Thunderbird Entertainment Group Inc.

Thank you for joining us. We are here to provide a corporate update and report on Thunderbird Entertainment Group's first quarter 2021 fiscal results, which ended September 30th, 2020. Speaking on today's call are Ms. Jennifer Twyner McCarron, Thunderbird's CEO, and Ms. Barb Harwood, Thunderbird's CFO. Ms. Twyna McCarron will provide a strategic overview of Thunderbird Entertainment Group, and Ms. Harwood will review the company's Q1 financials. Following the corporate update and financial review, the call will open up for a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Alternatively, if you have any questions, you can call 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 placed on mute 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 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 are set out in the company's filing statement and other public documents filed on CDAR at www.cdar.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 this presentation, and no assurance can be given that such events will occur in the disclosed timeframes or at all. Except where 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 unaudited financial statements for the first quarter of 2021 of Thunderbird Entertainment Group, which ended September 30, 2020, are filed on CDAR and are available online under the investor section of the 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.thunderbird.tv following today's call. Please note that Thunderbird reports in Canadian dollars unless otherwise stated. Ms. Treynor McCarran will now provide the corporate update.

Hello, thank you so much for joining us. We really appreciate you being here today. My name is Jennifer and I am the CEO of Thunderbird Entertainment Group. Barb and I are thrilled to provide a review of Thunderbird's progress for the first quarter of fiscal 2021, which ended on September 30th of this year. We're extremely proud of the work in progress that was completed in Q1. Throughout the quarter, Thunderbird was right on track with 25 shows in various stages of production. an increase from 21 at this time last year. We started the quarter by launching new partnerships with several major players and bringing on additional crew members to respond to the ever-increasing demand for content. While I am unable to delve into the specifics of these productions at this time, I am thrilled with Thunderbird's slate of productions, especially with how they ladder into the company's overall mission of creating content that has a focus on diversity and inclusivity and strives positively to influence the world. Throughout Q1, Thunderbird's client base included Netflix, Peacock, HBO Max, Apple TV, nickelodeon sony pbs bell medias discovery disney plus chorus entertainment and cbc among others of the 25 productions in development 10 are company owned ipo are partner managed which means thunderbird has ownership in these productions and can leverage this ip own content into many ancillary businesses such as toys video games mobile console and microtransactional, and all forms of cross-media exploitation. For example, bed sheets, ice skating shows, you name it. Additionally, we can also distribute this own content around the world, and the demand for high-quality content just continues to grow. Digging in a little deeper, from July to September, 27 half-hour episodes and 12 one-hour episodes were delivered collectively across our factual, scripted, and kids and family divisions. all of the one-hour episodes were company-owned ip projects again further building on a richly cloned content library that can be licensed for a myriad of possibilities stay tuned for some exciting announcements in january regarding our increasing push into consumer products and distribution our factual division great pacific media owns nearly 100 of this ip and the majority of its projects are consistently generating cash flow through global library sales and distribution. Our scripted comedy, Kim's Convenience, is also company-owned IP. And in our kids and family division, Atomic Cartoons, our productions are a blend of service work, IP-owned, partner-managed projects. For partner-managed productions, Thunderbird is hired to handle all creative elements, beginning with writing, and continuing all the way through post-production and delivery. These productions are fully cash flowed, and Thunderbird receives a substantial producer fee, which includes a percentage of the back-end sales related to consumer products, merchandise, gaming, and other cross-media opportunities. Increasingly, companies are coming to us for partner-managed shows, as the streamers need to constantly refresh content on their sites, and they also need high-quality, full-service companies like Thunderbird to handle everything for them. To this end, I will now touch on our Q1 numbers, which Barb will go through more thoroughly after my corporate update. As a whole, Thunderbird recognized $19.8 million in revenue in the first three months of fiscal 21, an increase of 20% compared to the same quarter in fiscal 20. Our adjusted EBITDA increased by $1.2 million from the comparative period last year to $4.8 million. This increase was primarily due to the growth in production services attributed to the Kids and Family Division. Production services revenue for the quarter increased by 41% to $14.7 million, which was due to an increase in the number and size of contracts. This revenue consists of animation production services in the kids and family division, which continues to experience sustained growth. Due mainly to the timing of deliveries, licensing, and distribution revenues, decreased slightly over the comparative period last year, where the company delivered three episodes of Last Kids on Earth. The next batch of Last Kids is set to deliver in Q2 this fiscal year. Thunderbird isn't a quarter-quarter business in terms of revenue growth. because the timing and delivery of projects creates an ebb and flow in our revenue. Our year-over-year results clearly reflect more linear company growth and confirm that Thunderbird continues to execute and deliver on the company's strategic goals and financial objectives. Looking ahead to the remainder of our current fiscal year and beyond, we have visibility and bookings well into 2022 and are positively positioned to continue achieving our business targets. Q1 represents an exciting time in our business because it usually coincides with the debut of many broadcasters' new schedules, which means we get to share our work with audiences around the world. In September, we announced a list of all the Thunderbird productions set to premiere in Fall 20 and Winter 21, which includes seven new and returning animated, scripted, and factual series. This included Lego, Jurassic World, Double Trouble for Nickelodeon, Mighty Express for Spin Master for Netflix, Curious George, Go West, Go Wild for Peacock, The Last Kid Runner for Netflix, Kim's Convenience for CBC, Highway Through Hell for Discovery Canada, Heavy Rescue 401 for Discovery Canada as well. And since the end of Q1, we've also added two additional premieres to that list, including a brand new Star Wars special with our partners at Lego and Lucasfilm. The Lego Star Wars Holiday Special is now streaming on Disney Plus and is receiving incredible reviews. In fact, we received a note from Bob Iger, who watched the special and noted the quality is on par with the movies they produce. We also launched a new animated kids series, Trolls, Trolltopia. which is the next component of the hugely popular Trolls franchise. Developed in partnership with DreamWorks, the new Trolls series is streaming now on Hulu and Peacock. Being asked by partners to produce new content based on properties of this caliber is a huge vote of confidence in the entire Thunderbird team. And like every partner we have worked with, both past and present, we're incredibly honored by the trust that has been placed in us. We're also grateful that new and ongoing partners continue to seek us out for new projects and ones yet to come. Moving on to high-level updates for each division. Our Kids and Family Division, Atomic Cartoons, was in various stages of production on 19 animated series during the quarter, for partners including, again, Disney+, Netflix, CBC, NBCUniversal, just to name a few. These productions involved working with 12 separate major clients, four of which are new relationships for the first quarter of 20. a factual division great civic media was in production on four series and one documentary special highway to hell seasons nine and ten heavy rescue 401 seasons five and six save my reno seasons four mud mountain haulers season one and the teenager and the lost mayan city a documentary for cbc Subsequent to the quarter, Great Pacific Media announced two new productions are in the works. In October, the division unveiled a partnership with Underknown to develop a multi-billion view, webby, award-winning social media brand, What If, for television. And in November, Great Pacific announced plans to develop a limited drama series based on the life of controversial Nazi scientist Wernher von Braun. Based on an IP we acquired from the Smithsonian Institute in 2019, the series is being developed with Simon Barry, who produced the recent hit Warrior None for Netflix. Simon will soon as the executive producer, writer, and director on the series. This will be Great Pacific Media's first ever drama series, which is part of a forward-looking strategy to develop scripted content based on factual events. On the scripted side, production also began on the fifth season of our scripted comedy, Kim's Convenience. Kim's Convenience has already been renewed for season six. As you can see, Thunderbird has an impressive site of content, and I would like to add that a lot of this work is taking place remotely. With the health and safety of our teams always being our number one top priority, all Thunderbird divisions continue to work predominantly from home. We're closely monitoring guidelines from esteemed public health officials in all of our jurisdictions across North America, and we continue to ensure full compliance with all of the recommendations and requirements. We are extremely grateful to be in a somewhat pandemic-resistant industry, and truthfully, we haven't even seen the impact of increased work due to COVID. That will come in fiscal year 22 and beyond. Our relationships with the streamers and broadcasters have only gotten stronger as we have built more trust, executing at such a high level during this very tough time for the world. Plus, the volume of streamers continues to increase and people staying at home watching content is not going away anytime soon. There are no plans to return to our physical studio spaces at this time. And when it's appropriate to return, we are considering ways to shift our operations to a hybrid working model to allow team members to work in the locations they are most comfortable and productive in, offering flexibility and work-life balance, which is key to retention for all of our amazing talent. In fact, just this October, we managed to sublease our head office, further optimizing our efficiency as a company. It is extremely important at Thunderbird to protect and promote an artist-driven culture in the studio and now remotely, a culture that draws people in, supports a safe space where artists feel trusted to take risks, and this enables individuals to do their best work and innovate. This is the type of environment that fosters creativity, innovation, and excellence, all of which Thunderbird relies on to produce the premium content that our partners have come to expect from us. Before passing things off to Barb, I want to also take a moment to highlight just how interested people are becoming to be working in this industry, and Thunderbird in particular. Over the last two months, I've been invited to participate in numerous panel conversations with students and industry professionals who are hungry to learn about our company, our culture, and how they can get their foot in the door, including the Rotman School of Management and Vancouver Film School. And it's not just Canada and the United States where people are eager to learn from our team. This week, Mark Miller, Butterbridge president, and Tony Chung, director of finance for Great Pacific Media, have been invited as industry experts to discuss production safety during COVID-19 at China's leading documentary conference, the International Documentary Film Festival. This is really a thrilling opportunity for Thunderbird as we were looking closely at Asia Pacific for future partnership and production opportunities, particularly as many streaming platforms recognize the region as key to their growth strategy. In conclusion, I want to reiterate that Q1 of 2021 remained on track with our business expectations and in some cases exceeded them. We are in production again on 25 projects across all divisions, up from 21 at this time last year. We're securing brand new partnerships with some of the biggest names in entertainment. And we're continuing to grow revenues year over year while keeping our balance sheet in an incredibly healthy position. Again, zero company debt. All of this combined means that Thunderbird's business is strong and that our company is prepared to act swiftly to pursue new opportunities coming down the line. Our premium content is a testament to Thunderbird's execution and the exceptional value we're creating for our partners, which includes their subscribers and our shareholders. We can't wait to see how audiences respond to what's coming down the pipeline. And lastly, I want to thank you all for being here and wish you and your families a really safe, happy holiday season and cheers to all good things in 2021. Stay tuned and over to you, Barb. Thanks, Jen. Good afternoon, everybody, and thanks for joining us today. I'll just dive into the summary of the financial results for Q1 2021. Consolidated revenue for the three months ended September 30th, 2020 was $19.8 million, as Jen mentioned, compared to $16.5 million for the comparative period of fiscal 2020, an increase of $3.3 million or 20% over the comparative quarter. Of this revenue, $14.7 million related to production services revenue in our kids and family division, an increase of $4.3 million over Q1 2020, or 41%. Licensing and distribution revenue is revenue related to any projects where we own the copyright, otherwise known as IP. Licensing and distribution revenues decreased this quarter by $1.1 million, or 17%, as compared to Q1 2020, due to the timing of when certain projects were delivered and recognized. In Q1 2020, we recognized three episodes of Last Kids on Earth, whereas this quarter, we had no comparable revenue recognition. As Jen also mentioned, the next batch of Last Kids will be recognized in Q2 of 2021. In the current quarter, the company also recognized revenue from 12 episodes of a factual series, while in the comparative quarter, revenue was recognized from 13 episodes of two factual series. Adjusted EBITDA was $4.8 million for the three months ended September 30, 2020, compared to $3.6 million for Q1 2020, an increase of $1.2 million. As mentioned in the revenue section, this increase was primarily due to growth in production services attributed to the kids and family division. And finally, free cash flow was $1.2 million as compared to $4 million in the comparative quarter, a decrease of $2.8 million, This represents the significant investment in content of $3.6 million during the quarter compared to just $0.2 million in Q1 of 2021. And this significant investment in content, we'll see the benefits of this will be realized during this fiscal year and beyond. Now I think it's time for a short Q&A. So over to the moderator. Thanks, everybody.

At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Matthew Lee with Canaccord. Your line is now open.

Good afternoon. This is Matt Lee from Canaccord on the call in place of Aravinda. I wanted to start with kind of a big picture question on M&A. Can you maybe drill down on which areas your interests particularly lie? Are you looking for brands to revitalize gaming assets, international firms, or maybe something else?

It's a great question, Matt. Focusing a lot on international expansion, we have such great relationships with all of the streamers and broadcasters. And as we know, they're all judged by merit on increasing subscriptions. And North America will tap out. So where do the streamers need to go? They need to, you know, publicly, many of them have announced increased focus in Europe and Southeast Asia. And by us having ownership in those countries, especially ones with governments that are supportive of the industry, they're requiring streamers that sort of up to 30% of whatever they stream needs to be from that region. We can recognize, if we have ownership in those areas, we can recognize that content. help get it set up and airing and streaming and then further run that content through our burgeoning consumer products and distribution division. So that would be one area of interest. Certainly we're in great position as a company to start making acquisitions. We have great cash balance and zero debt. And so I think now is the time for us to be nimble and opportunistic only as it ties into our core strategy. And how do we get stronger, not just getting bigger for the sake of getting bigger?

Yeah, that's a great answer. And then maybe on the merchandising side, can you give us any updates on the sale of Last Kits on Earth toys and products throughout the Christmas period?

Those will be more readily available by March of calendar year 21. Okay.

And then maybe we can switch over to the financial performance a bit. Maybe talk a bit about the seasonality you expect. I noticed you commented that you're going to have three last Kids on Earth episodes delivered in Q221. How does that compare to Q220 and maybe – What is distribution growth and, you know, growth in general look like for the last three quarters of the year?

Yeah, for sure, Matt. Yeah, as you know, you know, this business is very seasonal, at least on the IP side, because we, you know, we don't recognize the revenue from our IP projects until they're delivered to the broadcaster or streamer and the term starts. So you can have a lot of volatility between quarters. um for example last year uh last quarter q1 2020 we we recognized three episodes of last kids and this quarter we have none but we're recognizing three up we'll have three episodes of last kids to recognize in q2 so it's always kind of bouncing around um and as we do more work with the streamers i think that will continue to bounce around from quarter to quarter there used to be a sort of set season with, say, the Canadian broadcasters where you'd kind of know you'd have, you know, really, really high quarters one and three and low quarters two and four just because of how their scheduling worked. But I'm finding it's increasingly harder to predict what quarters are going to be up or less because the streamers can release at any time. But thanks for bringing up that particular seasonality.

And I guess just the last question for me, you know, how are we thinking about the free cash flow profile for F21? For Q1? No, no, for 2021.

Well, I mean, I think we'll be, you know, seeing positive free cash flow all along. There will be dips depending on when we're making our, you know, more significant investment in content. versus when we're seeing that recognition of the revenue. That's why this quarter was down compared to last quarter because we had about $3.6 million from our cash flow statement that we put into investment and content, and that investment and content won't be recognized until later in this fiscal season.

Right. Sorry, did you say that every quarter was going to be positive pre-cash flow?

It's looking a little bit like that.

Okay. Thank you. That's it.

As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from Sedant Delawary with Cormark Securities. Your line is now open.

Hi, guys. This is Sid sitting in for David McFadden. Just first off, just following on Matt's question regarding M&A, I know you, Jennifer, mentioned that one of the primary focuses to expand globally, but just diving a little bit deeper into it, would it be in a certain segment, given your expertise in the animation production segment, would it be focused in that area, or would you be looking at potential acquisition opportunities within the scripted or factual divisions as well?

I think our main North Star of the company is quality. and content, and we're looking to work and create major global brands. So that isn't isolated to animation. That covers all types of content that people are consuming. How are people watching content in 2021 and beyond? And we want to be a part of that ever-changing narrative.

Okay. Okay, great. Thanks. And then just going back to free cash flow, sorry, did you say that the free cash flow for the year is going to be up year over year and it should kind of stabilize on an annual basis in terms of investment in content?

I didn't quite say that. What I did say is like the quarters that have lesser free cash flow are the quarters in which we're putting a lot of investment in content. you know, before everything's being recognized. So the pattern that I usually see is that when we have quarters where we recognize a lot of investment in content, when we're recognizing that IP, those are our high free cash flow quarters.

Okay. Okay, great. Thanks. And then just one last one for me. With the recent spike in number of cases worldwide, do you expect any delays with some of your deliveries within the factual and scripted divisions for fiscal 21?

No, we don't. Our factual teams, because we're able to work socially distant, it's more of a guerrilla style of filmmaking. You know, we're really like a really just small core journalistic team watching events unfold, and then the bulk of the work happens back in editorial, which, again, you can create very safe environments. So no problems at all in factual. And we have a really small footprint in scripted. That was sort of serendipitous as you would see other content companies with larger footprints in scripted struggling. The only thing we have shooting right now is Kim's Convenience Season 5, which we took the early part of COVID to... get all the writing, the development done on the shelves. And then we started shooting on September 9th and have been able to, you know, finish and complete shooting with following all government protocols and great support from our partners at CBC have been just wonderful to work with and go hand in hand to make sure that we could execute on the production. So no slowdowns at all in those areas.

Okay, great. Thanks, Jennifer. That was really helpful. That's it for me.

Thank you. There are no further questions in queue at this time. This concludes our call today. If you have any questions, please call 1-604-683-3555 or email