Greetings, and welcome to Dolphin Entertainment's Second Quarter 2023 Earnings Call. Please note that this conference is being recorded. I will now turn the conference over to your host, James Carbonara, Investor Relations. You may begin.

Thank you, operator, and once again, welcome to Dolphin Entertainment's Second Quarter 2023 Earnings Call. With me on the call are Bill O’Dowd, Chief Executive Officer; and 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 statement to reflect subsequent knowledge, events or circumstances. Now I'd like to turn the call over to Bill O’Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.

Thanks, James, and hi, everyone, and good afternoon, and thank you for joining us today. As always, we'll start with a review of some financial and operating highlights, followed by a full financial review and then open it up for Q&A. So from a financial highlights perspective, revenue hit an all-time high for Q2 of $11 million. This result marks our second highest quarterly revenue performance in the company's history in any quarter, coming incredibly close to our record best $11.1 million in Q4 of last year, without the benefit of the holiday seasonality that strengthens our business every year. So we're very, very proud of the revenue results this quarter. On the operating line, when you back out noncash charges, we improved our results over Q1 by $1.3 million to an operating loss less noncash charges of less than $400,000. This momentum of greater than $1.3 million improvement in operating results quarter-over-quarter sets us up nicely as we enter into the historically stronger second half of the year. Furthermore, we are very pleased with the strength of our balance sheet. We have over $7 million of unrestricted cash on hand and we have paid out the last of our acquisition earn-outs, thereby removing the final contingent consideration liabilities that have been on our books since we made our first acquisition in 2017. That's another significant milestone for us here six years later. All earn-outs have been paid and no more contingent consideration on our balance sheet. With respect to the noncash charges, in addition to the normal depreciation and amortization we take every quarter, primarily as we amortize over several years, the intangible assets we receive via our acquisitions, we also took a one-time $6.5 million noncash impairment against our goodwill this quarter in recognition of our stock price dropping during the fourth quarter of last year and the lack of market recovery in our stock price during the first half of this year. This one-time noncash impairment allows us to reset and realign our market capitalization with our book value prior to moving into our strongest quarters of the year. And before we announced the exciting catalysts we expect to share in the coming weeks. Again, it's worth repeating, this entire expense is both one-time and noncash, and we're happy to have taken it now. Looking ahead, we expect a strong second half to the year, delivering strong double-digit annual revenue growth. We also expect to report positive operating income in the back half of the year and going forward, once noncash items are excluded. As the strong improvement in operating results of more than $1.3 million from Q1 to Q2 would indicate. Again, we expect to report positive operating income in the back half of the year and going forward once noncash items are excluded. We believe that our second half of the year will also benefit from the fact that none of Q2's Dolphin film sale of feature documentary 'The Blue Angels' to Amazon Studios via our multiyear coproduction partnership with IMAX was actually recognized in Q2 but is expected to start being recognized in the second half of this year. Revenue from that transaction between the second half of this year and the first half of next year is expected to bring Dolphin over $3.5 million, which represents a better than 75% return on investment and this result does not include any of Dolphin's share of revenues from ticket sales in IMAX theaters. Moreover, virtually all of our subsidiaries, and especially our influencer marketing agencies, Be Social and Socialyte, traditionally thrive in the latter part of the year due to seasonality. Thus, with the strong operating momentum created from Q1 to Q2, along with a strong cash position and the removal of all contingent considerations from our balance sheet, and with the one-time noncash goodwill impairment behind us, we feel we are best positioned for a very strong second half of the year which is a great segue into our operational updates. At the prestigious 2023 Cannes Film Festival, the world premiere of Martin Scorsese's 'Killers of the Flower Moon' was skillfully publicized by 42West. Our film and television PR powerhouse firm also showcased multiple clients at the Tribeca Film Festival and proudly represented an unprecedented 13 clients at the renowned San Diego Comic-Con. Moreover, the exceptional talents represented by 42West received an impressive total of 4 nominations for the 76th Tony Awards. We'll have more to announce about 42West on the tremendous Emmy nominations they received once we all get through the next couple of months. Turning to our award-winning consumer lifestyle and hospitality marketing communications agency, The Door, warmly welcomed a host of new clients including for those from New York, Carbone, Fine Food, CityPickle, and the esteemed Emeril Lagasse, along with his son, the skilled Chef EJ Lagasse. Demonstrating their prowess, The Door secured 2 exciting projects with world renowned culinary virtuoso, John George. These ventures encompass the team building by John George and a forthcoming restaurant at the prestigious 425 Park Avenue in Manhattan, augmenting The Door's illustrious portfolio of culinary clients and destinations. Shifting gears to Dolphin's industry-leading music PR firm, Shore Fire had its hands full promoting sold-out tours by Bruce Springsteen and Odessa, a number 1 dance set by Kylie Minogue and groundbreaking initiatives by music business leaders such as ASCAP, Wasserman Music, and Rhino Records. A crowning achievement for Shore Fire's clientele, Rhiannon Giddens won the well-deserved Pulitzer Prize in Music for her collaborative opera, Omar, co-authored with the accomplished Michael Abels, known for his work on feature films 'Get Out' and 'Nope'. For Dolphin's respective creative agency and video production boutique, Viewpoint's work in Q2 and year-to-date includes productions for Fenway Park, Big Red's hot sauce, and PayPal. Rounding out the super group, talent from our creator agencies, Be Social and Socialyte were recently asked to join campaigns for leading brands including Maybelline, Steve Madden, and Skims among dozens of others in Q2. That's just the tip of the iceberg for two reasons: one, because the second half of the year is seasonally stronger for influencer marketing, and two, because we've only had these 2 companies under the Dolphin umbrella for a short period of time, and we have big plans. We usually touch on brief highlights of what our operating companies did in the quarter, but I'd really like to spend a little bit more time on Be Social and Socialyte. My goal is to try and paint a fuller picture of where we are and the massive opportunity ahead of us in the influencer marketing space both immediately in the second half of this year and beyond. As mentioned on previous earnings calls, we will be merging Be Social and Socialyte in the near future, and this will be a big deal in the influencer marketing industry. We believe the combined entity will be the entertainment industry's leading influencer marketing firm, alongside our best-in-class PR firms, 42West, Shore Fire and The Door. Together, the 2 agencies now have 50 employees and represent over 200 leading creator talent with millions of collective followers on social media. The influencer marketing industry has experienced strong double-digit CAGR over the past 5 years, increasing from global brand spend of less than $2 billion in 2016 to estimates of more than $14 billion in 2022 according to Grand View Research. That's more than 7x in 6 years, and it's not slowing down. With the combination of Socialyte and Be Social, we now expect that influencer marketing will represent 25% or more of our revenues in 2023 and we expect that percentage of our overall revenue to grow in the coming years. Thus, we believe that influencer marketing is our biggest core business growth engine. Our influencer marketing agencies receive a commission, typically 20% on whatever our talent makes. If we run a campaign for a brand, we get 20% of whatever the budget is. Both our talent management and brand services divisions have pretty healthy margins. We will expand our roster and our services to match the market. We are already at the vanguard of the biggest section of influencer marketing: female-led, Instagram-focused beauty, fashion, and wellness categories. It feels to us that there is a very large opportunity to build a dominant bicoastal influencer marketing agency across all entertainment verticals. We already have that in public relations with our best-in-class PR firms. We want to be the first to have that in influencer marketing too. We want to include athletes; NIL marketing for college athletes, for example, is only 2 years old and will continue to grow. We also believe in the strong potential of culinary influencers and team influencers to name two more categories, both of which are entire segments unto themselves. We are excited that for the very first time, we will be selling the services of these 2 companies in combination going into the heavy selling season of September and the fourth quarter, which includes holidays. We are ready to more formally combine our 2 great agencies, both their rosters and their services, in this third quarter. Be on the lookout for big announcements in this area in the next few weeks and well before we speak again in November. That was a mouthful, but I wanted to share all of that so that you could understand the long-term opportunity as well as why we are so excited about the second half of this year because we get to hit the ground running with these 2 companies in the September market. Now I'll turn to providing updates on some of our projects that we have at Dolphin Ventures where Dolphin and its shareholders have equity and participate in the upside that our best-in-class marketing companies regularly enable for our clients. 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. We continue to ramp up the programming at Midnight Theatre throughout the summer, aiming to have a full 7-day a week schedule by the end of September. To that end, we expect to have exciting programming partnerships to announce shortly in this quarter as well. Turning to our partnership with IMAX. We had the announcement that Amazon Studios obtained the worldwide rights to the 'Blue Angels', it's a noteworthy highlight of Q2 and that we discussed during our previous earnings call, and I'll briefly touch on here. This accomplishment stems from Dolphin Ventures' multiyear collaboration with IMAX, jointly funding and producing a series of feature-length documentaries for the worldwide audience. The inaugural project, 'The Blue Angels', is the creation of J.J. Abrams' Bad Robot productions along with partners, obviously, Dolphin Entertainment and IMAX, commenced filming last summer and has now wrapped production. We are in the final stages of editing and we anticipate releasing in IMAX theaters during the first quarter of next year. As far as Dolphin's return, we project revenue generation of approximately $3.5 million through the acquisition agreement, yielding an approximate 75% ROI. This projection does not include any revenue from ticket sales at IMAX institutional theaters, further enhancing the potential returns, nor was any of the revenue recognized in our record Q2. We are excited to start realizing revenue in the coming quarters. We expect to have a lot more to talk about on Dolphin Ventures as a whole on our Q3 earnings call. In summary, we feel we are well positioned to have a strong second half of the year, which has historically been the case due to the seasonality of our businesses. To have our second highest revenue quarter ever in Q2 when Q3 and Q4 are typically our biggest quarters, underpins our enthusiasm for what's to come.

Thank you, Bill, and good afternoon, everyone. I will now discuss results for the quarter ended June 30, 2023. Total revenue for the second quarter ended June 30, 2023, increased 11% to $11 million compared to the first quarter ended March 31, 2023. Overall, operating expenses for the 3 months ended June 30, 2023 were approximately $18.5 million compared to approximately $12.5 million for the 3 months ended March 31, 2023. As Bill mentioned, included in that $18.5 million is a $6.5 million noncash nonrecurring impairment of goodwill. During the second quarter, we performed a quantitative assessment driven by triggering events related to declines in our market capitalization, combined with the lack of positive response from the market to information related to future projects that resulted in the impairment of goodwill. Operating expenses are composed of direct costs, payroll and benefits, selling, general and administrative expenses, changes in the fair value of contingent consideration, depreciation and amortization, impairment of goodwill, and legal and professional fees. Direct costs for the quarter ended June 30, 2023, were $217,000 compared to $219,000 for the quarter ended March 31, 2023. Payroll costs were approximately $8.7 million in Q2 compared to $9.1 million in Q1 2023. SG&A expenses were $2 million in Q2 compared to $1.9 million in Q1. Legal and professional fees were $496,000 compared to $763,000 in Q1 2023. Operating loss for the quarter ended June 30, 2023, of $7.4 million and net loss for the quarter of $8 million include noncash items of over $7.1 million related to the nonrecurring $6.5 million impairment of goodwill and $543,939 of depreciation and amortization. This compares to an operating loss for the quarter ended March 31, 2023 of $2.6 million and a net loss of $3 million which include noncash items for 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 and nonrecurring audit fees of $300,000. Loss per share was $0.60 per share based on 13,212,311 weighted average shares outstanding for both basic loss per share and fully diluted loss per share for the 3 months ended June 30, 2023. Loss per share of $0.23 per share based on 12,640,285 weighted average shares outstanding for both basic and fully diluted loss per share for the 3 months ended March 31, 2023. Cash and cash equivalents were $7 million as of June 30, 2023 as compared to $7.9 million as of March 31, 2023. That concludes my financial remarks. I will now ask the operator to open the phone lines for Q&A.

Your first question is from Allen Klee with Maxim Group.

Congratulations on strong revenue growth. My first question is, can you give us a sense based on how long the writer and actor strike goes on, what the relative impact that might have on your business in the future?

Sure. Thank you, Allen. We're very proud of our revenue as well, especially for Q2. The writer strike doesn't have too big an impact on us. I remember a brief conversation on this with the Q1 earnings call because, obviously, writers write projects that will be made in the future. The projects that we're promoting now and for the next even year have already been produced. So that will have minimal impact on Dolphin. It would take a writer strike well into next year to have an impact. The actor strike does have an impact. We're blessed to be in a position that our talent division is a small piece of our overall revenue, talent division of 42West. 42West has 4 divisions, and we have 6 operating subsidiaries. There will be some dip in talent revenue at 42West, but as a whole, that represents a very small single-digit fraction of Dolphin's overall revenue. And then, of course, we're all hopeful that the actor and writer strikes will settle by the end of the quarter, let's hope or early in the fourth quarter.

Thank you for the detailed information about your social influencing businesses. You mentioned expanding into other verticals. How do you plan to approach that and what are your thoughts on the timing for achieving it?

Yes. That is why we chose to focus a significant part of our prepared remarks on our influencer marketing agencies. We would like to sell their services together once we return from the Labor Day weekend. As we transition from September into the busy selling seasons of late September through early December, we aim to present these two companies as a unified entity. I believe everyone is anticipating our announcement in September. To create what we envision as a leading bicoastal influencer marketing agency, we plan to add divisions and strive to become a prominent leader in each of those divisions regularly. You will see at least some of those divisions announced before the end of the year, likely before our next discussion on November 15, in collaboration with leading partners in those areas. This is a primary focus for us, and it’s also why we wanted to highlight it during this call.

Got it. Your investment in Netcom and the restaurant memberships in New Orleans, you mentioned that you sold memberships. Can you provide an update on how that went and how it works in terms of the monthly fee or the economic aspects we should consider?

Yes. ShaSha Lounge, we're very proud of that for a couple of different reasons. First, I should say, this is a form of Dolphin Ventures that I know many listeners feel good about because this is a partnership where we get a monthly fee to promote the ShaSha Lounge in New Orleans, and we also get an ownership stake in the venture itself. So we get paid cash every month, and we get an ownership stake in the success of the venture. That's very exciting for us, and it's a perfect representation of the types of things that we're looking to do. We're very proud of it, and I'm excited about this concept ideated with our team. How it works is for ShaSha, it will be open to the public. We plan to open it in early 2024, and you can go in and have a drink, but there will be sections of the lounge that are open only to members and members will have certain rights and privileges as well as access to forms of programs that are not available to the general public. Celebrity chefs may be coming in through New Orleans, programming that on a regular cadence. We put memberships on sale just a couple of weeks ago. We're rapidly getting to the dollar amount that will allow for deposits to be put down on leases and construction to begin. More to come on ShaSha, but I know the team who is down in New Orleans has done a great job and kudos to them, and we're all very excited for ShaSha.

That's great. Thank you. In terms of Blue Angels, I'm not sure if I heard you right. Did you say that you expected to get released in the first quarter of '24 or the first half? And then the $3.5 million payment, that's related to Amazon streaming. Is there a way you could help us understand how that gets spread out of when you get the payments for that?

Sure. Yes, absolutely. We anticipate being in theaters in Q1 of 2024. It's still possible in Q4. As we and J.J. take the time and post to do this as best as possible, we're very excited with the cuts we're seeing, and it looks to be a special film. We get paid by Amazon typically, they have the right to put it on their service within 30 days after we release in theaters. They pay us in full at that time. So it's revenue that we should recognize in the first half of next year, if not realistically in the first quarter of next year. There are also installments we'll receive in this calendar year as well. All of that revenue will be coming in, in fairly short order.

I know there are thoughts about IMAX and how this partnership could lead to more documentaries. Are there any issues with the strikes that might delay the next one, or do you still feel confident about being able to release them?

We feel good about them. Yes, this is more than even just a hope or a dream. We’ve entered into a multiyear, multi-project 50-50 deal with IMAX, and we have a hit right out of the gate, which is great to report. We'll do more documentaries with them. We're looking at other forms of entertainment, some of which would come out of Midnight Theatre that we could go 50-50 on as well. I don't want to promise something with a hard deadline, but I do believe we'll have a big announcement on that front before we speak again in November. So yes, we'll be doing more. We just have to find the right follow-up.

Okay. In previous calls, you mentioned an interest in live events. Do you still feel the same way about that?

100%. One of the reasons we are excited for the second half of this year is that the second half of the year is always stronger for us than the first half. It’s going to be more pronounced this year because we have 2 influencer marketing agencies instead of 1, and they are highly seasonal for the second half of the year. We're excited for the second half of the year because we have multiple catalysts coming. A couple of those relate to Midnight Theatre. A couple of those relate to the influencer marketing agencies, which is another reason why it was good to put the noncash one-time impairment behind us.

I had 3 just housekeeping questions. But one, since you just mentioned the noncash impairment, I was a little confused because I usually think of an impairment when people think that the outlook of a business has changed, and what I heard you guys say was you did an impairment, but your stock price was lower, which I'm not familiar with why that would cause an impairment versus is there a particular business that you have that the outlook changed? Or maybe you could just educate me on how this works.

Sure. The stock price doesn't necessarily cause the impairment, but it is a cause for taking a closer look at your assets, especially when the book value of the company is higher than the market cap. That was the case in the last quarter of '22, and it has been through 2023. We consider that to be a triggering event to test our goodwill, which we did based on cash flows and determined that the impairment was necessary.

Yes. The market capitalization is one of the four triggering categories that required the review.

Two other housekeeping. One, we use EBITDA in our valuation and in our model, but we don't get depreciation expense until your Q comes out. So could you give us an estimate of what depreciation expense was for the quarter? And then the second question is often when the Q comes out on the front page, you have the shares outstanding as of today. And I was wondering if that number is going to be meaningfully different from the average diluted share count that you had in your press release?

So the depreciation and amortization is one number. Depreciation is a very small part of that. It's about $550,000 a quarter.

The majority of that is the amortization of the intangible assets from the companies we've acquired over the years.

We had used 13.2 million for the earnings per share or loss per share.

Yes, and it will be up about 1 million from that. We had a convertible note convert. That was a good chunk of that.

I think those are my main questions. I was going over the history and looking at your company from going back to like in 2018, and it's pretty impressive at where it is today. So congratulations.

Thank you, Allen. I appreciate it. We're very proud of what we've built and are still building.

Your next question is coming from Chris Leahy with LD Micro.

Bill, I just want to start out by saying that these are 2 very good-looking questions. Just want to preface that. Are we going to make any money from Barbie and Oppenheimer either directly or indirectly because it seems like both of them have turned out to be a lot bigger than anticipated?

Well, sadly, we do not represent Margot Robbie. We do not have a direct stake in Barbie through our partners at IMAX. I know that through the first 4 weeks of release, $1 in $4 earned by Oppenheimer in the U.S. have been at IMAX theaters. So congrats to them. Those are 2 great films, no doubt about it.

The second good-looking question. It has been nearly 3 years since you guys have acquired Be Social. I know it probably went by a lot faster than anticipated. What was the biggest surprise for you guys in terms of what you learned about the influencer market? Thank you again for taking my questions.

Of course. Well, it's a nice anniversary, and we've been very, very happy with Be Social. Ali Grant, Kirsten Weinberg, and Belinda Sztrom are extremely strong young executives, and we feel very fortunate to have Be Social in the Dolphin family. A couple of 3 years later on look back, influencer marketing has only grown; and the opportunity to pair them with a New York-based agency was due to the strength of Be Social. We knew if we could match them with an equal agency in New York, we can immediately have the entertainment industry's largest influencer marketing agency. What we did not know 3 years ago was that 1 year later, the Supreme Court was going to allow for college athletes to be paid through brand campaigns. That opened up an entire new world. Those college kids are influencers. That's what they're getting paid for is to post on social media. The diversification of influencer marketing away from its traditional stronghold of female fashion, beauty, wellness gives us even an expanded opportunity to build a truly unique and impressive influencer marketing agency. We are proud that we will have some athletes in there too. So those are probably a couple of the things that have come to us in the last 3 years.

It was. But technically, when you're usually designating athletes, a lot of people don't consider tennis players as part of that equation. Sadly.

Looks like pickleball, Chris. Something.

Listen, in many circles, in many social circles, pickleball has more cachet than tennis. It’s always a pleasure when you guys update your calls. Thank you again, Bill, and looking forward to being on the next one.

There are no additional questions in queue at this time. I would now like to turn the floor back over to Bill O’Dowd for any closing remarks.

Thank you, everyone, for listening, as always. We’re very, very proud of our Q2 and our balance sheet. It's nice to finish with all the contingent considerations and paying out all the earnouts. We're proud that our subsidiaries earned the earnouts. Speaking of Be Social, the very last one, timing-wise for us, and we're happy to pay out that full earnout this spring. So off the balance sheet, we just feel like we have rocket fuel behind us as we go into the typically much stronger second half of the year. Thank you, everybody, for the time today, and I’ll look forward to the next call.

Thank you. This does conclude today's conference, and you may disconnect your phone lines at this time. Thank you again for your participation.