Q2 2020 Dolphin Entertainment Inc Earnings Call
Greetings and welcome to the Dolphin Entertainment second quarter 2020 earnings call.
This time, all participants are they listen only mode.
First question answer session will follow formal presentation.
If anyone should require operator assistance during the call. 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. Thank you Mr. Carbonite you may begin.
Thank you and once again welcome to adults an entertainment second quarter 2020 earnings call.
Yeah, the color below Dallas, Chief Executive Officer in Burkina Grainy, Chief Financial Officer.
To begin the call by reading the Safe Harbor statement.
The state is made pursuant to the safe Harbor for forward looking statements right in the private Securities Litigation Reform Act of 1995.
Statements made on this call with the exception of historical facts, maybe considered forward looking statements within the meaning of section 27 eight of the Securities Act banking 33.
Yes, and 21 E UBS Securities Exchange Act of 1934, although the company believes that expectations and assumptions reflected in these forward looking statements or 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.
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 Companys annual report on form 10-K.
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 and Exchange Commission.
Any forward looking statements included in this earnings call are made only as of the date of the school. We did not undertake any obligation to update or supplement any forward looking statements to reflect subsequent knowledge events or circumstances.
Now I'll turn the call over to go down Chief Executive Officer Dolphin Entertainment.
Please proceed.
Thanks, James and thanks, everyone for joining today.
What a day [laughter] as many of you may have just read a few minutes ago, we announced our latest acquisition the influencer marketing from be social.
I'm going to start by talking about this exciting news before proceeding in the usual order of highlighting some top level financial results and then providing some operational updates before turning it over to mirror tend to dive deeper into our financial results and of course will well take questions at the Oh.
Okay, So let's start with be social.
We love this company, [laughter], and bringing social media Influencer marketing into our Super group.
Was the single biggest priority for Dalton Entertainment this year.
Let me just go off script for a minute [laughter] all scare James here for a second.
Times, it's just easier <unk> speaking plain English right.
Okay, Yes, we're in the business of creating and executing the very best in entertainment yard marketing campaigns right.
The basic principles of PR campaigns.
I have never changed inside what movies [laughter] you are building awareness.
And the ever elusive Bose or hype.
Among consumers or a piece of content.
No within our companies that piece of content or product, maybe the next James Bond movie right or the next stage B O hit series.
But the basic principle, what you're trying to do hasn't changed for 100 years, what has changed is the where.
Where are you marketing where are you executing your PR campaign.
Well.
New slashed right. This is 2020 and where you are marketing is increasingly online in today's world PR campaigns or won or lost online.
Well, it's in the hype or created through social media.
And word of mouth is spread on Instagram.
Not at the office water cooler and that was even true when people actually went into their offices.
That simple online is where the consumers are serious.
And here's one more thing to think about it's not just the consumers that are online content is online.
When we did darn PR campaigns for new album for want of short bars clients were promoting towards the purchase of that album on I tunes or adding it to the consumers playlist on spot a block.
42, West is running campaigns for 145 Emmy nominations. This year, a new record I might add and the vast majority of those nominations or shows for for performers on shows that come from streaming services.
That's all mine delivery if the content is online we need to meet consumer in the environment that they are watching the products, yes, it's the old, saying right fish, where the fish or.
That's you can see why these social is a highly highly strategic acquisition for US we've already got three world class PR firms.
We believe we're the only company in America, let alone the only company on aspect that has more than one PR for most of them. The top 50, most powerful PR firms the United States.
Now we just added our first choice of Influencer marketing companies. So that we can design and integrate the social media influence or campaigns for our clients combine them with our world class PR capabilities.
Yeah, we can see.
Promotional calendar online and offline.
That's the idea.
Okay. So with all that said <unk> would be social in our entertainment marketing supergroup, we'll be able to immediately cross sell these services, we can plug and play across all three of our PR agencies.
Think of the door Influencer marketing is one oh worn these days with promotion of any consumer product.
Also when the hospitality industry comes back Influencer marketing is the very first thing you coordinate for the launch of any restaurant for hotel opening you need influencers to come visit and talk about it online that's back to today's word of mouth that I just mentioned.
But it's not just the door music today is market it was social influencers.
Anyone ever hear tick tock [laughter], they have seen at once or twice in the news recently, well guess, what you think the music industry pays for promotion with popular influencers on that platform.
You get the idea.
So we went looking for the company that we felt would best fit within our Super group and we chose be social and for several reasons first.
Alley Grant hands down Alley, founded be social eight years ago, and she's the CEO today.
She's instinctive with social media, She's I thought leader in the space She's energetic.
And most importantly for us she's collaborative by nature. She a pity mises, what we want next generation leadership to be within the Dolphin family.
And I know she is ready for and can handle what's coming which is that all three of our market leading PR firms are ready to work with her right away for the benefit of our entire roster of clients.
We're very excited about this acquisition and it's exactly the next vertical we wanted to add to our supergroup.
We've now got PR across every major entertainment industry, a market, leading social media and Influencer marketing group and the video creation capabilities, a viewpoint that can service online or offline campaign.
You can just feel the momentum it comes from these types of collaborative synergies.
So with all that said I'll answer any questions about what we shared about be social during the Q1, a afterwards and I'll segue to our financial results.
Well, we exceeded both our internal and analysts expectations for the second quarter.
And honestly, it's a tribute to alley and be social that we didn't lead with the statement [laughter] revenue was 5.1 million, beating both internal and consensus expectations. So I just mentioned, which we're very pleased about for this quarter that was most impacted by code.
More importantly, operating results also beat internal and consensus expectations coming in at a loss of only $179038, which includes depreciation and amortization of 496461.
Dollars.
Obviously, depreciation and amortization as a noncash item.
So it bears repeating we had an operating loss of less than $200000 that includes almost $500000 of depreciation and amortization expense.
And any other quarter that would have been our headline.
Turning to operational updates at each of our four subsidiaries.
Yes, actually four or five now right.
In order of acquisition date, I'll start with 42 west.
Well.
Oh this for sub headlines for the sub that's fine.
42 west of set a new internal record for Emmy nominations. Their extraordinary range of client work has resulted in 33 different programs and individuals, earning a total of 145 Emmy nominations.
This is where I should say.
Oh, some water to let that same cat or.
The nominees include the H.P.O. limited series Watchman, which leads all programs with 26 nominations, including outstanding drama series.
And the nominees also include pop T.V.'s comedy shoots Creek, 15 time nominee, including nominate knowledge for outstanding comedy series and for all four members of its principal cast.
I know there is tremendous loved for that particular series that I need to give a special shout out to the 42 as team for having elevated the awareness and recognition for that incredible series that I believe started as a network series in Canada. Initially on available in the United States truly incredible work.
Additional well know nominees include age Peos curve, your enthusiasm and secure Westworld and bad Education actress Meryl Streep ratios Big Little lies a director Leslie Linco glad or for Showtime's homeland.
Reducer, Sean Levy for Netflix is stranger things and various creative artisans further work on the Amazon's The boys Carnival ROE Jack Ryan the marvelous Mrs nasal tales from the loop.
Switching to the door since we last spoke on July 13th just a couple of days later, the door announced the opening of both Virgin hotels, Nashville, and can I was a hall located in a Catskills region in New York as well as the reopening of Virgin Hotel, Chicago and the Viceroy Santa Monica. She was just completing a 21 million dollar rubbish.
The hospitality industry, though is hurting there's just no other way to say it.
But we're starting to see the first signs of life, especially in New York with that said I don't believe we'll see a return to normal whatever that means through the rest of 2020, and we have to be prepared to wait out of vaccine or some other answer for coated before full resumption of the restaurant hotel business.
However, as noted on our Q1 earnings call consumer products division of the doors really having a fantastic year and the third quarter is markedly up from the second quarter. So we can rely on the increase in business there to help us continue to offset the loss of hospitality business.
As for viewpoint.
Our goal this year was to broaden their client base to include many corporate clients.
And that focus is really paying off for us of all of our companies. They probably had the best second quarter as there was consistent demand for the creation of videos to use in marketing campaigns on line.
Here's where I should probably take a second sip of water and let that seeing Tim.
And let folks think about or be social acquisition.
Okay, now where it was oh, yeah, I, just said that viewpoint, probably had the best second quarter. Among all of our companies. Since there has been consistent demand among corporate clients for the creation of videos using online marketing campaigns.
One of one example of this will be that viewpoint completed the strategic design, a full service production, but branding campaign for long time client direction phones to introduce a new line up of strategic weight <unk> now that's a great corporate client or viewpoint on the traditional client side of entertainment networks, We also announced a brand spot the viewpoint did for.
CBS news those two announcements show the balance we'd like to strike between viewpoints legacy a best in class work for the leading media brands in the Entertainment Street, such as CBS news as well as CNN HBIO Showtime discovery and he ESPN among others with the expansion about heritage and experience.
At the corporate.
With short fire media, we saw revenues declined slightly and hold steady throughout the second quarter as noticed on our.
Call last month, the promotion of music is heavily on online.
Don't worry I won't take another sip of water that has allowed shore fires drop in revenues to be relatively modest even with the loss of the live event and touring business.
With that said and one month later from when we last spoke we don't believe that live events and touring will restart in 2020 and much like the hospitality business for the door, we have to be prepared that revenues will be impacted until there's a vaccine or some other answer for cobot.
However, we are seeing a consistent steady drumbeat of clients that are creating and releasing new music, which gives us the opportunity provide PR and marketing services.
And I can tell you we expect to see magic from the combination of short fires incredible PR campaigns and music industry would be socials influencer marketing capabilities.
That was going to be fun to watch developed.
On the production side nothing much has changed since we last spoke Fox short weeks ago.
We have two great projects ready to go the wedding comedy sisters before Mrrs with Lisa Thompson attached to direct and the road movie action thriller special delivery with Vonstein attached to direct.
Are actively casting both projects and believe we are very near having a lead actress to announce on special delivery.
We're also waiting on both projects as the rest of independent production community for solution to provide production insurance around coded encouraging signs of the past few weeks. We definitely have to include a government backed solution that was announced in the UK.
Countries now ramping up.
[noise] to full production and I would expect that Canada will follow suit shortly.
Hopefully that will allow for business or government solution.
To be reached here in the U.S.
Alright, so those are the operational updates before I turn it over to mirror to I'll, just do a quick rundown memory Lane.
When we uplifting to NASDAQ in late December 2017, we talked about building entertainment marketing supergroup of six companies over the following three years.
We have never wavered from the strategy, we knew exactly the types of companies, we want it and we chose those types of companies based on their ability to work together and cross sell their services.
Well today, we just brought in company number five.
And just like the other for companies before them. These social led by Ali Grant was our first choice in their vertical.
Think about that for one second we've been blessed to get our first choice in every single vertical we've acquired.
We have 42 west for film and television the New York observers most powerful PR firm in Hollywood we.
We have the door for hospitality lifestyle and consumer products, we have short fire media for music all three of our PR firms are considered top 15. This country from all industries, we have viewpoint creative for branding and video creation and now we have be social for social media Influencer marketing.
We don't curse care adult and headquarters. So let me just say are you slipping kidding me.
And all these companies each with their own specialty they all want to work together.
As anyone wonder why we're so excited.
At this point I'll now turn it over to mirto for more in depth view of our financials.
Good afternoon revenue for the second quarter at 20, 25.194 million $725 as compared to revenues second quarter at 29.
In the amount of 6 million 273009.
Yes, just made its temporary decline in revenue due to the.
Impacted.
The revenues in each of these quarters.
And your team.
Okay.
Overall operating expenses decreased by approximately $2.1 million.
During the three months ended June 30 2020.
The three months ended June 30 29.
Direct cost decreased.
600003 months ended June thirtyth plenty of compared to the.
Jim.
Primarily due to the elimination of certain viewpoint.
Selling general administrative cost decrease.
<unk>.
Mainly be they make it to a decrease in travel expenses.
Then it gets dirty when compared to the.
Jim.
Legal and professional fees decreased.
[laughter] thousand.
The three months ended June 30, plenty plenty of can take that.
32019, primarily due to decreases in.
<unk>.
Payroll costs decreased.
The 1.3 now.
Dollars during the three months ended June 30 2020.
Yes.
Right now.
Staff reductions the results of the decrease in revenue.
<unk>.
Our operating loss, but.
20.
Yeah.
Includes non cash items depreciation amortization approximately 500000.
As compared to an operating loss of approximately 1.2.
For the quarter ended June 30.
Including approximately.
Yes.
On depreciation.
Net loss for the quarter ended June 30 2020.
2.9.
Or 12 Fred.
Locker share based on 23 million 500.
The weighted average shares.
12 cents diluted loss per share based on 25 200.
We did.
This compares to net for the quarter ended June 30.
No.
$800000 I spent for basic loss per share on 15 million.
Thanks.
Chair.
Advice that diluted.
There.
Don 19.
72000.
Weighted average shares.
We should note that during the quarter ended June Thirtyth 2020, we recorded its beneficial conversion feature on the conversion of several note payable in the amount of 856000.
That is recorded an interesting, but we also recorded net.
Changes in fair value of liability.
Approximately $1.7 million.
During the three months ended June Thirtyth 2019, we recorded a gain on changes in the fair value liability.
23000.
That concludes my financial remarks, I'll now ask the operator open the phone lines.
Operator, please request.
[noise] [noise].
Ladies and gentlemen, we will now have our question answer session. If you would like to ask a question. Please press star one on your telephone keypad.
The confirmation Tony will indicate that your line is and the question Q.
For any one using speaker equipment, it may be necessary free to pick up your handset before pressing the star keys. One moment. Please let me now poll for questions.
Our first question comes from Jack vendor are Maxim Group. Please proceed with your question.
Great. Good evening, Bill and Emeritus solid sold two key results congratulations on the acquisition yeah. Thanks for taking my questions.
So I'll start with Bill and we start with the obvious topic you acquisition to be social which is the latest addition to your supergroup roster.
This is a leading influencer marketing firm and and I see in the 10-Q, a if I go towards financial related questions first I total consideration paid looks like about 2.2 million or so.
Wondering bill if you can provide any historical run rates would be socials revenue and operating income that's something you can provide at all.
Yeah, Thanks, Jack and thanks for the kind words about the quarter with when she is certainly feel good about it as well since acquisition.
Yeah, we're not talking about this horrible somebody social for competitive reasons much like we did for viewpoint and others before it but it's an extremely well run company profitable immediately accretive for us and Oh, we expect to be able to generate significant growth.
Just by introducing them to three PR firms worth of client right.
So yeah, we're we're pumped for that.
Okay fair enough and that's helpful I'm happy to hear it's immediately accretive.
In and then a you know that's as we look forward to the future can you maybe talk about the overall cross selling opportunities. This acquisition creates I imagine there's cross selling opportunities from be social across all of your existing supergroup decisions, but just wondering if you can talk about which of your existing divisions that you think.
May benefit the most in the near term in terms of revenue synergies from be social and then which of your business will benefit more mid to long term.
Sure well you know.
Let me let me go back to what we said a little bit on Q1, because these social is a great example of when you start adding companies.
To a supergroup like this it all want to work or cross sell their services.
As you grow exponentially right and thinking about the math of that for a second like when you're one company you can't you have no one else to cross sell with right and when you're two companies there's only one.
Lying to you know one road to go right between those two companies when you start getting to five companies now be social can work with all four of the others right. So you've gone from one connection that three connections to six connections to now 10 connections.
And this particular connection is is the most desired skill set of all three of our PR firms right. There's no way. The every single client of the door.
Utilizes and wants to run social Influencer marketing campaigns period full stop it. It's it's one of the one restaurants hotels consumer products. So if I were to start somewhere I'd start with the door right, but if I was trying to mentioned on the call.
You know music today.
Yeah, it's hard to believe how rapidly.
Tick tock has grown right.
But it's all effectively with them last 12 month in it it's a major driver of music marketing campaigns same with but do I need to start talking about music videos on Youtube [laughter]. It I don't know how you market music effectively without 95% of your efforts being online so it's going to have.
Tremendous advantages, which were fire, which has already started to a division dedicated to PR for Influencers. So it short burst been <unk>.
At the lead of that evolution already and this is only going to enhance it and then of course with 42 West I mean. These these influencers are many of them are celebrities and their own right right in their world. They are so.
He did the cross selling in the synergies are there today, but.
You asked a future question and I appreciate you asking that Jack because.
Think of it this way I don't know that be socialism hub.
For another subset.
Of acquisitions.
Because when you start talking about Influencers you know these social predominantly focused on where influences influencers are today you know that's that's beauty that's fashion, that's a lifestyle wellness.
Typically speaking but.
There is an entire subset out there around video gaming.
E sports.
Other verticals, where online influencers are the.
Most effective way to reach certain demographics, I mean try finding a 19 year old boy.
Watching TV today that isn't called live sports. So we think that adding be social isn't just immediately.
Beneficial to all three of our PR firms and vice versa. It's a company that will allow us to significantly expand online.
And immediately they were looking at opportunities today. So that's that's also why be social is highly strategic horse.
Got it that that's very helpful and I I appreciate your enthusiasm too and it gets me excited.
And then nave I just touch on a on you know just some of your your existing businesses without digging too much further into.
The be social I, just wanted to touch on viewpoint first second you highlight them at the star performer. During this quarter. So first just so I understand does this mean that viewpoint contributed maybe the highest percentage of total revenue.
During this quarter than it ever has in history is that is that what I understand.
I think they I think in terms of previous quarters in a quarter over quarter and year over year.
Viewpoint.
Performed the best in the second quarter, both on a revenue and on operating profit basis, They had a tremendous quarter and.
You know it's it's.
Its a.
Small company versus our PR firms, but they have the chance to have the highest and best margin and then pretty short order because it when they were adding corporate clients every month and when you build a corporate practice, that's equal to their <unk> entertainment industry, leading practice.
The margins are just very exciting and and there's just more opportunities to I mean.
Obviously for every one company in the entertainment space, there or how many in the court general corporate World right, they're very strong complement to the consumer products division of the door and there's a there is a great example of one of the previous legs right.
They're working on a <unk> the largest contracted in the doors history right now I'm, we're not at Liberty to speak about it but it's it's a significant contract and that's a consumer product.
Company that then hired viewpoint to do the video to complement the PR campaign at the doors.
So those types of complementary skill sets we've seen at work.
When viewpoint can serve as all three of our PR firms it will.
Very quickly work with be social as well.
All right fantastic while on the I'm excited for you guys and a great quarter again to with the results as well I want to overshadow that so I appreciate the time of the hop back into queue. Thank you.
Thank you.
Thank you.
Our next question comes from Allen Klee with National Securities Corporation. Please proceed with your question.
Hi, Good afternoon can we start with 42, Wes I I'm trying to understand with.
On the one hand, you have the benefit of a lot of content coming out, but then also there might be some challenges coming up of.
Getting.
Well production or maybe not for for the big.
For your customers so.
[laughter], how do we think about the best way of like how this is going to like on a sequential basis as it is this.
A segment that you think will be kind of growing over the next few quarters or.
Her or something else.
Yeah. Thanks.
Alan.
It will be growing because.
In the second quarter.
As I mentioned on our first quarter earnings call. It 42 west.
Had the benefit of increased work from streaming services right. We've got.
A tremendous number of streaming serves a.
Series and movies for the streaming services, obviously were very blessed with those Emmy nominations right, but it was offset by how cobot impacted 42 West was the fact that production shutdowns. So.
Challenge.
Went on hiatus for PR services, because they weren't on shows to promote so as production restarts, yes, our pipeline will be filled for theatrical movie releases that will promote and new streaming services series, but where revenue will quickly get back we hope and certainly be ramping.
<unk> up in the third quarter in the fourth quarter is that our hard many of our.
Television celebrities will come back on fee because they're shows will be back in production and soon back on there. So that's that's how cold it most impacted 42 west I would say.
So if we could follow up on that in terms of could you just give us a little color for for the large studios and and streaming sites, where you see they are in terms of.
<unk>.
Starting back up production and then for yourself you gave an interesting for independence.
I'd like to understand a little more you talked about it opening up and some other countries and then how that could but how do you think about when that can happen in the U.S. or does it matter. If it's the U.S. because your companies can can produce outsized can make the movies outside of the U.S.
Sure Yeah, I'll take those questions in the in that order that you asked well for studios and networks were seeing them get start to go back into production, which is great news for all of us in the industry. They can do this because they can self insured. So if there's a cobot outbreak on their set they can afford to shut down for a couple of weeks.
Try and get it back under control restart and they're building you know the the cost of that into their budgets or or the possibility of that into their budgets and we're seeing our director and show runner clients interacting clients go back to work.
And that's fantastic news and I should say to for that we're on the theatrical movie, which is still meaningful part of the 42 US business of course, we're hopeful that with theaters gradually reopening here in the U.S.
We'll we'll be able to return to promote and movies.
Yeah, maybe as early as late third quarter and certainly in the fourth quarter. Some of our major franchises are still tracking to open on time in the fourth quarter. So we've got James bond.
Right at.
In November we've got top gun, we have quite a few projects actually lined up for the fourth quarter theaters are open in Europe and Asia now they've stayed open which is nice to see so let's see let's see how it goes over the next few weeks and and if so then then those.
Properties or will go and of course, we have are very very healthy independent film business that we promote when it goes and when they go into theaters.
For.
Production in the U.S.
Dependent production yeah. The issue simply insurance you know if you've got to.
8 million dollar movie and you risk shutting down for two weeks, you're probably talking about a 500000 to million dollar expense and there just isn't.
A backstop to that.
For 95% of all producers so you're waiting to have an insurance policy much like you have in case, there's an accident on said or or hurricane come through your set or whatever it might be so.
We need to wait for that but with the UK, creating a government solution with Canada expected shortly followed to your previous point, Alan we may be able to shoot our movies in Canada Fantastic. We shot many times up there over the years or hopefully it'll prod, a business or government solution, which is actively talked about every day.
Here in the U.S., so we're waiting it but hopefully we won't have to wait more than another few weeks to know if and when we can shoot safely in the U.S.
Grade.
So my last question, it's just just to try to understand kind of.
All the pieces of what that maybe means it sounds like 42 west will will be improving.
The door.
Hospitality is it's very very slim mers [laughter] bits of coming back, but but the consumer division is is growing.
So that'll be a positive viewpoint is growing with corporate.
Sure sure fire is kind of stable.
Production as a question Mark and then whatever be social ads.
So it sounds like when you add them all up.
Yes, it's kind of moving moving upward to some degree is that the way to look at it.
Yep Yep, we're growing and.
The worst we believe is behind us for all of our companies. Some are going to you know accelerate faster than others, but we're growing across every company and then we just had to be social.
So.
It's it's exciting times for us.
Okay. Thank you so much congratulations.
Sure. Thank you.
<unk>.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to management for any closing remarks, you may have.
Well, thank you and I appreciate everyone for joining us today, I'm very happy to be able to Dallas and deliver.
Our 50 company for the Super Group.
And.
Hopefully I guess ill take Jack's word for it that our enthusiasm came across on a adding be social to our companies I can tell ya within our companies the excitement and certainly there Texan emails are flying as we speak the you know, but things to look for before our next earnings call would be.
You know continued.
Milestones around maybe we'll be able to you know even add one more member to our family. We certainly are are expecting do so by the end of the year and that would be nice conversation to have and then I think we should you know we should definitely look at how we can utilize be social to expand art.
Our online presence so.
We appreciate everyone's time and and thank you for joining us today, and we'll look forward to talking again next quarter.
Ladies and gentlemen, this concludes todays web conference you may now disconnect. Your lines at this time. Thank you for your participation and have a great day.