Thunderbird Entertainment Group Inc.

Thank you for joining us. We are here to provide a corporate update and report on Thunderbird Entertainment Group's 2020 fiscal year and results, which ended June 20, 2020. Speaking on today's call are Ms. Jennifer Twiner-McCarran, Thunderbird's CEO, and Ms. Barb Harwood, Thunderbird's CFO. Ms. Twiner McCarron will provide a strategic overview of Thunderbird Entertainment Group, and Ms. Harwood will review the company's 2020 year-end financials. Following the corporate update and financial review, the call will open up for a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. Alternatively, if you have a question, you can call plus 1-604-683-3555 or email investors at thunderbird.tv and the company will follow up directly after the call. At this time, all lines have been muted to prevent any background noise. I'd like to remind everyone that certain statements made on today's call will be forward-looking and constitute forward-looking statements or forward-looking information under applicable securities laws. forward-looking statements and information discussed on this conference call include but are not limited to statements with respect to the company's objectives goals or future plans and the business and operations of the company forward-looking statements are necessarily based on a number of estimates and assumptions that while considered reasonable are subject to known risks none known and unknown risks uncertainties and other factors which may cause actual results and future events to differ materially from those expressed or implied by such forward-looking statements such factors include but are not limited to general business economic and social uncertainties litigation legislative environmental and other judicial regulatory political and competitive developments Those additional risks set out in the company's filing statement and other public documents filed on SADAR at www.sadar.com and other matters discussed in the company's year-end news release. Although the company believes that the assumptions and factors used in preparing these forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of the presentation. and no assurance can be given that such events will occur in the disclosed timeframes or at all, except when required by law. The company disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. For your convenience, the press release, the MD&A, and audited financial statements for the fiscal year-end of Thunderbird Entertainment Group which ended June 30, 2020, are filed on SIDAR and are available online under the Investor section of our website. We do not expect to update forward-looking statements continually as conditions change. This conference call is being webcast live, and the archive will be available on the company's website at www.thunderbirdtv following today's call. Please note that the Thunderbird reports in Canadian dollars unless otherwise stated. Ms. Twyna McCarron will now provide the corporate update.

Hello. Thank you so much for joining us today. My name is Jennifer Twyna McCarron, and I am the CEO of Thunderbird Entertainment Group. Barb and I are thrilled to review Thunderbird's progress, which is rooted in our company's commitment to authentic, inspiring stories, that move hearts, connect people, and positively impact our world. Our mission remains to create content that makes the world a better place, makes people happy, and provides a much needed escape, especially during these unprecedented times. Fiscal 2020 has been an extraordinary year for Thunderbird on many levels. Programming created by Thunderbird airs daily in 40 different languages and 200 territories worldwide. Through Atomic Cartoons, our kids and family division, and Great Pacific Media, our factual division, and our scripted division, our company is a leader in developing and producing family-friendly entertainment that is the key cornerstone of all major media platform strategy to glue that key co-viewing audience, essentially families gathering together to watch content, more pertinent in 2020 than ever before. We are working with HBO Max, Nickelodeon, Discovery, Apple TV, Disney+, NBC Universal, CBC, Netflix, and many other streaming, VOD, broadcast, and cable partners around the world. I am personally extremely grateful to be working in a pandemic resistant business and in an industry that's thriving. I'm proud to report that through this unprecedented time, there's been no disruption to production, delivery dates, or to our security protocols. In fact, COVID-19 has forged new opportunities and staffing of productions is no longer constrained by location or studio space, thanks to new technology. While Barb will go through the financials more thoroughly, I am proud to share that Thunderbird has had a strong year, filled with growth and exciting opportunities. The company's revenues are $81.3 million, which is up 41% from fiscal 2019. Our year-end adjusted EBITDA also increased year-over-year by 21% to $15.5 million. And our free cash flow went from negative $5 million in fiscal 2019 to positive $7.3 million this year. We have zero corporate debt. which means Thunderbird is positioned for growth by leveraging relationships and intellectual property to launch more global brands and franchises. During the fourth quarter of fiscal 2020, we had 18 programs in production across all of our divisions. We delivered 29 half hour episodes and 26 full hour episodes. All of the full hour episodes and 10 of the half hour episodes are company owned IP, further building our already substantial library of premium quality content, which includes many longstanding hits like Intelligence and Da Vinci's City Hall, and by adding new content from Great Pacific Media and Atomic Cartoons, which can also be licensed, distributed, and exploited in many forms of cross-media exploitation, such as mobile games, console games, microtransactional games, merchandise, ice skating shows, you name it. we create additional revenues for years to come. At this time, I also want to highlight that during the quarter and subsequent to the quarter, several facets of the company and our productions were recognized. We received an Emmy Award for The Last Kids on Earth, a Peabody Award for Molly of Denali, a 2020 Television Critics Association Award, also for Molly of Denali, two 2020 Canadian Screen Awards for Kim's Convenience, nine Leo Awards across all divisions, and the Queen of the Oil Patch is shortlisted for a 2020 Content Innovation Award from the Television Business International. Thunderbird was also awarded two Stevie International Business Awards in the categories of Medium-Sized Medium and Entertainment Company of the Year and Management Team of the Year. And this morning, Thunderbird was listed on Canadian Business 2020 Growth Lists, as one of Canada's fastest-growing companies. At Thunderbird, we are deeply proud of our teams, how talented they are, and how dedicated everyone is to creating top-notch content that entertains and inspires. To have our work recognized by peer organizations is an incredible honor and a recognition of the high-quality content our amazing teams are creating. Moving on to the divisional update, Atomic, our kids and family division, was in various stages of production on 12 animated series during the quarter. For partners such as Disney+, Netflix, CBC, and NBCUniversal to list a few. And a snapshot of this remarkable work has already surfaced over the past few months. For example, Hello Ninja Season 3 was on Netflix. Lego Jurassic World Double Trouble was on Nickelodeon. Curious George, Go Wild, Go West was one of the debut properties on Peacock. Mighty Train Express with Spin Master debuted on Netflix. And our Emmy award-winning series, The Last Kids on Earth, is set to premiere tomorrow, 10 more episodes, October 16th on Netflix. And the highly anticipated Lego Star Wars Holiday Special will launch November 17th on Disney+. This production will reunite Rey, Rey, Poe, Chewie, Rose, and many favorite droids for a joyous feast on Life Day, which is the Star Wars holiday first introduced in 1978. Our LEGO Holiday Star Wars special is the first LEGO and Star Wars special to debut on the streaming platform. We are excited. Atomic Cartoon produces high-end content across multiple pipelines and genres, spanning preschool, comedy, action-adventure, adult, and everything in between. Our teams are firing on all cylinders and producing outstanding work, which continues to secure great partnerships with top talents, including the Jim Henson Group, Savannah Guthrie, and Drew Barrymore, to list a few. Fiscal year 2021 will see Atomic further build on the phenomenal work we are already producing, and also expand to capitalize on gaming, merchandise, and toy opportunities across all of our titles. During Q4, our Factual Division, Great Civic Media, was in production on four series and one documentary special, Highway Through Hell, Season 9, Heavy Rescue, 401, Season 5, Save My Reno, Season 4, Mud Mountain, Hollers, Season 1, and The Teenage and the Lost Mayan City, which is a documentary for CBC. On September 4th, the ninth season of Highway Through Hell premiered on Discovery Canada. This season is comprised of 18 episodes, its largest episode order to date. Highway Through Hell is one of the most successfully independently owned unscripted brand in the world with two spinoffs, both of which are produced by Great Pacific Media, Heavy Rescue 401 and Mad Mountain Haulers. The success of Highway Through Hell franchise lies within its authentic storytelling and and Great Pacific's AI data-driven approach, which increases probability of rating success while reducing production time and cost. It is also worth noting that work on Highway to Health's second spinoff, Mud Mountain Haulers, started this spring. The production was a true leader in applying new COVID-19 safety protocols, pioneered by the company to ensure crews stayed safe and work could continue during the pandemic. The teams at Great Pacific are specialists in the development, co-production, and financing of factual documentaries, game show, and reality TV. An interest in factual production is skyrocketing. In fact, Ted Sarandos of Netflix recently mentioned that factual television is a major focus area for the streaming giant because of the love that people have for this type of programming. The majority of content produced by Great Pacific is also IP-based. which distinctly positions Thunderbird as this content lives forever in our library and provides us with the full ability to leverage it for distribution, licensing, consumer product games, and all cross-media opportunities. The division also employs a vertically integrated studio model and owns all of its facilities and production equipment, which in turn generates multiple revenue streams. In our scripted division, which represents the team behind the hit comedy series, Kim's Convenience, the cast and the crew return to the studio in September. The award-winning series is still on track for its season five premiere in early 21. Kim's Convenience is also renewed for season six. And check out season one. It has 100% rating on Rotten Tomatoes. That is hard to do. Our company was able to nimbly adapt at a pivotal time to not only continue but also expand operations, even bringing on new crew members to keep up with demand. With a new fiscal year upon us, Thunderbird will continue to seek out strategic growth opportunities through IP, expansion within North America and potentially international, acquisitions, branching out into animated feature films, and exploring additional proven unscripted brands for new spinoffs increased season orders, and other derivative projects. Before passing things off to Barb, I want to acknowledge the massive shift that our industry is undergoing right now, as it collectively strives to be more inclusive, diverse, and honor authentic voices. This is reinforced by a new report from the UCLA-based Center for Scholars and Storytellers, where researchers found that bringing authentic diversity to film improves financial performance at the block office while a lack of diversity can result in losses for studios. Thunderbird is well-positioned to deliver on this with our dedication to authentic stories demonstrated through titles like Molly of Denali, Queen of the Oil Patch, and Kim's Convenience, to list a few. I am so proud of the steps we have made as a company thus far, and we will strive to continue to be leaders in this area. Molly of Denali season one had over 60 Indigenous staff and numerous interns that are now working in the industry full-time. On that note, in addition to creating meaningful, diverse and world-changing content that helps shift the status quo and places the spotlight on stories that might otherwise remain untold, Thunderbird is investing in internships, programs and organizations that are raising up the voices of those who have been underrepresented for far too long. Telling stories of diversity and inclusivity are what matters at Thunderbird. This is a cornerstone of our culture. and we have intentionally built a culture of people who align with this mission. In conclusion, fiscal year 21 is coming on stronger than ever. We are well on our way to being the next major global studio, and we are thankful that you as an investor are able to accompany us on this journey. Never has there been a better time to be in content, and never has there been a better company than Thunderbird to capitalize on it. Stay tuned for a short Q&A after Barb presents the numbers. Thank you so much.

Thanks, Jen, and thanks, everyone, for joining today. I'm Barb Harwood, and I'm the CFO of Thunderbird. As Jen mentioned, it's been a great year for Thunderbird, so I'll dive right into a summary of the results. Revenue for the three months and year end of June 30, 2020 was $21.1 million and $81.3 million as compared to $12.9 million and $57.7 million for the comparative periods of fiscal 2019. Increases of $8.2 million and $23.6 million respectively. The majority of this revenue increase over the comparative periods related to growth in the kids and family division. Consolidated net loss from continuing operations was $0.3 million for the three months ended June 30, 2020, and consolidated net income from continuing operations was $4.1 million for the year ended June 30, 2020. This is compared to net income from continuing operations of $0.1 million and net loss from continuing operations of $1.6 million for the comparative period of fiscal 2019. The company incurred a one-time non-cash charge in fiscal 2019 related to the RTO transaction of $5.3 million. Adjusted EBITDA was $2.9 million and $15.5 million for the three months and year-end of June 30, 2020, compared to $1 million and $12.8 million for the comparative periods of fiscal 2019, an increase of $1.9 million and $2.7 million respectively. The three-month increase was due to increases in production service work as well as increases in licensing and distribution revenues related to an increase in the number of company-owned IP delivered over the comparable quarter. There was also a decrease in rent expense due to the adoption of IFRS 16, in which lease obligations for long-term leases are no longer recorded as rent expense, but capitalized as right-of-use assets, otherwise known as ROU assets, and amortized. In fiscal 2020, the company completed a change in accounting policy whereby it has capitalized certain overhead costs, such as salaries, rent, and computer maintenance, to investment in content and has amortized these costs in the same manner as all other investment in content costs. For service productions, these costs were reallocated from G&A to direct costs. The change in accounting policy provided the investment in content costs and the direct costs to be more reflective and relevant of the cost of production. Also effective July 1, 2019, as mentioned before, the company adopted and implemented IFRS 16 leases, which required the lessee to recognize all leases on the balance sheet as a right of use asset and a corresponding lease liability with limited exceptions. Previously, leases were classified as either operating leases or financing leases, and rental payments were expensed on the income statement. And finally, during the prior quarter of 2020, management decided to discontinue operation of its UK division. The related assets and liabilities have been presented as held for sale, and the net revenues and expenses are shown as a loss from discontinued operation. Thanks, and back to you, Jen. Actually, I think we're open for the Q&A now.

Certainly. At this time, if you'd like to ask a question, please press star 1 on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Again, that is star 1 on your telephone keypad. Aravinda Gala with Canaccord, your line is open.

Hi. Good afternoon. Thanks for taking my questions. And congrats on the quarter. I have a few. Maybe I'll sort of get the accounting hug the accounting questions first and get to some of the strategic ones after. On the accounting side, Bob, can you just sort of clarify that you also, the new accounting change adjustments that you talk about, that's also being done for fiscal 19 as well, so you've restated the prior year?

Yes, that's right. We've revised the prior year, yes. So you'll see that our EBITDA in 2019 that is reported in our MDNA is different than as reported last year when we reported it.

Okay. And to get a sense of the EBITDA impact, obviously, it looks like, you know, when I look at the nine-month EBITDA number, which was, you know, sort of 11.2, and sort of compare that to the restated number, it looks like it's at $1.3 million for the nine months, so roughly $400,000 a quarter. But when I look at the prior year, it looks like it's a sort of $2.5 million for the full year. So I guess you can roughly say sort of that's kind of in the half a million dollar impact to EBITDA quarterly. Is that a fair assessment?

It actually really depends on the types of shows that we're capitalizing the overhead to and how long the production schedule is. So, for example, something on Last Kids, which was in production for two and a half years, is capitalizing all that overhead to investment in content, and it doesn't hit the income statement. in amortization of production costs until it starts delivering. So it really depends on the meld of the type of projects and the timing of how long they're held on the balance sheet versus when they're expensed.

Okay. But for fiscal 20, sort of the first nine months, it looks like it's sort of 1.2, 1.3. So that's somewhat of a gauge, but recognizing that it can change quite a bit. Yeah. Yeah, yeah, okay.

Yeah, correct. And that's why your previous comment that you emailed me, that's why 2019 is different than 2020 because of the mix.

Yeah. Okay, okay. Understood. And as you indicated, this is sort of you've kind of taken a, sort of a hearted look at some of these cost items and realize that they're more sort of attached to the project, so should be capitalized. So it's a combination of that and kind of looking at some of your peers, what they're doing, and perhaps, I don't know if it's public peers or private peers, but looking at some of the peer treatments as well. Is that fair?

Yeah, that's absolutely correct. We basically looked at our staffing and figured out what individuals from a corporate standpoint are spending 90% on projects. And so we've either reallocated the portion of their salaries and related G&A up to direct costs, or we've capitalized it up to investment in content and amortized it along with the project that they're working on.

Okay, great. Thank you. And then two questions for Jen. First of all, on the partnership model that he talked of, I know that currently it's sort of – of the productions that you have right now, Hello Ninja kind of reflects that. Do you see that pipeline kind of sort of where you're able to share the merch and any other related revenues? Do you see that pipeline sort of increasing quite rapidly over the next couple of years, or is that at this point a bit more prospective? My second question is respect to the mix, both in terms of the service and distribution mix. Both are growing, obviously, but 47 of the 80 are still production services. How quickly do you see that mix moving towards 50-50 or maybe even beyond that?

Yeah, great questions, Aravinda. So, you know, with regard to the partnership model, it will definitely increase. When you look at companies like Disney making a statement this week that they need to focus on Disney Plus and turn on as much content as possible. The reason the partnership model exists is because studios like ours that are delivering high quality content and can handle everything from stem to stern are needed because the major streamers can't handle all of the content they need to turn on themselves. They have to constantly refresh content to keep subscribers glued. They're judged on gaining subscribers. So they need full service companies like Thunderbird to execute in that partnership level, which is a great news story for us going forward. In terms of the mix of content, we will see content continuing to grow, and it takes many forms of ownership. There is the full IP ownership where we hold the copyright, and then there is the partnership model where we own a piece of the back end, and both of these should be looked at as content. So yes to both questions. Look forward to growth in each area.

Thanks, Jen. And a really quick one before I get back in the queue. The last kids on earth, I know the products are out on the shelves. I know it's unusual conditions. Is there anything to take away at this point, or you just have to maybe need another six months to monitor how those product sales are occurring?

Yeah, we just have done the toy line release. And again, you know, there aren't that many shelves open, but certainly there's online and And we've got a huge product behind it, 10 more episodes launching on tomorrow and then interactive episodes launching in the spring. And then we have our video game coming out in the spring as well. So there is a lot of cross-media exploitation coming. And I would say to answer your question more directly, we should monitor over the next six to 12 months and see how things go.

Great. Thank you.

Thank you.

David McFadgen with Cromark Securities. Your line is open.

Oh, hi. Thanks. Yeah, so a couple of questions. Just I'll start off with an accounting question. So just to understand the benefit to EBITDA from the accounting policy change, I was looking on page 20 of your financial statements. I don't know if you could pull that up in front of you, but it looks like the benefit from the accounting policy change to EBITDA is about $2.1 million. Is that correct?

Yeah, that's correct. That would be the – you're talking about the IFRS 16 accounting change?

No, I'm talking about the change to – to capitalize some cost to productions to the investment in film and build it up on the balance sheet. Isn't that what this refers to?

Oh, yeah. Sorry. I just got to the page. Yeah, that's correct.

Okay. So that's 2.1. Okay. Can you comment at all about how the Last Kids merchandising has done so far this year? Any comments in terms of metrics? Yes.

No, we're not ready to release those yet. So I would say just sort of repeating what I said to Aravinda, check back over the next six to 12 months as we see and as the video game is released in the spring as well to support the initiative.

Okay, okay. So as we look to fiscal 2021 and beyond, I was wondering if you could give us maybe I guess more for fiscal 21. I was wondering if you can give us any idea in terms of growth, what you expect the company might be able to achieve. Would double-digit be a reasonable assumption there in terms of revenue and EBITDA? I know you don't provide guidance, but I'm just kind of wondering if you can just give us any ideas to what the growth might be.

Well, I think we have great visibility into 2021. It's locked and ready to go. It ends on June 30, 2021, and I would say much better than average expected growth for microcap. It's looking great. We're again, really grateful to be in a pandemic resistant industry and any of the influx of work we've had to our company because of the need for more content that is currently being entertained and getting into production. So we won't even see the benefits of that until 2022. Okay.

I think in the recent past, you hosted a webinar, and I think you talked about the fact that your production capacity is, I think, pretty much booked up for the next 18, 24 months. I was wondering if you can give us an update on that.

It's true. We have great visibility through 2022. We are firing on all cylinders. The other interesting thing I'll note that during this time of COVID, because we were able to successfully transition everyone off-site within three weeks and meet Tier 1 security protocols, such as those with Disney, we're no longer looking at our four walls. So if a show comes in that we love and makes great business sense and there's fashion to put together, we no longer think, how can we fit 700 people in this building? So it certainly changes the way we think and will do so going forward.

Okay, okay. And then just on the balance sheet, you know, obviously you're in a strong position here. You have no debt to I was just wondering what your sort of thoughts are on leverage, if something really interesting came along in terms of an acquisition, what you might take the leverage up to if you really found something compelling.

Yeah, I think we are in a great position with such a strong debt-free balance sheet to be nimble and possibly opportunistic at this time. We are looking at... growth and acquisitions that tie into our core business, that aren't any type of roll-up strategy. We don't want to get bigger for the sake of getting bigger. Something that really makes sense. And we're going to keep our balance sheet tight so that when the time comes to move, we will be able to do so.

Okay. All right. Thank you.

Thank you, David.

Again, if you'd like to ask a question, please press star 1 on your telephone keypad. David Eidelman of Eidelman & Weir. Your line is open.

David Eidelman Oh, thank you very much. Jennifer, my question was about you're doing great from just about every standpoint except earnings per share. So I was wondering, is an investor, is an institutional investor in your stock, Should I be thinking that if you operate around break-even, that's good because it will create future value from your library? As an old-timer, I'm more used to old-fashioned earnings per share and was wondering if you look at it that way also, or how should I look for earnings in just last year?

Right. I think a good way to – are you – just clarifying, and thank you for being an investor with us. Are you looking how you predict future growth and how that will translate? What are the predictors?

Well, I'm just looking last year that the earnings per share was negative, and the last quarter was negative, and on – some of the broker's estimates are estimating just a tiny bit of profit for next year. So I was wondering, is that good or is bad? And kind of would you expect earnings per share to start accelerating or would you think that I should focus more on EBITDA, which I'm always skeptical of since things do amortize and things do depreciate and taxes are at some point need to be paid?

Yeah, it's a great question. I think that we're in great shape with our balance sheet going forward and that the earnings per share should continue to progress along with the EBITDA and revenue and cash flow balance. So everything's going up. Barb, did you have anything to add to that as it relates to last year?

Yeah, I think maybe the metrics that should be focused on are the adjusted EBITDA and the free cash flow more than the income per share. Because now there's so many, you know, especially things like IFRS 16, I think tend to skew the income per share. And so I would think that's free cash flow and adjusted EBITDA are sort of better reflectors of our growth.

Okay. I'm more skeptical of that than other analysts, but, you know, you do the best you can.

Thank you. It's a great question. Well, I'm going to pay closer attention to that, but thank you for asking.

This concludes today's call. If you have any questions, please call plus 1-604-683-3555 or email investors at thunderbird.tv. Thank you. You may now disconnect.