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Thunderbird Entertainment Group Inc.
Q2 2023 Earnings Conference Call
spk05: Thank you for joining Thunderbird Entertainment Group's Fiscal 2023 Q2 results call. Glenn Axelrod from Bristol Capital will read the forward-looking statements.
spk00: Thank you for joining us, everybody. We are here to provide a corporate update and report on Thunderbird Entertainment Group's Fiscal 2023 Q2 results, which ended December 31, 2022. Speaking on today's call are Ms. Jennifer Twyna McCarron, Thunderbird CEO, and Ms. Barb Harwood, Thunderbird CFO. Ms. McCarron will provide a strategic overview of Thunderbird Entertainment Group, and Ms. Harwood will review the company's Q2 2023 financials. Following the corporate update and financial reviews, the call will open for a -and-answer session. If you'd like to ask a question during this time, simply press star, then number one on your telephone keypad. Alternatively, if you'd like to have any questions, you can call -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 the applicable securities laws. Forward-looking statements and information discussed on this conference call include but are not limited to statements with respect to commencing a strategic analysis, the success of certain productions, anticipated adjustments to EBITDA, the robustness of the production development, slate projections regarding adding 143 million new subscriptions this year, timing for announcing a broadcast partner for the TokiDoki series, the future potential of the current productions, the company's objectives, goals, or future plans, the likelihood the company will continue to get bigger and better, 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 in 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. And those additional risks set out in the company's management discussion and analysis for the years ended June 30, 2022 and 2021, filed October 19, 2022, and other public documents filed in CDAR at .cdar.com. Although the company believes that the assumptions and factors used in preparing these forward-looking statements are reasonable, under-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 were required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For your convenience, the MD&A, the un-audited financial statements for Q2, 2023, which ended December 31, 2022, and the related news release are filed on CDAR and are available online under the investor section of our website. We don't 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 .thunderbird.tv. Following today's call, please note that Thunderbird reports in Canadian dollars unless otherwise stated. Ms. McCarran will now provide the corporate update.
spk02: Thank you so much, Glenn. My name is Jennifer Twyna McCarran and I am the CEO and Chair of Thunderbird Entertainment Group. On behalf of the company, I'd like to thank you for joining today's call to discuss our Q2, 2023 results, which ended December 31, 2022. Thunderbird CFO, Barb Harwood, is with me and we appreciate you joining us. Once Barb and I are finished, we will be happy to answer all questions. I'll start today by welcoming new directors, Asha Danier and Mark Treichuk to our board. I am beyond excited to work with them and look forward to their input along with previous valued board members, Azeem Jamal, Jerome Levy, and Linda Michelson. As previously announced, we are moving forward with a formal exploration of strategic alternatives for Thunderbird that will both capitalize on the significant value of our premium quality content and identify key opportunities for delivering sustainable long-term growth. As we embark upon this process, the board is committed to working closely together alongside our outside advisors to conduct a comprehensive evaluation of opportunities while maintaining a focus on maximizing value to Thunderbird shareholders. I am confident that this important strategic review will position Thunderbird on the best possible trajectory to achieving our goal of becoming the next major global content studio. We are pleased that the proxy contest is behind us and to be moving forward as an independent board working for all stakeholders. Today I will talk about Thunderbird's bright future and share high-level visibility into the remainder of the year as well as into fiscal 2024 and 2025. I will also provide the Q2 corporate update. From my vantage point, there continues to be many exciting productions and announcements on the horizon. For example, we are making huge strides forward with our IP strategy and recently started production on the first 26 half-hour episodes of the season of the children's series Murmokorno, which is inspired by Tokidoki's hit toy brand of the same name. This company is IP and we are working in partnership with Tokidoki. We look forward to sharing our broadcast partners for the series and more details about this amazing production in the coming months. We also have many forthcoming announcements that we are equally excited to share with merchandise and consumer products opportunities. Add to this that our teams attended Railscreen and Kidscreen just recently and many new pieces of IP were pitched and met with great excitement. Honestly, we've had more movement with our IP success in the last six months than at any other time in our company history. The future of Thunderbird is so bright, however, our short-term numbers will reflect business uncertainty stemming from the proxy contest as well as associated expenses. This is coupled with overall shifts within the industry as major players, many of whom are our clients and buyers, work to balance their businesses in the new era of streaming. As a result, timeframes for several of our productions have shifted from fiscal year 23 to fiscal year 24 and 25. While all of this work remains with Thunderbird and we have not lost any planned work, the is no longer expected to be our strongest. We are currently anticipating adjusted EVTA to be down for fiscal year 23 compared to fiscal year 22. This is not the outcome we had initially anticipated. However, it is important to note that our pipeline remains extremely strong with a range of diverse content and Thunderbird is incredibly well positioned for the future. Booked growth in 24 and 25 is incredibly robust and we anticipate sizable double-digit growth in adjusted EVTA, which includes several owned IP reductions with adjacent merchandise opportunities coming to fruition. Gross margin also improves in fiscal year 24 and 25 with impacts both positive and negative, including but not limited to overall economic recovery, timing factors from reversals of production delays of fiscal 23, payoffs from fiscal 22-23 build year initiatives, and IP timing of production and delivery. Barbent will discuss the numbers in more detail in a moment and during the Q&A we are happy to answer all of your questions. For those following the industry closely, 2023 is being described as the year of industry-wide cooling. Uncertainty is impacting many areas of the industry and after experiencing unprecedented rates of growth during the pandemic, streaming growth has slowed. While this is true, it's also important to note that subscriptions are still increasing and the industry is still experiencing growth. Almeida is projecting the addition of 143 million new subscriptions this year in the US alone, which is a mature esphalop market, and there will almost be 40 million new esphalop subscriptions worldwide. And if we take a deeper dive by region and streamer, we see incredible growth taking place overseas, with Europe, Middle East, and Africa becoming Netflix's biggest region, with 76.7 million subscribers, overtopping US and Canada. This is an incredible opportunity for our company. To retain and grow subscriptions, even at an adjusted pace, the major streaming companies require quality content. So the need for quality content hasn't changed and the demand for premium work remains extremely strong. That's where Thunderbird comes in with the company's trusted relationships and stellar reputation for delivering A++ content. Buyers are looking for premium projects across the board. Take Disney, for example. Disney's cutting costs and restructuring. CEO Bob Iger stated these decisions were made to return creativity to the center of the company, increase accountability, improve results, and ensure the quality of content and experiences. Iger underscored the importance of streaming to Disney's future and further highlighted that Disney's focus will be more on family and children's entertainment, pulling back from generic general audience programming. Disney's business decisions create more opportunity for Thunderbird. They will be producing less work internally and will be partnering more with companies like ours to handle everything from start to finish, which fits nicely with our partner Managed Five One. Add to this that working in Canada provides great tax credits, making high-end productions more affordable. Streaming is here to stay and the shifts in the industry offer more opportunity for Thunderbird to shine and do what we do best. By keeping our focus on quality as our North Star, Thunderbird will remain in great stead. And I can confidently share our talented teams are more dedicated than ever and doubling down to produce the quality content we are renowned for so we can continue to be the studio of choice. And our quality content is being recognized on many levels and in different ways. Reginald the Vampire, a fully-owned scripted series that stars Spider-Man's Jacob Batlin, was recently renewed for season two by Syfy. Dead Man's Curse, an unscripted global production following four explorers as they search for ranked as one of the top 10 of Canadian original series across specialty television this fall. Pinecone and Pony, which is based on the best-selling author Kate Beaton's children's book, was recently nominated for a 2023 GLAAD Media Award in the Outstanding Children's Programming category. And Princess Power, an animated series inspired by Savannah Guthrie and Ali Oppenheim's New York Times best-selling children's book, launched on Netflix worldwide, receiving significant media coverage. In the days following its premiere, it ranked number eight on the Netflix Kids Chart in the U.S. Thunderbird has also received nine nominations from the Canadian Screen Awards, from Dr. Savannah Wildrose-Vette for Best Lifestyle Program, or series to Pinecone and Pony for Best Direction, animation to Styled for Best Host Lifestyle, Nicole Babb and Caffrey Van Horn. And our company also continues to turn heads. Business in Vancouver recently recognized Atomic with a BC Export Award in the digital and media entertainment category. Our COO, Sarah Nathanson, is a nominee for the YWCA Women of Distinction Award for her commitment to identifying new initiatives to strategically support Thunderbird's growth, including a robust environment, social and governance action plan. And Thunderbird was listed this week as one of 2023 TSXV Top 50 Performing Companies. This is just a snapshot of the team's six successes. I could not be more proud of every single employee. Every project that is renewed, every partnership that is solidified, every award that we receive, all of these reaffirm our belief that Thunderbird is the best at what we do. I'm excited to share more updates after Barb has presented the financial update. Thank you so much. And over to you,
spk01: Barb. Thanks, Jen. And good morning and afternoon to everybody. Thanks for joining us. The company recognized revenue of $48 million and $91.7 million in the three and six months December 31, 2022, as compared to $33 million and $68 million over the comparative period, increases of 45% and 35%. Production services revenue for the three and six months ended December 31, 2022, was $33 million and $62 million, increases of 8% and 13% over the comparative period, due to an increase in the number and size of contracts. Projects with significant revenues during the quarter include Princess Power, Marvel Spidey and his amazing friends, My Little Pony, and Coco Mellon Lane. Licensing and distribution revenue from Thunderbird's owned IP was $15.4 million and $29.4 million for the three and six months ended December 31, 2022, increases of $12.6 million and $16.6 million over the comparative period. The increases were mainly due to the recognition of the scripted series Reginald the Vampire, Stray's season two, and 24 episodes of the three unscripted series, After the Storm, Mud Mountain Haulers season two, and Highway Through Hell season 11 in the current quarter. In the comparative quarter, seven episodes of the unscripted series, Highway Through Hell season 10 were delivered. Adjusted EBITDA was $4.3 million and $8.4 million for the three and six months ended December 31, 2022, as compared to $5 million and $11.3 million for the comparative period in the prior year. The decrease is predominantly attributable to an increase in direct costs and G&A over the prior period. With talent at a premium, the company continued to invest in such as kids and family, scripted development, distribution, and business affairs. Additionally, the company invested in software and technology upgrades due to the increased headcount and to improve production processes and create production efficiencies. And finally, pre-cash flow decreased by $8.6 million to $7.8 million and $7.7 million to $12.2 million for the three and six months ended December 31, as compared to $16.4 million and $19.9 million for the comparative period. The decrease is primarily due to positive changes in working capital, partially offset by repayment of interim production financing. And now back to Jen.
spk02: Thanks so much, Barb. As of December 31, the company had 26 programs in various stages production for 18 clients. Of the 26 programs in production, eight were Thunderbird IP and 18 were service productions. Two of the service productions are partner managed, where the productions are fully funded and ancillary rights are controlled by the partner but entirely managed by Thunderbird. As a result, Thunderbird is entitled to receive a percentage of the profits from merchandise and licensing. One production is a global IP buyout where the production was originally optioned by the company, then acquired by the partner with Thunderbird receiving an increased percentage of net profits from merchandise and licensing as a result. At the end of Q2 2023, the company was in various stages of production on 18 animated series. These animated series include Oddballs for Netflix, Night at the Museum for Disney+, Cocomel and Lane for Moon Bug and Netflix, Young Love for Sony and HBO Max, Teenage Euthanasia Season 2 for Adult Swim, My Little Pony for E1 and Hasbro, and Princess Power for Netflix, just to list a few. Princess Power are global IP buyouts that Atomic did develop with Alioponine and Savannah Guthrie and Drew Barrymore's Flower Films launched on Netflix in the subsequent quarter. The series received incredible buzz with coverage appearing in outlets like People, Today, Nightly News Kids, Entertainment Tonight and the Drew Barrymore Show. The potential reach of digital publicity from online posts exceeded 32.9 million views. Shifting focus, the company was in production on six unscripted series and one documentary. Highway Through Hell Season 12, Heavy Rescue 401 Season 7, Mud Mountain Haulers Season 3, Dead Man's Curse Season 2, Styled Season 2, Dr. Savannah Wildrose Vet Season 2, and After the Storm, a documentary based on the 2021 flooding in BC, which premiered on December 15, 2022. Great Pacific Media was also in production on Boot Camp, a new scripted production for which it acquired the film and television rights. The film adaptation stars Drew Ray Tanner from Riverdale and is based on the popular Wattpad story by Gina Musa of the same name. In fiscal 2023 Q2 and subsequent to the quarter, we are continuing to execute on the company's long-term growth strategy. We launched a scripted team which is based in Los Angeles with five scripted projects representing an array of New York Times bestselling books and award-winning authors at various stages in the development pipeline. Producing scripted series presents another opportunity for our company to be the studio of choice for buyers delivering top quality content. This expanded focus combined with the team's incredible talent and work ethic further strengthens Plunderbird's already strong position. Our teams are comprised of the top people in the industry and at a time when many businesses are unfortunately struggling with keeping talent and bringing in work, we are very proud to have one of the highest retention rates in the industry. Often our artists would rather wait until we have new opportunities and take breaks between contracts instead of joining other studios because of our focus on team and an artist-driven working environment. This is one of the utmost importance because this allows Plunderbird to continue delivering outstanding results, further maximizing opportunities that take us one more step closer to becoming the next major global studio. In addition to the impressive slated productions we have in the pipeline and our extraordinary team, we're also at the forefront of areas of increasing relevance and importance. Through our storytelling, we are prioritizing content with important messages that reflect a spectrum of voices and perspectives and that is not just good for business, it is what will help take us to the next level. Now Barb and I will be pleased to take all of your questions. Thank you so much.
spk05: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again to ask a question, please press star one. As a reminder, if you're using a speakerphone please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is from a line of Aravinda Galoacte with Canaccord. Please go ahead.
spk03: Thanks. Hi, good to talk to you guys. I obviously have a lot going on with Tanda Birt, so I have a few questions. I'll maybe start at sort of the strategic level. Jennifer, maybe just with respect to the strategic review, can you just talk to how we can kind of think about this alongside maybe M&A opportunities or acquisition opportunities? Is it a case of running through that strategic review and obviously going where you want to go with that? Once that's done, if you want to stay sort of a stand-alone company, a public stand-alone company, then you start to look at M&A. Are both parts kind of running in parallel? I just wanted to get some clarity around that. Maybe I'll just stop there.
spk02: Yeah, it's a great question, Aravinda. We've put a pause on pursuing M&A activity at this time as we commence the strategic review. We are in the process right now as a board deciding on the right bank to work with us with the overarching goal of maximizing our partner and then work with that partner through recommendations in terms of what is the best path forward for Thunderbird. We've had incredible growth. We are well known as the industry darling, not because of me, but because of the amazing teams and the work that is happening. So we're really coming together as a team to take that third-party opinion once we solidify that and go forward with whatever recommendation that may be, which may be stay the course, do M&A. There's so many different forms that we could merge, we could sell, we could go private. What we really want to do is just keep an eye for all of our valued shareholders. What can we do to best maximize value? We know the future is incredibly bright here, and we are incredibly well positioned as a company of choice.
spk03: Great. Thanks, Enj. That's pretty good clarity. With respect to guidance or the guide that you provided with respect to the rest of the year, should we think of this work that was pushed out, the delays? Is that mostly on the buyer's side? Is some of it on Thunderbird's side? How should we think of that dynamic?
spk02: Yeah, I think there is several things. We haven't lost work. We've just had it shift into 24 and 25, and we've also turned on more IP, which increases the overall long-term value of the company, but we can't recognize that EBITDA until we deliver. So the IP announcements will support that. There was hesitation in terms of
spk04: how will the
spk02: proxy fund end? Who's the ownership? Maybe we'll pause and see. Everybody is very pleased with the outcome. All of our buyers are very happy with where the company is at, but this happened over the holidays, the New Year, and of course, year end is June. Some work has slid to 24. It's not indicative of the health of the company. It's
spk03: on the financial side. Obviously, the gross margins have tightened both in Q1 and Q2 year over year, naturally because of the higher IP component that we're starting to see year over year as well. How should we think of that mix for the second half of the year? If you think about last year, for the first half, it was almost 30%. This year, first half, it was something like 22%. Just trying to get a sense of, I know the number jumps around a lot. So how should we think about the second half, both in terms of IP and service, and then obviously, gross margins, and I know the two are linked.
spk01: Yeah, thanks for that question. As you do know IP tends to jump around depending on what kind of projects we do. When we start to do the larger scripted shows, our margin tends to come down because those revenue dollars are so high. We'll continue to see that through the rest of 23. Margin should improve in 24 and 25 as we have more IP to put out there, and we don't have that one off situation that we have with Reginald the Vampire in 23. Then production services revenue continues to be stable across the company, across the periods. Typically, in 23, it's been a little bit lower than 22, and that's because in the past three quarters, as we've talked about, we've continued to invest in talent and put forth future initiatives such as building our IP pipeline and bolstering our CP distribution and division, things like that, where we won't see the results of that until 24 and 25.
spk03: Okay, thanks Barb. Last question for me. On the GNA, obviously, it hit a kind of a high number than we had seen in the past, getting close upon 7 million on a quarterly basis. Is that sort of the base we should think about as we kind of forecast forward?
spk01: Yes, I would think so because as I mentioned, our new initiatives sort of got put into place in Q4 and ramped up through Q4 and Q1 of 2023.
spk03: Okay, great. Thank you. I'll pause the line.
spk02: Thank you, Aravinda.
spk05: Thank you. Our next question comes from a line of David, Matt Fadden with Cormac Securities. Please go ahead.
spk04: Oh yeah, hi. A couple of questions. So when you talk about your expectation now for EBITDA to be down in fiscal 2023, can you give us an idea of the order of magnitude? Would it be less than 10% or would it be in that 10 to 20% range?
spk02: I think we need to evaluate because things are always moving. The reality is that even though we didn't lose work, it shifted. We're now having more work come into fiscal year 23. So we're constantly improving upon it. I just wanted to condition the market because I had noted in my last call that the second half of the year would be the strongest. But then when we had work pause due to some uncertainty and move into 24, I wanted to be clear managing those expectations. With regards to the magnitude, we're getting good news almost every day as a result of trips to kids screen and real screens. So we may be able to give more clear guidance in Q3, David, as we see all the new work that we're bringing into the
spk04: world. Hello? Hi, Jen, can you hear me? I can hear you now. Yeah. Okay, sorry. You kind of cut out there, David. Did
spk02: you hear my explanation? I
spk04: did. I did. Thank you. Okay, good. So is it one project that's being pushed out or there's several projects being pushed out? Is it one buyer or is it several buyers? It was two
spk02: projects, two projects, two different buyers.
spk04: Two projects, two different buyers. Okay. But they're large, right? Yeah. Okay. And you're not seeing any slowdown in demand from those two buyers, right? It's just pure timing?
spk02: No. No, I've actually seen ramp up in demand from those two buyers.
spk04: It was
spk02: just everyone was kind of waiting to, you know, people are nervous in general with the economy and what some of the shifts internally at the big buyers. So there's already that level of uncertainty. So for one of their key partners to be kind of going to a proxy fight where anything can happen, could management change, could, you know, it be sold right away to somebody else. All of these things, when people are already going, okay, we're going to be really careful spending our money, it causes people to take pause. Luckily, we didn't lose any work. It just pushed it into 24.
spk04: Right. Okay. Okay. That's it for me. Thanks.
spk02: Thanks, David.
spk05: Thank you. There are no additional questions waiting at this time. This concludes our call today. If you have any questions, please call plus -468-33555 or email investors at Thunderbird.tv. Thank you.