Dolphin Entertainment, Inc.

Greetings and welcome to Dolphin Entertainment's second quarter 2023 earnings call. At this time, all participants are on a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, James Carbonara, Investor Relations. You may begin.

Thank you, Operator. And once again, welcome to Dolphin Entertainment's second quarter 2023 earnings call. With me on the call are Bill O'Dowd, Chief Executive Officer, and Myrton Agrini, 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 and 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 a discussion of such risks 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 statement 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.

Thanks, James, and hi, everyone, and 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 open it up for Q&A. So, from a financial highlights perspective, revenue hit an all-time high for Q2 of $11 million. This result marks our second highest quarterly revenue performance in the company's history in any quarter coming incredibly close to our record best 11.1 million in Q4 of last year without the benefit of the holiday seasonality that strengthens our business every year. So we're very, very proud of the revenue results this quarter. On the operating line also, when you back out non-cash charges, we improved over Q1, excuse me, by $1.3 million to an operating loss less non-cash charges of less than $400,000. This momentum of greater than $1.3 million improvement in operating results quarter over quarter sets us up nicely as we enter into the historically stronger second half of the year. Furthermore, we are very pleased with the strength of our balance sheet, We have over $7 million of unrestricted cash on hand, and we have paid out the last of our acquisition earnouts, thereby removing the final contingent consideration liabilities that have been on our books since we made our first acquisition in 2017. That's another significant milestone for us here six years later. All earnouts have been paid and no more contingent consideration on our balance sheet. With respect to the non-cash charges, In addition to the normal depreciation and amortization we take every quarter, primarily as we amortize over several years the intangible assets we receive via our acquisitions, we also took a one-time $6.5 million non-cash impairment against our goodwill this quarter. In recognition of our stock price drop during the fourth quarter of last year and the lack of market recovery in our stock price during the first half of this year, This one-time non-cash impairment allows us to reset and realign our market capitalization with our book value prior to moving into our strongest quarters of the year and before we announce the exciting catalysts we expect to share in the coming weeks. Again, it's worth repeating, this entire expense is both one-time and non-cash, and we're happy to have taken it now. Looking ahead, we expect a strong second half to the year. delivering strong double-digit annual revenue growth. We also expect to report positive operating income in the back half of the year and going forward once non-cash items are excluded, as the strong improvement in operating results of more than $1.3 million from Q1 to Q2 would indicate. Again, we expect to report positive operating income in the back half of the year and going forward once non-cash items are excluded. We believe that our second half of the year will also benefit from the fact that none of Q2's dolphin film sale of feature documentary, the blue angels to Amazon studios via our multi-year co-production partnership with IMAX with IMAX, excuse me, none was actually recognized in Q2, but it's expected to start being recognized in the second half of this year revenue from that transaction between the second half of this year and the first half of next year. is expected to bring Dolphin over $3.5 million, which represents a better than 75% return on investment, and this result does not include any of Dolphin's share of revenues from ticket sales and IMAX theaters. Moreover, virtually all of our subsidiaries, and especially our influencer marketing agencies, BeSocial and Socialite, traditionally thrive in the latter part of the year due to seasonality. Thus, with a strong operating momentum created from Q1 to Q2, along with a strong cash position and the removal of all contingent considerations from our balance sheet. With the one-time non-cash goodwill impairment behind us, we feel we are best positioned for a very strong second half of the year, which is a great segue into our operational updates. At the prestigious 2023 Cannes Film Festival, The world premiere of Martin Scorsese's Killers of the Flower Moon was skillfully publicized by 42 West. Special shout out to Scott Feinstein. Our film and television PR powerhouse firm also showcased multiple clients at the Tribeca Film Festival and proudly represented an unprecedented 13 clients at the renowned San Diego Comic-Con. And that does not include James Carbonara, who went incognito as Rocket the Raccoon from Guardians of the Galaxy. Moreover, the exceptional talents represented by 42S received an impressive total of four nominations at the 76 Tony Awards. We'll have more to announce about 42S and the tremendous Emmy nominations they received once we all get through the next couple of months. Turning to our award-winning consumer lifestyle and hospitality marketing communications agency, The Door warmly welcomed a host of new clients into their fold, including, for those from New York, Carbone Fine Food, City Pickle, which I'm very excited about, and the esteemed Emeril Lagasse, along with his son, the skilled chef patron E.J. Lagasse. Demonstrating their prowess, The Door secured two exciting projects with world-renowned culinary virtuoso John George and These ventures encompass the Tin Building by John George and a forthcoming restaurant at the prestigious 425 Park Avenue in Manhattan, augmenting the Doors' illustrious portfolio of culinary clients and destinations. Shifting gears to Dolphin's industry-leading music PR firm, Shorefire had its hands full promoting sold-out tours by Bruce Springsteen and Odessa, a number one dance hit by Kylie Minogue, and groundbreaking initiatives by music business leaders such as ASCAP, Wasserman Music, and Rhino Records. In a crowning achievement for Shorefire's clientele, Rhiannon Giddens won the well-deserved Pulitzer Prize in Music for her collaborative opera Omar, co-authored with the accomplished Michael Ables, known for his work on feature films Get Out and Nope. And then for Dolphin's respected creative agency and video production boutique, Viewpoint's work in Q2 and year-to-date includes productions for Fenway Park, Big Red's Hot Sauce, and PayPal. Rounding out the supergroup, talent from our creator agencies, Be Social and Socialite, were recently asked to join campaigns for leading brands including Maybelline, Steve Madden, Publetics, TraceM, K-Jewelers, and Skims, among dozens of others in Q2. Also, Another special shout out since both agencies were named top talent managers for creators by Business Insider. And I'd say that's just the tip of the iceberg for two reasons. One, because the second half of the year is seasonally stronger for influencer marketing than first. And second, because we've only had these two companies under the dolphin umbrella for a short period of time and we have big plans. And whereas we usually touch on brief highlights of what our up of what our operating companies, excuse me, did in the quarter, I'd really like to spend a little bit more time on BeSocial and Socialite. My goal is to try and paint a fuller picture of where we are and the massive opportunity ahead of us in the influencer marketing space, both immediately in the second half of this year and beyond. As mentioned on previous earnings calls, we will be merging BeSocial and Socialite in the near future, and this will be a big deal in the influencer marketing industry. We believe the combined entity will be the entertainment industry's leading influencer marketing firm to go along with our best-in-class PR firms, 42 West, Shorefire, and The Door. Together, the two agencies now have 50 employees and represent over 200 leading creator talent with millions and millions of collective followers on social media. Part of the reason that is so important is because the influencer marketing industry has experienced strong double digit CAGR over the past five years, increasing from global brand spend of less than $2 billion in 2016 to estimates of more than $14 billion in 2022. According to grand view research, that's more than seven X in six years. And it's not slowing down with the combination of social item be social, We now expect that influencer marketing will represent 25% or more of our revenues in 2023. And because influencer marketing is absolutely one of the fastest growing segments in all of marketing, if not the fastest growing segment in all of marketing, we expect that percentage of our overall revenue to grow in the coming years. Thus, we believe that influencer marketing is our biggest core business growth engine, not factoring in what Dolphin Ventures can bring us. Our influencer marketing agencies receive a commission, typically 20%, on whatever our talent makes. And then if we run a campaign for a brand, we get 20% of whatever the budget is. So both our talent management and our brand services divisions have pretty healthy margins. And we will expand our roster and our services to match the market. We are already at the vanguard of the biggest section of influencer marketing, female-led, Instagram-focused beauty, fashion, and wellness categories. It feels to us like there's a very large opportunity to build the dominant bi-coastal influencer marketing agency across all entertainment verticals. We already have that in public relations with our best in class PR firms. We want to be the first to have that in influencer marketing too. We want to include athletes. NIL marketing for college athletes, for example, is only two years old and it will continue to grow. We also believe in the strong potential of culinary influencers and teen influencers to name two more categories, both of which are entire segments unto themselves. Into this growing market, we are very excited that for the very first time, we'll be selling the services of these two companies in combination, going into the heavy selling season of September and the fourth quarter, which obviously includes holidays. Now, in this third quarter, We are ready to more formally combine our two great agencies, both their rosters and their services. Be on the lookout for big announcements in this area in the next few weeks and well before we speak again in November. All right, that was a mouthful, but I wanted to share all of that so that you could understand the long-term opportunity as well as why we are so excited about the second half of this year, because we get to hit the ground running with these two companies in the September market. Now I'll turn to providing updates on some of our projects that we have dubbed Dolphin Ventures, where Dolphin and its shareholders have equity and participate in the upside that our best-in-class marketing companies regularly enable for our clients. And maybe I'll be a little bit briefer, given the long-form comments on influencer marketing a second ago. Starting with Midnight Theater, as a reminder, Dolphin manages all aspects of publicity and marketing for Midnight Theater and its restaurant, Hidden Leaf. while also facilitating talent and commercial relationships within the entertainment and culinary industries. Dolphin also holds a meaningful ownership stake in the venture. We continue to ramp up the programming at Midnight Theater throughout the summer, aiming to have a full seven day a week scheduled by the end of September. To that end, we expect to have exciting programming partnerships to announce shortly in this quarter as well. Turning to our partnership with IMAX, We had the announcement that Amazon Studios obtained the worldwide rights to the Blue Angels. It's a noteworthy highlight of Q2 that we discussed during our previous earnings call, and I'll briefly touch on here. This accomplishment stems from Dolphin Ventures' multi-year collaboration with IMAX, jointly funding and producing a series of feature-length documentaries for the worldwide audience. The inaugural project, the Blue Angels, is a creation of J.J. Abrams Bad Robot Productions, along with partners obviously Dolphin Entertainment and IMAX, commenced filming last summer and has now wrapped production. We are in the final stages of editing, and we anticipate its release in IMAX theaters during the first quarter of next year. As far as Dolphin's return, we project revenue generation of approximately $3.5 million through the acquisition agreement, yielding an approximate 75% ROI. As mentioned earlier, this projection does not include any revenue from ticket sales at IMAX institutional theaters, further enhancing the potential returns. Nor was any of the revenue recognized in our record Q2. We are excited to start realizing revenue in the coming quarters. We expect to have a lot more to talk about on Dolphin Ventures as a whole on our Q3 earnings call. And so, in summary, we feel we are well positioned to have a strong second half of the year, which has historically been the case due to the seasonality of our businesses. To have our second highest revenue quarter ever in Q2, when Q3 and Q4 are typically our biggest quarters, underpins our enthusiasm for what's to come. Thank you for joining us on this journey. And to that end, I'll now turn it over to Myrta.