Q1 2020 Dolphin Entertainment Inc Earnings Call
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Greetings and welcome to the Dolphin Entertainment fourth quarter 20, like gene earnings call.
At this time, all participants are they listen only mode.
A brief question answer session will follow the formal presentation.
If anyone should require operator for technical assistance during the conference. Please press star zero and your telephone keypad.
As a reminder, this conference is being recorded.
And it's now my pleasure to introduce your host James Carbonara Investor Relations. Thank you Mr. Karbinal ER you may begin.
Thank you and once again welcome to Dolphin Entertainment's first quarter 2020 earnings call.
With me on the call are below doubt Chief Executive Officer.
And maybe didn't agree chief financial Officer.
I'd like to begin the call by reading the Safe Harbor statement.
Eight minutes made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act of 1995.
All statements made on this call with the exception historical facts, maybe considered forward looking statements.
In the meaning of section 27, Hey up the Securities Act 1933, and section 21 here by Securities Exchange Act up 934.
Well the company believes that expectations and assumptions reflected in these forward looking statements are reasonable.
It makes no assurances that such expectations, what they've been correct.
Actual results may differ materially from those expressed or implied in the forward looking statements due to various risks and uncertainties.
Such risks and uncertainties, which could cause actual results to differ from those expressed or implied in forward looking statements.
Please see risk factors detailed in the Companys annual report on form 10-K.
Those contained in subsequent filed quarterly reports on form 10-Q, as well as in other reports that the company files from time to time with the Securities Exchange Commission.
Any forward looking statements, including in this earnings call Army only as of the data that's cool.
We do not undertake any obligation to update or supplement any forward looking statements to reflect subsequent knowledge events or circumstances.
Now I would like to turn the call over that below doubt Chief Executive Officer Dolphin Entertainment Bill. Please proceed.
Thanks, James and thanks, everyone for joining today.
As usual I'll arrange my comments as follows first I'll highlight our financial results second I'll spend some time, providing operational updates and third I'll turn it over to mirto to dive deeper into our financial results before having ARQ <unk>.
So first off the financial results.
All members of our PR and marketing Super Group had a good first quarter pushing our quarterly revenues to 6.633 million $800. A this represents a 5% year over year increase in total revenue and a 6% year over year increase in revenue from our core segment of entertainment.
Publicity respectively.
Furthermore, we're very proud to share net income in the first quarter of 2.073 million $847, which was eight cents and one cents per basic and diluted share.
Additionally, with respect to our balance sheet <unk>.
The lender of the Mac steel production low notified us that the Max steel <unk> that we consolidate did not go any money under the production loan agreement as a result, we extinguished approximately 3.3 million of debt.
And we subsequently evaluator status as the primary beneficiary of the VIP and determined that we no longer met the criteria as the primary beneficiary and consequently, we deconsolidated the Max steel B. I eat smart condensed consolidated financial statements.
Cleaning up our balance sheet as a major focus for us and 2020 and specifically our working capital deficit. So let's take a quick look at that.
There are four acquisitions, our working capital deficit at December 31st 2019 was a little over 15, when the half million.
The removal of the VIP, helping we reduced our working capital deficit by almost $5 million in Q1, two less than 10.7 million.
That is a reduction of more than 30%.
In one quarter.
And we're about to do even better along with securing capital to make or next acquisition without incurring any additional debt, reducing our working capital deficit was the primary driver for us to take advantage of a market opportunity and to raise 8.3 million in a registered direct offering last month.
When we report our Q2 earnings in a few short weeks, we believe we will show an even larger reduction to our working capital deficit.
Keeping an eye on this metric as we manage ourselves towards the complete elimination of our working capital deficit as quickly as possible.
Furthermore, as longtime investors on our stock no. The puts we provided to the sellers of 42, Wes on the purchase of that company in March 2017.
Our almost all finished by December 31st of this year.
Less than six months from now.
What started out as nearly 11 million dollar obligation of dolphin will be virtually extinguished by year's end and weeks, but then we expect to complete the puts on schedule in their entirety by the end of Q1 2021.
Turning to operational updates just like on our 10-K earnings call I'm sure. The questions on top of everyone's mines are first what does the current environment mean for Dolphin Entertainment and it's for marketing companies 40 to us the door short fire media and viewpoint creative.
Secondly, what does the current environment mean for Dolphins M&A strategy.
Third what does the current environment means for dolphins planes to re enter production.
I'll answer those questions one by one but before I do I'll mention a few highlights before <unk> business disruption start take place at the beginning of March.
Especially since the start of the first quarter every year gives our PR firms a real chance to shine. That's the best did what they do in their respective fields.
In January of this year short fire media as clients want to collective 11 Grammy Awards, including seven and various best album categories.
It was our first Grammy seasoned together and we couldn't be more proud of the team at short fire.
In February of this year 40 to 42 West was involved in various capacities with 13 films that and a total of 49.
Hanmi Award nominations and one nine Oscars.
Even though it seems like 40 to us as a fantastic Oscar season every year, we never want to take results like those for granted congratulations again this year 42 west.
Also in February the door in short fire spearheaded various Colin area music events, leading up to Super Bowl 54.
For example, the door handle media relations on behalf of two of their clients.
A seminal hardrock hotel and casino Hollywood.
And yellow tail line, which included performances from pit Bull Diddy MTS stuff.
Sure fire media on it then handled public relations for the Bud Light Super Bowl Music Fest, which included performances from guns and Roses Maroon five DJ Colette.
And James Carbonara, his personal favorite Snoop Dogg.
Furthermore, that icing to the cake in the run up to the Oscars ritual, Rachel Eberly Executive Vice President of 42 West one the inaugural publicist of the year Award at the 2020, Publicists awards, which feels particularly appropriate since regional heads up 42 West work with the Academy Awards.
Nominations.
Congratulations Rachel that's really awesome.
Nagaworld publicist of the year Award.
Yes.
With such a great start to the year.
Not hard to see why the observer selected all three of our PR companies to be honest prestigious power 50 list. This past December.
There are over 12000 PR firms in this country and we believe we are the only company that owns more than one PR firm on the power 50 list and of course, all three of our PR firms are in the same industry entertainment.
Combining these three companies into one family makes us unique.
And represents a platform for future growth that no one else has.
This is the heart of the investment thesis into adult.
Now back to the overarching questions outlined above.
Well coming it's no surprise each of our substitute city areas has faced the decline in revenues during the second quarter.
Some more significant than others at 42 West we've experienced a drop in revenue from our talent Division as television actors temporarily go on hiatus as productions halted for the entire quarter.
Also there were no movies and theaters to promote.
However, we have offset a significant amount of that revenue loss by adding a large number of projects from the streaming platforms.
Almost all of which our clients.
And we expect to build back our revenue loss fairly quickly if productions resume in theaters reopen here in Q3 as expected.
At the door.
April and May were particularly challenging.
Especially with our core restaurant and hotel clients.
The revenue started to come back in June and again, even further in July, allowing us to anticipate a much stronger third quarter.
During this time that we are most thankful for the investment we made into our consumer products division at the door beginning in January of 2019. Shortly after we purchased the company the previous summer.
That division led by Niccolo has remained strong during this trying time and it's helping the company rebound faster than it otherwise would.
Of course, when the restaurants hotels do fully come back, which we anticipate either Q4 this year or Q1 next year because of the heavy increase in consumer products work the door should come out of this period, even stronger than when it started and that is a truly remarkable thing to say for the market's leading hospitality.
Our agency as a true Testament to the leadership.
Of low so meal and Charlie Doug yellow.
It's short fire of course, they've lost some revenue from the cancellation of the summer touring season.
Teller. Unfortunately, as we discussed on our 10-K earnings call I believe the majority of their work is done online for promotion of singles and albums.
Thus they've had the smallest percentage of revenue drop of any of our PR firms.
With that said they may not see a full 100% revenue recovery also until Q1 of them next year as the fall music touring season is also very much in doubt as we stand here today.
Lastly, a viewpoint, we've been focused on eliminating unprofitable clients and I think when we report our Q2 numbers and just a few weeks left a lot of good things to say about their work during these past few months.
Demand for marketing videos that can be used for online campaigns is very strong.
And we're excited for the headway that the team has made into the corporate world.
Which was our pre <unk> priority for viewpoint going into this year.
We recently announced viewpoint completed the strategic design and full service production of a branding campaign for long time client direction funds to introduce a new line up of strategic way too yes.
Thats a good example of a great corporate client for viewpoint.
We also recently announced a brand spot that viewpoint did for CBS news.
Those two announcements show the balance we'd like to strike between viewpoints legacy of best in class work for the leading media brands in the industry, such as CBS news as well as CNN HBIO Showtime discovery.
SPM.
With the expansion of that heritage and experience into the corporate world.
Now on the topic that has that is of strong interest from many of our shareholders M&A.
Let me just say this we remain highly focused on completing the Super group, we have never wavered on this path.
As I stated above it is the core investment thesis into dolphin.
And with every act acquisition, we have made to date.
We have only felt validation and enhance the resolved as we see the cross selling synergies that have already been created and we want to add to the disciplines. We can offer our clients.
We will be opportunistic during these times and expect to complete our next two acquisitions on schedule this year.
And we also believe that one will occur here.
In the third quarter.
Lastly on the production side, we acquired feature comedy scripts sisters before Mrrs.
And in Q2 acquired the rights to action thriller Scrip special delivery.
We're excited about those projects, we have directors attached to each and have begun casting each of them as well.
Both our female led movies and hopefully we'll have lead actresses attached for the started the film Festival circuit in the next few weeks.
We were looking for taking them out to market and trying to film at least one of them before the end of the year possible.
And then of course coded hit.
Like the rest of the independent production sector, we are waiting for the availability of appropriate production insurance.
The studios in the streaming services can underwrite their own risks, but for a large number of independent producers, including dolphin.
Starting production without insurance is a gamble that we're not willing to take.
So the industry has to work through that.
And we will be patient.
Okay.
So to conclude we're pleased to report a strong first quarter with net income of more than $2 million.
Furthermore, we're very happy to remove the VIP from our balance sheet and we encourage all of our shareholders to watch our balance sheet carefully.
The rest of the year as we work towards completely eliminating our working capital deficit.
Even with our acquisition strategy continuing at full throttle.
As you might imagine we feel very good about our underlying business. We are growing revenues across the board every one of our companies. After the bottom of April and May and we remain consistent to our core strategy that we shared when we uplisting to NASDAQ at the end of 2017.
And we are hyper focused on acquiring the fifth and sixth companies of our supergroup this year.
We look forward to discussing our M&A activities and much more depth on our Q2 earnings call in less than five weeks.
Theres a lot to be excited about it often.
At this point I'll turn it over to mirror to for more in depth view of our financials.
Thank you Bill and good afternoon.
As Bill stated earlier Q1 revenue <unk> million <unk> hundred $33800, which represented an increase of approximately 5% as compared to the same period and prior year and a 6% increase in revenue from the entertainment city in marketing segment as compared to Q1 to 2019.
100% of the revenue for this quarter at 2020 was derived from our entertainment publicity in marketing.
Revenues from our content production segment.
The first quarter 2020.
$78990.
Excellent.
As we previously discussed revenues are primarily right after that we need.
And the decrease in revenue that part of the normal sniper motion picture.
Operating expenses in Q1, 2024 7 million 500 employees.
Yeah.
Direct costs were 688000.
For the three months ended March 31st 2020, as compared to 1 million.
419.
For the quarter ended.
March 31st 29.
The decrease in direct costs, primarily related to the decrease in viewpoints revenue into one type projects completed in the three months ended March 31st.
Payroll costs were 4 million 800.
<unk> hundred $23.
The quarter ended March 31st 2020, as compared to 4 million $301413 for the quarter ended March 31st 20.
The changes primarily due to the addition of payroll from the acquisition of short buyer on December 30 29.
Operating loss for the three months ended March 31st 2020.
$870859 includes noncash items, and depreciation amortization of $521003 as compared to operating at $825161.
Including noncash items for depreciation and amortization or 481622 for the quarter ended March 31st 29.
Net income for the quarter ended March 31st 2021.
With 2.073 million $847, which is eight cents basic earnings per share on a weighted average number of shares 20 million 498564, and one cents diluted loss per share on a weighted average number of shares up 28 million 380.
4900 too.
For the quarter ended March 31, Nice thing our net income was $142608, which is one cents on basic earnings per share with a weighted average number.
A 15.944 million 443, and a diluted loss per share update.
Using a weighted average number of shares of 18 million.
There's a 90377 shares that concludes my financial remarks, I'll now ask the operator to open the phone lines, but Q.
Operator can you please request.
Thank you we'll now begin our question answer session, if you'd like to ask a question. Please press star one on your telephone keypad a confirmation TONBELLER indicate your line is in the question Q for participants using speaker equipment. It may be necessary free to pick up your handset before passing start.
One moment, please but we now poll for questions.
Our first question comes from Jack Venturi with Maxim Group. Please proceed with your question.
Hi, Good evening, guys I sold one key results, despite a challenging environment and thanks for taking my questions.
Similar to last quarter, you guys did a nice job reviewing your thoughts on potential impact of.
Some of your specific businesses as it relates to co bid.
I'm, hoping you can provide something similar.
In more like a summarized sense for for your near term outlook and then how you expect that to kind of change I noted that the very open ended tough question. How do you expect a the near term outlook a impact from cobot to change as we go to save the fourth quarter. This year.
Sure.
Yeah, and and hijack. Thank you for the kind words here, we're very very happy with this quarter.
And our businesses or are doing well as they as they ramp up there there are revenues here in the start of the third quarter.
We're starting to get visibility at least on the drivers for each of them.
To return to 100% of the revenue.
42, West I think we'll be there if if and when movies come back into theaters in the next month or two and production resumes. They stayed very strong as I indicated in the prepared remarks due to.
So much business from the streaming services, it's nice to be a market leading.
In a market leading position and they certainly are and our film and TV Division is the best in the industry.
Short fire as well very strong throughout you know.
Marginal loss of revenue tied to turning business, but the bulk of their revenue was always in the in the online singles and albums the doors, one that as we sit on the 10-K earnings call took the largest revenue decreased because of their you know market, leading position with hotels and restaurants.
Restaurants will take a little longer to come back in hotels, but don't tells we're starting to see come back already and.
I would I would think in this third quarter.
We could have all the hotel business back or the vast majority of it the fourth quarter <unk> it'll take till the fourth quarter I think to the restaurant business back.
Got it that's very helpful.
And then I think last quarter or maybe one of these quarters ago. You guys. I spent some time at least alluding to tune of recurring revenue aspect of your business.
Can you remind me of what components are aspects of your business on our recurring revenue and then.
If I could follow up do you have any informal targets or any any additional color you could provide around maybe what you expect for.
Recurring revenue to represent for revenue as in a normalized environment.
Well.
Recurring or the nice part about each of our.
PR firms is that they have a healthy dose of recurring revenue every month.
The project based revenue does occur.
In each of them, though and that's what you know the think of it is.
We might have certain hotel groups on your around doing marketing I'm thinking of the door obviously.
But certain restaurants may come onboard when they're about to open and then carry on for several months I might be more of an example of the project base fee. So I'm. The recurring revenue stayed steady and allowed us to weather.
The second quarter I think.
Hopefully much better than people would have anticipated and certainly better than much of our competition. Because we have you know study return it recurring revenue clients.
At each of our PR firms I'm so the projects.
For example, a certain feature film releases were pushed up on the 42 aside we were blessed we have some.
Great high-profile movies scheduled for later this year that were originally going to be in the second quarter like the James Bond movie I'm very excited for that personally top gun.
As a we're excited about working on both of those pushed out of the second quarter and into.
The holiday season. So that's also probably worth noting Jack that that's not.
Permanently lost revenue, it's just shifted from the second quarter to the fourth quarter.
And I think you're seeing that with all of our our PR firms and Thats, what I meant by the comment that <unk>.
Speaking about the door that case, but as we continue to increase the number of clients at the door in our consumer products Division.
And they're going Gangbusters I'm really really strong then when the hotel in restaurant business comes back in full the doors ahead of where they were when they went into this instead of just trying to get back to the same level and that's very exciting I think we're seeing that.
With all of our PR firms because of 42 US for example, you know the increase in the streaming services revenue, we don't expect to the Genies out of the bottle Alright, HBIO matches launched peacocks coming.
Or is it the as effectively launch too and so.
There will not be less products from the streaming services to promote.
In Q3 Q4 next summer than there is now there will be more and then when you add the feature films back into the market that you know again 42 west as.
Market leader of both of those verticals.
Heard the number of Oscar nominations as just one metric for that right.
Then we expect 42 has to be stronger than they were going in so it's.
We're looking at that as a nice silver lining that as we get through this corona virus, while stronger revenue streams at each of our PR firms.
Yeah, that's helpful and I'm happy that to your James Bond movie and Topcon. Both of my two former favorites and the Kid are going to be background hopefully by the holiday season, I was looking to sneak one more in there for and I'll jump back in the queue is you dropped a exciting kind of Easter I care about your expectations for your completion.
And your Super groups and you noted a one will be closing sooner than the other is there any.
Any more color you could provide as to which which is.
Environment, or which vertical that that acquisition in the near term will be representing or is that going to be a secret till the announcement.
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Well I don't.
Uh Huh I think that the idea we've always been long.
Just had long stated that we are excited about adding online marketing to complement our PR firms.
We can drive a lot of business into that world from our PR firms and I think Oh, we've stated that that type of company will certainly be one of the next two to complete supergroup.
So certainly we're excited if and when that time comes to be able to talk about that vertical and and the cross selling we can do for online to to manage the to complement the campaigns that we're doing NPR doubt that will be very exciting.
Talk about and as I said in my prepared remarks, you know it's hard to believe put our Q2 earnings calls just four and a half weeks away.
And so we expect we'll talk a lot more about our M&A activities on that call.
Fantastic Alright, Thank you Bill I appreciate the time.
Sure. Thank you.
Thank you.
Our next question comes from Allen Klee with National Securities. Please proceed with your question.
Hi, Bill when you talk to your customers is there kind of a consensus view of of when a movie and TV production will kind of start up again.
Sure Hi, Alan.
Well I'll give you the it depends on which of our two types of customers and for.
Netflix and HBIO Maxim Apple in the studios as examples [laughter] right.
There there.
Finishing up protocols and I think all of them would say they expect to be Bakken production, maybe in the next two weeks.
By the end of this month.
There are a there have been announcements about individual productions, you know and they're in their resumption dates are resuming starting a production.
Resuming production are starting production on new projects.
Certainly I think everybody feels like that will occur before labor day.
Which is exciting for us.
The independent production producers so a lot of the independent films that you know.
We have as clients I think a one fun fact would just on Earth again, I think I think.
42, west as well get the Israeli represent either seven or eight of the past 15 best picture winners, which are historically independent films right. That's an incredible number again Holy cow half of the last 15 years either way.
Independent producers need production insurance and so.
That is the hurdle to overcome for them to come back end, because they can't underwrite the risk.
So you know 810 $15 million productions need that to be able to bank. The foreign sales that those producers usually require to get.
The production off the ground so.
The industry's working night and day on that we do expect I think the whole industry expects that it won't go past the film festival season in the fall to have an answer for that because the projects are going to be sold and so then you'd start production. So I whether that means that heavy independent production will start September October or.
Right at the first of the year is anybody's guess, but I think that's probably what most people are thinking these days.
Thank you how do you think about cross selling synergies across the super groups today as business picks up.
Is there a way to think of like how much that could add to your.
Typical organic growth rate.
Well I'll tell Ya.
The best way I can.
Speak about Alan is.
We're already seeing the effects of shore fire, Oh, I think I made a similar type comment maybe on last years 10-K called it.
You know.
<unk>.
Take tripped up memory Lane with me for Hot second two years ago.
We had one the first company 42, west and as I'd like to joke, you can't cross sell with yourself [laughter] and then we added the door to door fire and then last December.
Oh, I'm, sorry door and viewpoint, and then last December Sourcefire, well now that you've got four companies. Each company can cross sell with three other distinct type of companies. So you go from when you just had 40 to us in the door you had one opportunity to cross sell 22 companies and now you know just mathematically speaking right you have some.
Anymore, you have nine so it grows exponentially when we add hypothetically or whenever we are able to add our online marketing expertise. That's five companies each of our company's cross selling with them and day with everyone else already so now you're at 16 different cross selling opportunities versus one.
One two years ago.
And as a practical example, short fire in the music space and 42 less than the TV and film space.
I don't think it'll come as a surprise to anyone on this call you know music related programming is dominated as had tremendous success in ratings.
For almost 20 years now right I mean pick your music theme programming write and whether that's competition series on networks like American Idol, the boys Messinger et cetera, whether that's documentaries each of the streaming services are are having tremendous success with music documentaries.
Upcoming ones with a major artus I've been announced.
So we're seeing that we may even have a nice announcements to make him in our Q2 earnings called on that as well looking at the first cross sale of a major.
Endeavor by 42 us in short fire coming together and that was strategically why we wanted.
The music PR capabilities of shore fire because it they're just so many cross selling opportunities and that's just the 40 to assure car connection and like we say sitting here today.
We've gone from one denied but what I don't know that people really appreciate is when we add the next two companies. We have all six that we want in phase one of our supergroup.
That's 25 different cross selling opportunities.
And and today, we're sitting on nine and two years ago. We were at one so we think it's the X, but it will create exponential growth and we're seeing it.
So that's that's what's got us excited though.
Thank you I'm I have two financial questions.
One is if you look at the costs above.
Operating income all the main cost lines.
Is there anything unusual in this quarter or is this a reasonable run rate look looking at those numbers and then second.
I kind of missed it I think you said what your diluted share count was for calculating.
The diluted MPS I thought I heard something like 50 million, but could you repeat what that was and then maybe.
What got added to that and maybe whats the share count was at the end of the quarter.
Sure. So at the end of the corridor.
Yeah.
Well, let me ask me answer your first question.
To that.
At the end of the quarter I mean.
As far as the operator.
There isn't anything unusual in this quarter.
On though.
And then B shares.
Good news for fully diluted.
28.308 million 982 shares.
And that's mainly due to having to use the treasury stock method.
Two too.
We have to compete with how many shares we would have to sell in order to pay that put.
And our do it.
Yes.
Due to the accounting.
Guidance on.
Yeah.
That's one other benefit if I could that as we eliminate the puts and pay them all down the fully diluted earnings per share will increase.
Which is great.
<unk>. Thank you medical yeah mythical like we had to use all of our shares for the plus which is a true.
Oh my.
Thank you my last question, it's kind of vague, but Uh huh.
If you're looking long term.
I don't know if you've said this before but is there way to think of kind of a long term.
Organic growth rate in margin that you you've looked at as a goal.
As much as possible in either case [laughter] well.
We will have double digit and healthy double digit revenue growth is in our.
Certainly something we we believe we should be able to do and will do and and then the same on me.
Net income basis.
When we get through all of the.
I guess.
[music].
[noise] puts and convertible notes and all of that and we get into a true operating income.
By the end of this year for this company will we think we'll we'll take off and so we're excited because for those investors have been with us and before we uplisted.
The first three year plan was to acquire the six companies some form of supergroup and then let the magic of the cross selling really happen.
And you know where we're at we're past the two and a half year Mark.
And that's that's what got us excited for that double digit growth, both topline and Bottomline Ellen.
Great Best of luck. Thank you so much.
Sure. Thank you.
Thank you.
No further questions at this time I'd like to turn the floor back over to management for any closing remarks.
Oh, thank you.
I appreciate everyone's time as always and I know, we'll be talking Ken in a very short a number of weeks here and look forward to elaborate on both or the improvements to our balance sheet as well as to our M&A strategy. So talked everyone. Then thank you all very much.
Ladies and gentlemen, this concludes todays teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a great thing.