Dolphin Entertainment, Inc. Q1 FY2023 Earnings Call

Good day, everyone, and welcome to today's Dolphin Entertainment First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded. It is now my pleasure to turn the conference over to Mr. James Carbonara. Please go ahead.

Thank you, operator, and once again, welcome to Dolphin Entertainment's first quarter 2023 earnings call. With me on the call are Bill O'Dowd, Chief Executive Officer; and Mirta Negrini, Chief Financial Officer. I'd like to begin the call by reading the safe harbor statement. This statement is made pursuant to the safe harbor statement for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurances that such expectations will prove to have been correct. Actual results may differ materially from those expressed or implied in the forward-looking statements due to various risks and uncertainties. For 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 statements to reflect subsequent knowledge, events or circumstances. Now I'd like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.

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, we're happy to report that our first quarter revenue grew by 8% year-over-year to $9.9 million. Since Q1 is always our lowest revenue quarter because of the seasonality in our business and especially with our influencer marketing companies, we expect Q2 revenue to be meaningfully higher and believe that we will hit our expected year-over-year revenue growth target of 20% to 25% for the full year 2023, basically saying we're on track. We are also pleased that our operating loss per share for Q1 stayed the same as last year despite adding a second influencer firm into our Q1 results. And as noted just a second ago, we expect our influencer marketing firms to be down in Q1 due to seasonality, but we also expect them to more than make up the ground in the rest of the year to deliver annual profits to Dolphin. Moving to operational updates, a clear highlight occurred after the quarter ended with the announcement that Amazon Studios acquired the worldwide rights to The Blue Angels. I know we spoke just six weeks ago, and this has occurred since. If you recall, this time last year, we announced a multiyear agreement with IMAX to jointly finance the development and production of a slate of feature-length documentaries for the global market. The first project greenlit was The Blue Angels, developed and co-produced by J.J. Abrams, Bad Robot Productions and Zipper Bros Films. The Blue Angels started filming last summer and has finished production. We expect the film to hit IMAX theaters in the second half of this year. In terms of financial implications, we expect to generate approximately $3.5 million of revenue to Dolphin from the acquisition agreement, which would result in a 75% ROI before the inclusion of any revenues to Dolphin from the ticket sales from IMAX institutional theaters. This fantastic return on The Blue Angels provides a formidable proof of concept for our Dolphin Ventures model, formerly known as Dolphin 2.0, of taking equity in projects that we market. Dolphin Ventures also saw a boost in Q1 with the announcement that veteran Fortune 500 Executive Ellie Doty has joined as Chief Marketing Officer. The rationale is that we expect to source, evaluate and engage in multiple ventures opportunities over the next 12 to 24 months, opportunities wherein we get paid a cash fee to secure the services of the various Dolphin agencies working on the account but also where we receive equity in the product or services we are marketing. Additionally, as Chief Marketing Officer, part of Ellie's role will be to communicate what we have built and give an additional platform to both the work we are doing and to the incredible leaders within our Dolphin family. Ellie is one of those leaders herself. Leaders like Shore Fire Media, Dolphin's industry-leading music PR firm, whose client, Rhiannon Giddens, was just awarded the Pulitzer Prize in Music, which followed Shore Fire clients receiving a collective 14 Grammy Awards in Q1, including Song of the Year and Best New Artist. That many Grammys is a reflection of the breadth and depth of Shore Fire's roster, which is what allowed it to place clients across a wide variety of major promotional vehicles in Q1, including Good Morning America, the TODAY Show, the Kelly Clarkson Show, and Rolling Stone, just to name a few. We have leaders like 42West, our film and television PR powerhouse who has helped clients and worked on projects resulting in four nominations for the 76th Tony Awards, four awards at the Sundance Film Festival, and five awards at the South by Southwest Film Festival this year already. Additionally, 42West's work on the Top Gun: Maverick campaign resulted in an Academy Award for Best Sound and six Oscar nominations, which follows a worldwide box office total of $1.49 billion in 2022, the biggest client Tom Cruise’s career to date. I realized I should have just rounded up to $1.50 billion instead of $1.49 billion. But, yes, all right, unsurprisingly 42West and Shore Fire Media were once again honored by the Observer’s PR Power List. We have leaders like The Door, our leading culinary hospitality and lifestyle PR firm who just welcomed Carbone Fine Food to their ever-growing roster of clients in a consumer packaged good space. While client Gigi Hadid paid tribute to Karl Lagerfeld in a stunning custom-made DaVinci dress on the steps of the 2023 Met Gala, and client Viceroy Hotels made Travel + Leisure’s 2023 top 500 best hotels list. Leaders like Be Social and Socialyte, our top influencer marketing agencies that represent over 200 leading creator talent with hundreds of millions of followers on social media. Our creators were recently asked to join campaigns for Saks, Hyundai, Jose Cuervo Tequila, Revlon, and Pinterest among dozens of others in Q1. Be Social and Socialyte were named top talent managers for creators by Business Insider. Lastly, leaders like Viewpoint Creative, Dolphin’s respected creative relations agency and video production boutique. The Viewpoint’s work in Q1 and year-to-date included a brand image campaign for CBS News New York, Big Red’s Hot Sauce, and PayPal. Now I’ll turn to providing updates on some of our projects where Dolphin and its shareholders have equity and participate in the upside that our best-in-class marketing companies regularly enable for our clients. Starting with Midnight Theatre, as a reminder, Dolphin manages all aspects of publicity and marketing for Midnight Theatre 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. As we ramp up the program at Midnight Theatre throughout the summer, aiming to have a full seven-day-a-week schedule shortly after Labor Day, we've played hosts to an array of talent, including Gloria Steinem, New York Cabaret, The Moth, The Daily Show’s Roy Wood Jr., who incidentally just hosted the White House Correspondents' Dinner, The Amy Schumer Show's Rachel Feinstein, Broadway’s Andrew Barth Feldman, who co-stars with Jennifer Lawrence in an upcoming comedy film from Sony that by all accounts looks like it could be a summer hit, and screenings of the Academy Award-winning Everything Everywhere All at Once as well as NCAA Basketball’s March Madness in 4K-high definition, just to name a few. Go Blue Jays. We also anticipate putting out our first original production called A Brief History of Magic in Midnight Theatre in July. We’re very excited for that as it should allow us to double the number of shows per month this summer compared to what we did this winter and spring. And so the theater is kicking into gear. Turning back to our multi-year agreement with IMAX to jointly finance the development and production of a slate of feature-length documentaries, you heard at the top of the call that with the sale of Amazon Studios of our first project together, The Blue Angels, that this partnership could not have gotten off to a better start. We’re now looking for and evaluating opportunities for our second documentary together. We also anticipate doing more work with IMAX; we are actively sourcing and developing live shows with them that we can broadcast from Midnight Theatre into IMAX theatres nationwide. We expect to have a lot more to talk about on this topic between now and our Q2 earnings call. In summary, it’s been a great start to the year with record Q1 revenues. As in previous years, we are confident that Q2 will be significantly higher in revenues than Q1, and Dolphin Ventures, previously known as Dolphin 2.0, will enjoy a fantastic return on its investment in The Blue Angels with revenues from IMAX institutional theaters still to come. Thank you for joining us. To that end, I’ll now turn it over to Mirta.

Thank you, Bill, and good afternoon, everyone. I will now discuss results for the quarter ended March 31, 2023. Revenue for the quarter ended March 31, 2023 was approximately $9.9 million, 8% above the revenue for the quarter ended March 31, 2022. Overall, operating expenses for the three months ended March 31, 2023, were approximately $12.5 million, compared to approximately $11.1 million in the same period in the prior year. Operating expenses are composed of direct costs, payroll and benefits, selling, general and administrative expenses, SG&A, changes in the fair value of contingent consideration, depreciation and amortization, and legal and professional fees. Direct costs for the quarter ended March 31, 2023, were $219,000, compared to $1.1 million in the same period in the prior year. Payroll costs were approximately $9.1 million, compared to $7 million in the same period in the prior year. SG&A expenses of $1.9 million, compared to $1.5 million for the same period in the prior year. Legal and professional fees were $763,000, compared to $938,000 in the same period in the prior year. Operating loss for the quarter ended March 31, 2023, of $2,566,000 includes non-cash items from depreciation and amortization of $533,096 and a loss from the change in the fair value of contingent consideration of $15,485, along with one-time, non-recurring audit fees of $300,000. This compares to an operating loss for the quarter ended March 31, 2022, of $1,889,060, which includes non-cash items from depreciation and amortization of $407,238, and a loss from the change in the fair value of contingent consideration of $161,451, along with one-time, non-recurring professional fee expenses of approximately $300,000, primarily related to the 2021 audit. Net loss for the quarter ended March 31, 2023, of $2,969,320, included non-cash items from depreciation and amortization of $533,096 and a loss from the change in the fair value of contingent consideration of $15,485, along with one-time, non-recurring audit fees of $300,000. This compares to a net loss for the quarter ended March 31, 2022, of $1,717,832, which includes non-cash items from depreciation and amortization of $407,238, and a loss from the change in the fair value of contingent consideration of $161,451, along with one-time, non-recurring professional fee expenses of approximately $300,000, primarily related to the 2021 audit. Basic and fully diluted loss per share was $0.23 per share based on 12,640,285 weighted average shares outstanding. This compares to $0.20 of basic loss per share and 8,713,700 weighted average shares, and $0.23 fully diluted loss per share based on 8,846,567 weighted average shares outstanding in the same period in the prior year. Unrestricted cash and cash equivalents of $7.9 million as of March 31, 2023, compared to $6.1 million as of March 31, 2022. That concludes my financial remarks. I will now ask the operator to open the phone lines for Q&A. Operator, can you please poll for questions?

Thank you. Our first question will come from Allen Klee with Maxim Group.

Good afternoon. Congratulations on the quarter.

Thank you.

Questions on The Blue Angels. So I think I heard you say that you’re done with the production. Remind us when the goal is for this to hit the theaters. How many theaters will it go in for how long? And then when will it become available, and when do you recognize the revenue from Amazon? Thank you.

Sure. Yes, this is a big deal. So we should unpack it a little bit and certainly didn’t expect to have such an amazing result on the first one out of the gate. So thank you for highlighting it, Allen. We did, we just announced the deal a year ago this week in Miami. We started filming last summer, and we finished filming in March. We’re editing it now. We expect to, as of now, the plan is to be in theaters this fall, late September, October. Of course, those things can move up or back depending on a wide variety of factors, but that’s the current plan. It would hit Amazon 30 days after it goes into theaters. With a documentary like this, we’d love to capture a little bit of the tailwinds to try and do a flying analogy maybe of Top Gun: Maverick, which certainly helped us with the hype and excitement around this film, which by all accounts is turning out beautifully. We would recognize this $3.5 million in stages. By the time it goes on the Amazon service, we should recognize at least 90% of the revenue, if not the full 100. And if we’re missing that last 10%, it would come very shortly thereafter. So if the film is released this year, we should recognize it all during the year, and that’s exciting for us.

That’s great. So, as we look into 2023 and we’re thinking about Dolphin Ventures, could you kind of go through what you’ve publicly said already about projects that could generate revenue for yourselves this year?

Sure. Yes, really, this Blue Angels really kicks off the ability to recognize revenue from Dolphin Ventures. So it’s an exciting time. Obviously, Blue Angels will happen which is fantastic, and I should point out before I forget that the deal with Amazon is fabulous for us. We also will have additional revenue on the project from IMAX institutional theaters, which is also exciting as we share with IMAX, of course, and the creatives on the film. This will have a nice annuity we believe for us. That 75% ROI is not bad, less than 12 months later; annualized it will continue to increase over the years. We’re excited about what the next documentary might be with IMAX, and then that leads directly to your question, Allen. We’ll have more to talk about on our Q2 earnings call. The ability to do more projects with IMAX will include some live streaming out of our theater, which could result in some revenue generally during 2023. Midnight Theatre as a whole will be up and running and fully operational very shortly. We’ve got the restaurant open, and we’ve had shows in there now about three nights a week. When we have our magic show in July, that will give us comfort that we could be more in the four or five-night a week range and then shortly after Labor Day, we expect to be seven days a week. So when that does happen, Midnight Theatre will be generating meaningful revenue, we believe here in 2023 and will be a nice catalyst for us. Be on the lookout for that press release about our magic show. We also have other Dolphin Ventures in the works. We do own a stake in Crafthouse Cocktails. Those types of deals I know many people on the call are fans of wherein we put up no money. We don’t make a cash investment, but a company gets access to our super group. We get paid a cash fee every month in this structure, and we get equity in the company that we’re promoting or the venture that we’re promoting. Without giving a specific number and not wanting to steal thunder from future announcements, I do believe we’ve identified the next couple of those and are working towards closing and anticipate being able to announce the next one shortly, in the coming weeks, ahead of our Q2 earnings call. So our goal is maybe a year from the holidays to have six to eight of those types of ventures in our portfolio. Each will have an exit strategy; maybe it’s selling the company we’re working with or doing a fundraise, et cetera. This gives us an exit within two to three years of entering our portfolio. Having a slate like that, we obviously expect some of them to have Blue Angels-type results.

Thank you. That's great color. The writers' strike that's going on, does that have an impact on your business? Or does it need to go on for a long time for that to happen?

Yes. No, we're blessed. We’re similar to the movie theaters in that we're kind of insulated; it would have to go on a long time because the projects we've already been hired to promote through the end of this year are identifying projects to promote early to middle of next year. Those are already finished films, much like Blue Angels would be. So it will affect TV production if it goes on throughout the summer. However, I think most of the industry is not optimistic at the moment. But it will not affect our business, no, happy to say.

Okay. That's great. In terms of Socialyte and Be Social, how do you feel about integrating the two and the opportunity you have with these two powerful companies now working together?

Well, on the combination, quite frankly, this is probably the most exciting thing going because as listeners of these earnings calls know, in the last couple, we bought Socialyte the day of our earnings call back in November, and we've been working to integrate these two companies. We’ll be announcing over the summer a new name and excitement around what will be, when they are together, we think, the largest and most formidable influencer marketing agency in all of entertainment. It’s only going to grow because we're going to invest in the growth of that combined company, more divisions, more segments, more platforms we promote on because influencer marketing is one of the fastest-growing areas in all of marketing. If you think about it, 10 years ago, it started with mommy bloggers. Now, it’s affected every industry, from books, to college athletes, to video gaming influencers. We really have synergies we can create with our large video gaming business within 42West and the influencer marketing firms which we don’t do today. We are heavily focused on female and beauty, lifestyle, wellness, and are the market leader, which is the cornerstone of influencer marketing today. In the next three to five years, I’d love to see us be twice as big, if not three times as big, in influencer marketing. This year, influencer marketing will represent 25% of our revenues, up from zero before we bought Be Social. It would be great to have influencer marketing represent half our revenues, which is saying a lot considering how strong our PR firms are. So that merger and doing it right this summer and into the fall will set us up for a lot of growth in the upcoming years.

Thank you. On the last call, you said that you had a desire to acquire a company in the live events space. Subsequent to that, we picked up a company that kind of does things like that, and I got educated on what a good business it is. But how do you think about how live events could play into what you do?

Well, it's nothing new for us in that this type of company was always something we said would be part of our group since 2017. We wanted to have the PR firms in place first and the influencer marketing agencies because they can funnel potential clients to a live events company in our space. Live events can mean a lot of things; it can be very lucrative for us, especially when you've got sister agencies involved. Every movie premiere is a live event; every streaming service show premiere is a live event. We're blessed to represent Martin Scorsese, and he's got 'Killers of the Flower Moon' premiering this Saturday. Those are live events that we represent every year. We also host premieres at Midnight Theatre. It’s very hard to define live events, but experiential marketing is a cornerstone of our strategy alongside PR and influencer marketing. If you’re going to bring celebrities to events, that can open up numerous opportunities for us. So, yes, I do think that live events should be a part of our future, for sure.

That’s great. My last question is not as exciting, but more financial. How should we think about the mix of your business now? You mentioned that Q1 is the seasonally slowest quarter. Can you elaborate on how the other quarters typically compare?

Yes. As we move more into influencer marketing, we’re going to have to get used to this because moving it out over the year just won’t be possible. Q2 and Q3 will sequentially ramp up traditionally with our PR business. PR has a dip in Q1, and influencer marketing has seasonality as well; Q4 is our highest revenue quarter because brands want to hire influencers for holiday sales, and then they shut off their budgets until spring. Coachella and other events mark the start of the brand marketing season for influencers. Q1 will always be down for us, while Q4 will always be our highest revenue quarter. However, as we grow each quarter year-over-year as we have for the past three years, Q2 should be better than last year’s Q2, Q3 will be better than last year’s Q3, and so on. But Q4 will always be overweight, and Q1 will always be underweight. Q2 and Q3 are often quite similar. Was that helpful?

Yes. Thank you so much and congratulations.

Thank you. It’s an exciting time. Just don’t expect 75% ROI on every venture!

Thank you. At this time, there are no additional questioners. I’d like to turn it back to Mr. O’Dowd for closing remarks.

Oh gosh. Okay. Well, first of all, I teach at the University of Miami, shout out to all hurricanes who just graduated and those past graduates that are on this call. I know during the Q1 call, I always feel a little guilty because I get to talk to everybody twice in six weeks, and usually not a lot has changed. Obviously, The Blue Angels has pride of place on this earnings call. I’m very happy that we are able to achieve such a great start with our ventures. It’s exciting times. Of course, having been in this business a long time and having formed multi-year partnerships with studios and networks in the past, I think having a success like this right out of the gate cements the relationship we believe we’ve built with IMAX. When two good companies with all of our reach come together, good things come out of it. I’m excited for that and sharing some of those ideas that we’ll be executing on over the summer and into the Q2 earnings call. Thank you all for listening. Thank you for giving us the opportunity to share our good news, and I look forward to the next earnings call in about three months. Thank you, everybody.

Thank you. Ladies and gentlemen, this concludes today’s presentation. You may now disconnect.