to 2022, kicking off Q1 by once again helming the red carpet at the Bud Light Super Bowl Music Fest with three Knights of All-Star talent, including Green Day and Miley Cyrus, Blake Shelton and Gwen Stefani with Mickey Guyton, and Halsey and Machine Gun Kelly, as well as other special guests. Also, Surefire just announced the first dates and locations for Bruce Springsteen's 2023 World Tour. Hopefully, we'll see some of those listening to this call out there with the boss next year. And only sing along if you have a voice better than James Carbonara. Moving along to be social, Dolphins Influencer Marketing Group, it has been a busy start to the year that has included brand campaigns for red-hot Australian company Canva, iBuyDirect, and Light Stim with Kylie Jenner. while the talent management team has negotiated campaigns with blue-chip brands such as Prada, Revlon, L'Oreal, Paris, and Pinterest. Turning now to Viewpoint, Dolphin's respected creative agency and video production boutique, Viewpoint completed marketing videos and brand work for a wide range of clients in Q1, including NBC Sports Peacock, AAA, PayPal, and Harvard Business School. Finally, it's not a surprise that once again, 42 West and The Door were named to the Observer's annual list of 50 most powerful firms in the country. 42 West ranked number two in the nation, the highest ranking of any entertainment firm, and The Door was ranked number 22. Both have had a very successful start to 2022, with 42 West most recently helping longtime client Tom Cruise launch Top Gun Maverick to the largest domestic Memorial Day opening in history, grossing $160 million. The film has performed remarkably well this summer and has now passed $1.2 billion at the worldwide box office. For its part, The Door has also had a strong start to the year, already having landed the fast-growing plant-based quick-service restaurant Plant Burger in late 2021, a venture between longtime Door clients Spike Mendelsohn and entrepreneur Seth Goldman of Honest Tea fame. The door was brought on to launch Chef Spike and Goldman's newest venture, Eat the Change, a plant-based snack company. You might have seen the recent announcement by Goldman that he will bring Honest Tea back into the fold to Eat the Change after its discontinuation with Coca-Cola. With both of these brands, Plant Burger and Eat the Change, under the door's watch, the door is a major player in the movement of planet-friendly eating. Kudos to the door in 42 West, proving yet again why they are perennially on the Observer's most powerful PR company's list. That concludes my update on Dolphin 1.0, and it's the perfect segue into Dolphin 2.0. Because with Dolphin 2.0, we want Dolphin and its shareholders to have some equity in projects and participate in the upside that our best-in-class marketing companies routinely facilitate for our clients. That's why in December 2021, we took an equity ownership stake in a ready-to-drink beverage company called Craft House Cocktails, and why this past May we announced a multi-year agreement with IMAX. That's the thesis behind Dolphin 2.0, taking ownership stakes and assets that we know how to market. We just gave concrete examples that we know how to market ready-to-drink beverages and feature films. Now we have ownership stakes in both areas. As a reminder for anyone new on the call or to the Dolphin story, we define the work of our super group under Dolphin 1.0 as the very best at marketing pop culture. And we define what we call Dolphin 2.0 as using pop culture to market assets that we own. In terms of a business model, I'll remind you that broadly speaking, there are two types of Dolphin 2.0 initiatives, ones where we develop assets in the categories of content, consumer products, or live events, and ones where we receive ownership stakes in other people's companies that have assets in those categories. Let's talk about that second type of Dolphin 2.0 investment first, when we take ownership stakes in other people's companies. I'll start with Craft House Cocktails, a pioneering brand of ready-to-drink, all-natural, classic cocktails. They have an award-winning product line, and they wanted the super group led by the door to help market their product. They pay us a cash fee every month to do just that, and we have also received an ownership stake in the company in return for the added value of the services and relationships extended by the entire supergroup. With respect to these types of Dolphin 2.0 initiatives, we typically look to receive somewhere between 5 and 10 percent of the equity in the respective company, in addition to the monthly cash fee. With respect to the other types of Dolphin 2.0 initiatives, wherein we develop assets that we are excited to market, we do not receive a monthly cash fee, since we would often simply be paying it to ourselves. but correspondingly would take a larger ownership position in the product or venture. Examples of these types of Dolphin 2.0 investments would be Midnight Theater and the NFT marketplace we have built. Let's start with Midnight Theater, a contemporary variety theater and restaurant that will be a true anchor for Manhattan West, the $4.5 billion development for Brookfield that's between 31st and 33rd and between 9th and 10th Avenues in Manhattan. Inside Midnight Theater, There is Hidden Leaf, which we just opened a couple of weeks ago, the newest restaurant concept from our partner, Brooklyn restaurateur Josh Cohen. Many of you know Josh's other restaurants, including Lilia's, one of the hardest to get into restaurants in America. And as an aside, a favorite date night spot of multiple celebrities, some of which we represent, as well as Chez Montant's. So Hidden Leaf is a drop-dead gorgeous standalone restaurant within Midnight Theater, and you would think it was straight out of The Great Gatsby. It is stunning with beautiful and timeless art deco design. The restaurant features a Pan-Asian menu created by executive chef Chai Trivedi, previously from Tamarind and Budokan for those foodies out there. I personally have too many favorites to name off the menu, but the dim sum and the small plates are out of this world. And also, Josh has recruited internationally renowned bartender Ian Griffiths, co-founder of the wildly acclaimed and influential London bars, Dandelion and White Lion, who is making his first permanent foray into the New York City drink scene with the opening of Hidden Leafs Bar and his street-level companion, a high-energy aperitivo bar, Midnight Cafe. By the way, if you're not familiar with those London bars, both of them have been ranked by many publications as one of the best bars in the world. As you can see, these are world-class talent in the food and beverage space to pair with what we believe will be a world-class venue in Midnight Theater, which we expect to be open for preview shows in August and with a grand opening in September. Dolphin is the largest single owner within Midnight Theater, and we manage all aspects of publicity and marketing for the venue, both the restaurant and the theater, as well as facilitate talent and commercial relationships within the entertainment and culinary industries. As we've mentioned before, We're hopeful that Midnight Theater creates a relatively straightforward or predictable range of modeling because even though it has two components, a restaurant and a theater, it has many of the variables already defined for the model. There are 100 seats in the restaurant and there will be 160 seats in the theater. So anyone can model out an average ticket price and the number of turns in the restaurant and do the same in the theater within an assumption of a number of shows per week. This will quickly get you to a revenue model. And of course, we will look to operate the venue at a reasonable profit margin standard in the industry. You can quickly see how this opportunity can become very exciting for a company at this stage of Dolphin in 2022. We invested $1 million into the venture for a stake of approximately 12.5%. We also invested in options for up to another 20, approximately 25%. As you can tell, we're very excited for Midnight Theater. In success, of course, we will look to add locations around the country and around the world. Now I'll turn to NFTs. In the first quarter of 2022, Dolphin Entertainment launched our Web3 marketing, consulting, and communications agency, We Come in Peace, after attracting over two dozen NFT and metaverse clients within the past year. We didn't need to acquire an agency in the space. We already had the clients to launch the leading agency. In the first quarter, We Come in Peace partnered with celebrity chefs and restaurateurs Tom Colicchio and Spike Mendelsohn to develop Chefty, a collection of NFTs that provide owners with access to a culinary community led by the founders with virtual and in-person cooking events. The collection went on sale in March and quickly sold out. We Come in Pieces' partnership with Chefty will continue with the creation of a larger Web3 culinary ecosystem aimed at helping chefs, foodies, and brands integrate into Web3. We Come in Pieces quickly developed a full slate of metaverse-related clients and NFT projects, including ones with supermodel Bella Hadid and music industry mogul Troy Carter. Our summer slate includes drops of more than half a dozen NFT collections, and we look forward to updating you on our progress when we speak again in a few weeks for our Q2 earnings call. Lastly, our most recent Dolphin 2.0 initiative is the announcement I referenced earlier. Dolphin Entertainment has struck a multi-year co-production and distribution agreement with IMAX for a slate of documentary features. The first project we have greenlit is Blue Angels, developed and co-produced with renowned producer J.J. Abrams, and it's Bad Robot Productions, along with Zipper Brothers Films. Blue Angels follows the newest class of the storied Navy and Marine Corps Flight Squadron through intense training into their first season of heart-stopping aerial artistry, while also sharing the emotional stories of the veterans on the team who this year will take their final flights. It will mark the first time the iconic blue and yellow FAA Team Super Hornets will be featured in IMAX. The film is being shot with state-of-the-art IMAX cameras and will provide a truly unique view of these incredible pilots, as for the first time ever, audiences will be able to go inside the formation, inside the cockpit, and inside the helmet for a visceral adrenaline rush ride of a lifetime. Blue Angels is currently in production. and is expected to hit IMAX theaters in the second half of 2023. IMAX is simply best in class when it comes to the movie-going experience, and certain stories, like the Blue Angels, can only be enjoyed to their fullest potential if seen in the IMAX experience. We are tremendously excited by this partnership with the IMAX team as we work together to build a slate of unforgettable documentaries that need to be seen on the big screen. So there we are, for now, in the summer of 2022. In summary, we're extremely pleased with these first five Dolphin 2.0 initiatives, and hopefully today's conversation provided some additional detail. I would also like to reiterate that these 2.0 investments are on top of a growing 1.0 business. And most importantly for today, we are very proud of our balance sheet and expect it to be a differentiating factor for us in the quarters and years to come. All this was our thesis when we uplisted to NASDAQ in December of 2017 and began assembling the super group. It's fun to be where we are now, but as we've said before, we're only getting started. The best is still way, way, way ahead of us. Thank you for joining us on this ride and to walk through the financials. I'll now turn it over to Myrta Negrini, our Chief Financial Officer.
spk01: Thank you, Bill, and good afternoon, everyone. I will now discuss results for the quarter ended March 31st, 2022. Revenues for the quarter were approximately $9.2 million as compared to $7.2 million for the quarter ended March 31st, 2021. Overall operating expenses for the quarter ended March 31st, 2022 were approximately $10.1 million compared to approximately $8.7 million in the same period of prior year. Operating expenses are composed of direct costs payroll and benefits, selling general and administrative costs, changes in the fair value of contingent consideration, depreciation and amortization, and legal and professional fees. Direct costs for the quarter ended March 31, 2022, were approximately $1.1 million, compared to $829,000 in the same period in the prior year. The increase is primarily a result of expenses incurred in our NFL business. Payroll and benefit costs for the quarter ended March 31st, 2022 were approximately $7 million compared to $5.2 million in the same period in the prior year. The increase was primarily due to additional headcount in 2022 to support the growth of our business. Selling general and administrative expenses for the quarter ended March 31st, 2022 were approximately $1.5 million unchanged from the same period in the prior year. Legal and professional fees were approximately $938,000 for the quarter ended March 31, 2022, compared to $344,000 for the quarter ended March 31, 2021. The increase was primarily due to approximately $400,000 of one-time non-recurring legal and professional fees related to the Q3 2021 restatement, fee overrun of 2021 audit fees, and certain Dawson 2.0 initiatives. Operating loss for the quarter ended March 31st, 2022 of $963,709 includes non-cash items from depreciation and amortization of $407,238 and a gain in the change of the fair value of contingent consideration of $763,900 compared to an operating loss of $1.6 million for the quarter ended March 31st, 2021 which included non-cash items from depreciation and amortization of $482,712 and a loss in the change of the fair value of contingent consideration of $365,000. Net loss for the quarter ended March 31st, 2022 was $792,481, which included non-cash items from depreciation and amortization of $407,238 $763,900 of gain in the change of the fair value of contingent consideration and $347,858 from changes in the fair value of a convertible promissory note and warrants as compared to a net loss of $5.3 million for the quarter ended March 31st, 2021, which included $4.4 million in non-cash items stemming from depreciation and amortization, of $482,712, and negative changes in the fair value of derivative liabilities, convertible notes payable, warrants, put rights, and contingent consideration of $3.9 million in the aggregate. For the quarter ended March 31, 2022, $0.09 basic loss per share is based on 8,713,700 weighted average shares, and 13 cents fully diluted loss per share is based on 8,846,567 weighted average shares compared to a basic and diluted loss per share of 73 cents, both based on 7,267,297 weighted average shares for the quarter ended March 31st, 2021. Cash and cash equivalent as of March 31st, 2022 were $9.6 million compared to $7.7 million as of March 31st, 2021. That concludes my financial remarks. I will now ask the operator to open the phone line for Q&A. Operator, would you please pull for questions?
spk04: Absolutely. Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please indicate so by pressing star 1 on your touchtone phone at this time. Pressing star 2 will remove you from the queue should your question be answered. And lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Once again, that's star one if you have a question or a comment. Okay, and the first question is coming from Alan Klee with Maxim Group. Alan, your line is live.
spk03: Good afternoon. First question is, can you give us a sense of how much of the revenue in your that's all in one segment is related to doing P&R and marketing for 2.0 type projects?
spk07: Sure. I don't know that in Q1 of this year we Very little. It would have been less than $100,000, Alan. And that's all ramping up this summer. So the growth we had year over year between 7.2 and 9.2 was all organic cross-selling between the companies. And it really, in our view, it validates the thesis we had in 2017 because we didn't have any acquisitions, right? So it's just the same companies getting better at cross-selling. and more companies to cross-sell with. So that's what led to the sequential quarter-over-quarter growth in 2021. And you can see the year-over-year growth now that we've had 15 straight months without an acquisition.
spk03: Thank you. I thought I heard you say something about around $400,000. I understood that there's around $400,000 of one-time mostly auditing, accounting-related expenses. But I thought I also heard you say something like maybe $400,000 one-time NFT-related expenses. Did I hear that right? And if so, why is that? why should that be considered one time also? Could you explain that?
spk07: Sure. Yeah. We, um, we built a marketplace that would allow us to sell NFTs directly, um, to the consumer and, uh, and use it for either our own collections or, uh, collections, uh, that we would partner with clients on, um, that marketplace was finished in, in Q1. So, um, Obviously, we expensed the entire amount of a little over $440,000. They didn't capitalize it, so it's a hit to P&L in Q1, but that we don't expect to see again in future quarters.
spk03: Okay, great.
spk07: We had a number that wasn't dissimilar. I don't remember the exact number, but in Q4 of last year as well, because we started building at the very end of Q3 last year, I think, and it carried Q4 and Q1.
spk03: That's very helpful. Thank you. Could you give an update for any of the NFTs that have launched, kind of how they've done?
spk07: Sure, yeah. Our big slate starts now in the next couple of weeks. So it's been smaller launches in getting to this point, but we highlighted one, ChefDig, um, that, uh, uh, the team at the door brought in since they're, they obviously have a tremendous business with celebrity chefs. And this one was developed with celebrity chefs in mind. And as a culinary fan club, if you will, with live virtual cook alongs is one of the primary benefits. And it was a smaller mint, maybe total mint size was, a little over half a million dollars, but it did sell out within a matter of a couple of days, and the door received a commission for that. And we've been using late Q1 and Q2 to stress test, if you will, I think, a couple of different marketing techniques to bolster the teams that we need. NFTs market differently than other products. You need to be able to manage NFTs almost 24 seven community discord on discord and Twitter. Uh, so there are different social media management capabilities you need to have to do this well. And along, we think it'll give us an advantage to have the ability to sell direct along with other marketplaces. We're not trying to be exclusive, but, um, so, uh, we'll see if that thesis proves true when we start launching bigger collections here this summer, you know, the Bella Hadid one will be a bigger collection, you know, creature Chronicles with Anthony, uh, be a bigger collection you know those are collections that have you know seven figure total sales so we're trying to do it right and we also want to offer benefits that extend beyond the nft itself because we think that's that's what makes our collections different that they have a utility beyond the pretty picture so um we'll see if we'll see if we're right
spk03: Got it. How do you, um, when do you think you'll see then, uh, revenues from 2.0? Will this be in the third? Will any be in the second quarter or will it really be in the third quarter?
spk07: I think it starts in third quarter. Um, uh, we won't have those expenses I mentioned that we had in Q1 and Q2, but we'll have revenue now in Q3 because, um, the restaurant and midnight theaters open, but it, you know, that venue really kicks in when we open the theater, but that's happening, um, here in Q3. So the first full quarter of it being open, you know, five to seven days a week, both, both theater and restaurant being Q4, but it will have already started in September. And then NFTs, you know, as I mentioned, we'll have the first larger, first of the larger collections going, um, quite possibly even before and expected to go before we talk again for Q2. So I would say now in Q3 we'll have 2.0 revenue.
spk03: Okay, great. And then what are the When you had the extra cost for the NFTs for building the marketplace, where did that show up and which statement, which segment of cost?
spk01: It's in direct cost.
spk03: That answers a lot. Okay. Because I was wondering what affected gross margin. So I'm guessing that that had the impact. Yeah.
spk07: $440,000 of direct costs in Q1, no revenue. So now we'll start recouping in Q3.
spk03: Great. When does the last contingent earn out? When does that get finished?
spk07: Yeah, it's B-Social, and it's finished here at December 31st. So they'll hit it, and it's up to... $800,000, a mix of cash and stock, and once that's paid next spring, all six companies will be fully paid for.
spk03: Okay, great. So in terms of outlook for the year, I think I heard you say you would expect adjusted EBITDA to be higher in 22 versus 21. Is there any other commentary that you can provide of, you know, from what you can tell at this point for 22?
spk07: No, I feel good about the revenue target of over $40 million, which will be nice and continue growth. I think we'll grow year over year, quarter over quarter, um, again. Um, and that's nice. Um, you know, Q Q2, of course we, we feel very good about excited to share those results in four weeks. Um, Q3 is off to a good start. So feel good about those two. And then this should be the last, well, this is the first, the first year of, of partial revenues from Dolphin 2.0 in the last year of only partial revenues, if that makes sense. Because by 2023, you know, we'll have a full year of Midnight Theater operating. We'll have the NFT business dropping on a schedule, we anticipate, and we'll have the content business, you know, the IMAX announcement, which is really a Q2 event. But since we're speaking here today on July 8th, I talked about it a little bit. You know, that's a return to the roots of what I did for 20 years prior to taking golf in public. And that film will release in 2023. So, and if I could, we feel very blessed that we have a Blue Angels documentary in production after the summer of Top Gun, frankly. I'd love to tell you that that was all part of the master plan. But I mean, we certainly knew we had the documentary and that Top Gun was coming out, of course. But the success of Top Gun has just been a pleasant surprise for all involved. So in 2023, obviously, we'll have those three major 2.0 initiatives where we take larger ownership stakes in all three, all
spk06: generating revenue and, you know, on all cylinders. Got it.
spk03: Just going back to the NFT business, we know that trading volumes has dropped a lot. Like if we look at open seas and stuff, does that change your view at all of kind of the outlook for the segment?
spk07: I think what it does is it sharpens our focus on what we think we've always been excited to try, which are NFTs. People that, and yourself, Alan, included, that have heard us talk about NFTs for a year, and as we were building this, it really comes down to allowing the consumer of an NFT to use it for something other than just the NFT. And our access to events, benefits, um, virtual, uh, conversations, whether it be with celebrities or masters of what they do, um, tickets really sets, it gives us a competitive advantage and, and separates what we're calling an NFT from traditional profile picture NFT collections, right? Good or bad. Right. And, and so, um, it's a little bit, you know, we're certainly aware of the drops in May and June of NFTs, but we haven't seen the marketing and the effort put behind using NFTs as tickets yet. And it's a gateway, a key to joining a fan club or whatever we want to call this. And maybe we need to help the industry rebrand our type of NFTs away from the other types of NFTs, right? Maybe give it a different name and see what happens. But, you know, what, what, sports teams are going to do where they sell tickets as only NFTs because it's just easier to track, easier to get into a community. Whether you start seeing some of those private clubs, you know, and restaurants that the members are buying NFT and they get access to the club and they can transfer among themselves. Those are what I mean by real world benefits, right? You want to go see a basketball game, an NBA game, or you want to go to the next version of the Soho house. buying it as a whatever you want to call it an nft or a blockchain ticket that's we're interested in in building communities like that around the areas where we already market extensively and so we're excited to try that starting this summer and have a couple more of those coming this fall and that's very exciting for us and and and in some cases if i could you know we'll Once we feel like we've got what we want from a marketing expertise down, then we will be a partner. You know, some of them you'll develop from whole cloth. It's very similar to a Hollywood development, right? We may find a book or a screenplay in my old job, if you will, and start from scratch. But other times you can partner with somebody that's got a great script or has an existing project. And I think with NFTs, that'll be something we're excited to try too. There'll be certain communities that already exist in the real world that we can offer benefits to or events, virtual and live, that could be an NFT for that community. And that's something that we've been thinking about extensively and what we're excited to try and build towards in Q3 and Q4.
spk03: Thank you. I have an accounting math question just to tell me if I'm doing something wrong or not. But if I take your operating income plus DNA, I get like an EBITDA of like a loss of $556,000 or $57,000. But then if I added back... the change in the fair value of the contingent earn out, if viewing that more as acquisition costs related, and the one-time cost related to the legal, I think I get to over $600,000, and that's positive. And then that excludes the $400,000 of extra spending to build the marketplace. Am I doing – does that math sound right, or –
spk07: No, I think the contingent consideration would flip the other way. But I do think that the EBITDA loss, if you went through those four steps, would shrink dramatically. And then we feel very confident in a significant EBITDA growth for the year over last year. So, yeah.
spk03: When you say growth, you imply positive EBITDA?
spk07: Yeah, positive EBITDA, higher than last year's positive EBITDA.
spk03: Great, great. Maybe just in terms of the door, it seems like I've been hearing a bunch of things about the strength and hotels have been seeing. I'm assuming that business has been improving a lot.
spk07: Yes. We have some of returning revenues and returning businesses. The restaurant business is starting to come back to life, it'll continue to grow in future quarters. I don't know that it really showed itself in Q1, but it's showing itself in Q2, Q3. And, and then of course the movie business. Well, you know, we're very lucky to have our two Toms, you know, one in Top Gun and one in Elvis, but the, that coming back and, and, 42 West continues to roll along with those great... We released how many Emmy nominations they're working on. It's a staggering number. The second half of the year is always stronger for most of our companies for a variety of reasons. Influencer marketing is stronger around back to school and certainly around holiday. 42 West has such a strong push with the Emmys in the third quarter into the awards season of mostly fourth quarter and independent film season. Historically, our companies just, I wouldn't say we're seasonal, but it grows throughout the year, as it did last year, right? And we expect the same thing this year. So when you can add a healthy restaurant business and a healthy movies and theaters business to it, then we're excited about what should happen in the second half of this year.
spk03: It sounds like there should be momentum each quarter. That's the way to think about it. Right.
spk07: I think so. And what we're obviously we're taking our swings in 2.0 and that'll supercharge things with that revenue that comes in, you know, in success. So, you know, we're being very patient with the NFT business as we were trying to time it, do it right with bigger collections. And hopefully, you know, Midnight Theater opening in September, you know, that'll that'll be a difference maker in the fourth quarter, we hope to.
spk03: Great. Okay. Well, that's it for my questions. Thank you so much. Congratulations.
spk04: Thanks, Alan. If there are any remaining questions, please press star one on your touchtone phone. The next question is coming from Brad Stevenson with Breakout Investors. Your line's live.
spk06: Hey, Bill.
spk05: Hey, Brad. Hey, questions for you. I thought I remembered Flower Girls. was going to have a second drop, and for some reason I thought I had it, and I heard you talk about it in maybe one of your calls as maybe a target of June for that. Is there any update on that?
spk07: Yeah, I don't remember about a drop, but I do remember we were thinking we'd have a Flower Girls announcement in June. We did a Flower Girls event June 21st at NFT NYC, the big NFT convention in Manhattan. had a nice event at the Crosby Hotel that night, and that would have been the night that we would have made an announcement with Flower Girls, with the whole Flower Girls creative team there. For different reasons, I'm not at liberty to say now we postponed that announcement, but we're very bullish on Flower Girls and are working on a program with Flower Girls through the rest of this year. But I think it was a good time at that conference. There were a lot of people that felt good about the industry, but I don't know if May and June was the right time to take a successful brand and put something else out there in the NFT space.
spk05: Okay. And then Creature Chronicles, I think you said three or four weeks maybe on that one?
spk07: Yeah. Yeah, I think we feel good about that. We've started the Twitter community and are happy with the progress there. And, you know, hopefully in the next year, a week or two we'll be opening up the discord community and then it usually goes in as these things were all right um goes for sale within a couple weeks of that happening um so um that's that's kind of the ballpark timing as you try and gauge you know surf the wave the right way right different type of marketing okay um
spk05: And then talking about your quarter two report, you said you'd be back to talk about that in a few weeks. I think the deadline on that is August 15th. Do you have any reason to believe you'll miss that deadline at this point?
spk07: No, I feel very good about having Q1 out now because as we, you know, we switched to Grant Thornton, worked on a plan with them to get us current with Q2. And part of that plan was putting out Q1 today. So feel good about that. And, and, expect to release Q2 on time.
spk05: Okay. Midnight Theater, I don't think you've talked about the timing of when you would actually execute on your additional 25% option. Can you share that, like when the timing of that might be?
spk07: It'll be after it opens. So we get the visibility of being able to market the opening well, we expect, and to see it off to a good start, then, you know, and with the tracking we've had to date, you know, I think we feel good that we'd want to exercise those options. And, but we don't have to make that decision until it's already open and the theater's open and the first several, even,
spk05: couple of months of results are in and then we can we can make an informed decision but we're very bullish on it at the moment okay uh let's see oh uh do you i know this is probably asking for guidance you may not be able to give it but uh can you can you kind of thinking forward when do you think you would be able to sort of fund future cash 2.0 initiatives through cash, positive cash flow from operations. Are you thinking that's going to be this year? Will we be in the next year before we get there?
spk07: And what was the first part of that question, Brad? Sorry, it broke up.
spk05: When you think you'd be able to begin funding additional 2.0 investments through cash flow from your operations?
spk07: I think we could probably do that. some point during next year. Obviously, it depends on the size of the investment, but if it's smaller, it's possible to do that even sooner. But we always talked about, in our mind, getting to EBITDA positive, which we did in multiple quarters last year. And then within three or four years of uplisting on NASDAQ, build a super group, get to that point. And there'll be this gray area of two to three years as we build the first 2.0 investments while our companies continue to grow, that depending on which investment, do we use additional capital or can we get to a point where we're funding it out of cash flow? The idea for us by 24 or so in our multiple year plan was to get to a point where we're spinning off enough cash to where almost any investment wouldn't need anywhere near that much so that we could fund it out of ourselves. And then we think we've got the flywheel, right, where our 1.0 business is growing, able to have enough capital to keep buying skill sets that we may want in future years out of free cash flow and our 2.0 investments. We have enough cash flow to make additional investments just from our 1.0 profits. But of course, some of these 2.0 initiatives are going to get into a regular schedule of spinning off cash too. And they'll just add to that flywheel, right? So we're in that gray area now where we don't need to raise capital to cover ourselves. But certain 2.0 investments may require capital for the next few quarters. But we're getting closer and closer.
spk05: I have two more. One, live events. I don't think you mentioned anything about when we might expect a 2.0 live event.
spk07: Yeah, live event. Well, thank you because I don't know. Thank you for bringing that up because I don't know if I did a good job explaining that, you know, 2.0. We already have an example of having an investment in a company, right, a craft house. We have an example of a venue, although I don't know which category I put that in, but consumer products started with the NFT business. Content started with IMAX. So the last leg of 2.0 that we haven't started yet is live events, and thank you for that question, now that we made the content announcement in May. So we are actively discussing... live events um because we we think the world's we're ready to go into that business um and look for the partner partners that we could do that well with we think um we're seeing it across our businesses brad um our music pr firm shorefire you know i can't count the number of artists that are back out on the road that wasn't true a year ago it wasn't true six months ago um uh i made I alluded to the Springsteen tour announcement, but, I mean, multiply that by dozens of clients. So the world seems ready for live events. They're selling out. And, you know, obviously that's a big advantage. We think we have a big advantage in that area too, both from promoting and marketing them every day to having access to the people that would headline such events in whatever field, music, culinary, others, right? So, yeah, I think we hope to be able to share our strategy for live events by the end of the year, and it would be a dream if 2023 has live events in it as well so that all legs of our 2.0 stool are generating revenue in fiscal year 2023. That would be great.
spk06: We're working towards that, and we're hopeful. Okay, thank you. I think that's everything I have. Sure.
spk04: Okay, at this time, I'd like to turn the floor back to Bill O'Dowd for any closing remarks.
spk06: Sure.
spk07: Well, thank you for those questions from both Brad and Alan, and thank you for those listening to the call. We are excited to be here reporting today. We'll be very excited to report Q2 as well and get back on a timely schedule. But we're closer and closer each month and quarter towards the dream, right? We have the companies we wanted to start with. The supergroup's been built. As you heard earlier today, you know, the supergroups, the vast majority of the supergroups been paid. And, you know, our balance sheet is a far different situation than it was just one or two years ago. So we're getting closer to the point where we have 2.0. We've made the investments. we just need those investments to hit the market, right? Which we expect starting now in the second half of this year, starting this quarter, quite frankly. And then 2023 will be the first year that we have both 1.0 and 2.0 generating revenue for us at scale, you know, multiple 2.0 investments. And, you know, by 2024, then, you know, that would be a nice target to say, are we generating enough free cash flow to where we just are funding our own future investments, whether it be acquisitions or, um 2.0 investments so the team's done worked very hard very proud of getting that restaurant i mean if you're ever in manhattan come check out night theater it's as i said it's gorgeous and it it's just it's going to be a a special place so um we're excited for that investment of course so thank you all for who are long-time listeners and and for giving us the credit to get to this point and I'll look forward to giving an update in what's going to be a very short period of time in just a few weeks. So I hope everybody has a great rest of your day, and happy Monday, everybody.
spk04: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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