Q3 2022 Dolphin Entertainment Inc Earnings Call
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Good day, everyone and welcome to today's Dolphin Entertainment third quarter 2022 earnings call.
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It's now my pleasure to turn the conference over to Mr. James Carbonara Investor Relations. Please go ahead Sir.
Thank you operator, and once again welcome to Dolphin third quarter 2022 earnings call with me on the call are below doubt Chief Executive Officer, and Marathon Greaney Chief Financial Officer.
I'd like to begin the call by reading the Safe Harbor statement.
<unk>, it's made pursuant to the Safe Harbor statement for forward looking statements described in the private Securities Litigation Reform Act of 1095 <unk>.
All statements made on this call with the exception of historical facts may be considered forward looking statements within the section 27, a of the Securities Act of 1933 and section 20 <unk> of the Securities Exchange Act of 1034.
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 be incorrect 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 risk factors, 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.
And subsequent filed reports on Form 10-Q, as well as in other reports that the company files from time to time with the Securities and Exchange Commission.
Any forward looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward looking statements to reflect subsequent knowledge events or circumstances.
Now I'd like to turn the call over to Bill O'dowd, Chief Executive Officer of Dolphin Entertainment Bill.
Bill. Please proceed.
Thanks, James and Hi, everyone. Good afternoon, and thank you for joining us today.
As you might expect.
I'll start off the call by spending some time with the breaking news of today's.
Bringing a social license of the Dolphin family, followed by an update on various dolphin initiatives.
Full financial review and then we'll open it up for Q&A.
I'll begin by giving a brief description of socially.
The company was founded in 2011.
Early days of social media marketing to say the least.
Social and Influencer marketing powerhouse with teams in New York, Los Angeles, Miami Nashville, representing some of the most sought after creators from digital only to celebrity level talent Soc.
Socialite has a client roster of more than 125 market, leading influencers, including General Kramer, Lauren Bushnell Lane Cats Adler Mary Fitzgerald.
For this high end roster of talent socialized secures thousands of campaigns each year.
Leading brands is Amazon American Express Bose Cartier target and more.
So social always has the talent roster and managers the talents careers and secures campaigns for the talent.
<unk> has a sister agency lighthouse, which also came into the dolphin family, which represents some of the world's most iconic brands, providing the full suite of services for Influencer campaigns from strategy and casting the execution and delivery within depth analytics and reporting so lighthouse comes out from the brand side.
The company delivers hundreds of campaigns annually with current and recent clients, including Airbnb, Amazon American Express and tailor, our Montney beauty Audi Condon asked Etsy Carrig, Dr Pepper, Michael Kors.
Prada, Ralph Lauren and W hotels.
Okay. So now that you know a little bit about socially let me describe why this is a highly strategic acquisition for us I will give you three reasons.
First.
This gives us scale and Influencer marketing.
Would be social and social light under one roof. We now have what we consider to be the leading Influencer marketing agency.
Entertainment industry to go along with our three market, leading PR firms in each of those verticals.
200, influencers on roster with hundreds of millions of collective social media followers.
And now we have an unmatched presence in the to use capital for Influencer marketing.
New York based socially and Los Angeles space be social.
Secondly.
That scale allows us to take full advantage of the very strong brand spend growth across influencer marketing.
Just that in today's day and age of Influencer marketing represents the other half unquote of earned media along with Dr.
<unk> verticals, we are uniquely positioned to cross sell for the benefit of the scale, we just achieved let.
Let me share some relevant steps.
The Influencer marketing industry has experienced strong double digit CAGR over.
Over the past five years, increasing from global brand spend of less than $2 billion in 2016 to over $10 billion in 2021 with estimates of more than $14 billion in 2022. According to Grand view research. So it's less than $2 billion in 2016 over expected to be over $14 billion. This year.
So the industry is only growing as any brand marketer can tell you.
But which categories use influencer marketing the most.
Now you will see why it is so strategic for dolphin.
Again, citing Grand view research here in 2021 fashion and lifestyle was the largest segment with 29% of total spend which is the exact specialty of socially lighthouse and be social.
Great. We've now built scale and leadership in the largest segment of the extremely fast growing influencer marketing industry.
But what about additional growth.
While the second largest segment in 2021 with 23% of total spend was food and entertainment the.
The exact specialty at Dolphins, three market, leading PR firms.
Which any food and entertainment marketers can tell you.
So over 50%.
Of total brand spend and Influencer marketing last year went into fashion beauty lifestyle food and entertainment the exact verticals represented by our Super Group.
That would be over $7 billion this year.
Out of the 2014.
Collectively the dolphin companies represent approximately 1000 clients <unk>.
Including global celebrities feature films TV series streaming services musicians venues festivals video game publishers esports teams and leagues culinary celebrities hotels employee companies consumer product brands and web <unk> and NFC projects as well as awards campaigns for nominees.
<unk> in over 100.
Oscar Emmy and Grammy categories in 2022 alone.
Speaking plainly when influencers, considering where to call home or brand is considering how the influencer campaign can get them noticed by the general consumer through the broad lens of pop culture and entertainment. We believe we have a unique proposition in the marketplace.
And for our PR firms.
<unk> cannot open a restaurant or hotel in today's environment.
Without an influencer marketing campaign RP.
Our PR firm short fire would find a strong influencer marketing campaign extremely beneficial and launching a single and album Art concert tours. If you don't think social media is important to launching music. These days you are respectfully living under a rock.
You get the idea.
Now the third reason.
This acquisition was so strategic for dolphin after giving us scale.
And because and access to take advantage of the fast growing influencer marketing industry generally and then our verticals specifically.
The third reason why this acquisition was so strategic for dolphin.
At the elite levels of social item be social influencers on rosters themselves.
Mass large enough followings to where they are celebrities in their own right.
Many have ambitions to be positioned to quote crossover unquote into traditional media and many more have launched a wide array of consumer products and business ventures.
Our group is uniquely positioned to take advantage of this market opportunity.
As influencers and celebrities seek to further spread their interests and monetize their platforms and following the rate at which they have been launching brands and products continues to rise.
The categories of beauty lifestyle, and fashion are particularly well suited to influencer product launches as demonstrated by the countless examples in recent years, perhaps the highest upside growth opportunity for dolphin scale, we socialize be social is to focus on pitching facilitating the chair and the revenues created by Influencer brands and content.
Which will generate further recurring revenue and value for dolphin and its shareholders.
Okay. So now that you know about socially and our strategic rationale for bringing them into the dolphin family. Let me state that this transaction was immediately accretive socialite has strong revenues and profits.
They are growing and like would be social we believe we can grow them, even faster by cross selling our services to clients across RPM our firms.
With social item be social we now expect that Influencer marketing will represent 25% or more of our revenues in 2023.
For more than that I don't want to get ahead of our 10-Q and 8-K filings.
More on those topics, we'll wait until after we have released that information.
For final details socialite and its 40 employee team will continue to operate under its own name.
Out of Dolphins, New York and La offices.
With if I say, so the very impressive.
Sarah Boyd and his entire staff welcomed into the dolphin family of agencies.
More socialized chairman, Evan Lozano will continue as an advisor to dolphin.
Alright.
Let's shift gears to turn to providing updates on projects, where dolphin and its shareholders equity.
Equity and participate in the upside that are best in class marketing companies regularly enable for our clients.
By the way for which going forward social life will provide another asset to use for the benefit of these ownership Stakes.
Since we last spoke in August we held a soft opening on September 21, or midnight theater, a new restaurant in variety Theatre in New York and Manhattan, West Brookfield properties latest neighborhood development between ninth and 10th Avenues, and West 30, <unk> and 30 <unk> streets.
The night before our soft opening we prep the theater with peacocks premier of new romantic comedy meet cute.
Theatres Red carpet was stacked with national media covering the arrival of the film stars Pete Davidson Kaley Cuoco.
We are sold out show last Monday with the British singer Ray while we seek to continue to ramp up the original programming in the theater through the holiday season and into the winter by which time, we expect to be opened.
Everyday of the week the private event business in the theater is already off to a terrific start.
A short time since the soft opening we've held well over dozen private events some of which were full buyouts.
Both the theater and the restaurants and the clients are top tier, including our programming sponsor Mastercard.
As well as Accenture, Ernst and young both of whom happened to be neighbors inside meant heightened list.
Sure Tyler.
And l'oreal.
Paramount riot games for a really cool league of legends event with Mastercard.
And Showtime.
Now turning to <unk>.
On October three just after the quarter ended we were pleased to report that our flagship and a T collection creature chronicles.
Intergalactic immersive storytelling experience from former Marvel Studios artist anti Francisco sold out in about 90 minutes on the afternoon of Sunday October 2nd.
The first creature chronicles collection developed and marketed by Dolphins, what three division we come in peace.
Rented on the Salon, the blockchain and feature seven 777 custom crafted avatars generating more than 13175 solve and primary sales at mid time equaling about $435000.
We credit this.
Seasonally we credit the success of the project to the stunning visuals from Anthony the commitment of our team and the dedication of our community.
We are very proud of this success with that said, though we are very aware of the recent developments on the crypto space.
We will continue to monitor the space as we decide on prudent perhaps forward with our NFC business.
I would like to point out that dolphin has no exposure and the pending FTC fts bankruptcy proceedings, and we have no assets inside MTX wallets.
Our most recent announcement in late October was about a partnership with the content the James Beard Award, winning chef and the owner of compared lobbying and buy water American Bistro in New Orleans.
To open together Shah Lounge membership cocktail club lounge in the Crescent City Baltimore.
Dalton, we'll be providing marketing services for fees and receiving a meaningful ownership stake in the venture as well. The announcement was made as part of the first annual Freshmen Festival, New Orleans, what three conference and festival, where dolphin executives moderated a panel on how wet three and out of Ts are impacting the face of the food and beverage and hospitality industries.
What I really like about this initiative as its inclusion of a variety of other celebrity chefs and its clear line of sight for national expansion and success.
From the get go five major celebrity chefs have joined the ownership group.
Martin <unk> from New York, Stephanie <unk> from Chicago, Michelle Bernstein from Miami, Rodney Scott from Charleston, Tiffany phase on for Boston.
Right about now James Carbonara is celebrating.
Each of these chefs will visit New Orleans every year and offer custom menu items and cocktails for the general public and also provides unique experiences for those who become members.
That alone immediately distinguishes this concept and if youre a foodie all five of those names to go along with being a content six of the 12 shops.
But it also allows for the national expansion I mentioned.
Upon success in New Orleans, Shellshock can be brought to each of the other celebrity chefs home towns, where they would have control of the concept and the menu and also take the largest share of profits.
Supported by all of the other chefs in the network for visit each year.
In all there will be a total of 12 celebrity chefs and the initial rollout of Shah. So you can see the scalability of the project.
Josh I'll lounge is truly brilliant concept.
<unk> by the door in partnership with an accountant and our management team.
In alignment with the doors professional expertise and marketing culinary destinations and a dolphin families passion for charitable giving.
Needless pledged that a portion of membership and mileage sales will go to support future disaster relief in New Orleans.
As a gracious and forward thinking win win.
And honestly to Nina or do.
That was the starting point.
For the creative development of what became shop shop.
And being a native Miami and I know, what it's like to get hit hard by Hurricanes, So special shout out to need the content on this earnings call.
Thank you for joining us on this ride and to walk through the financials I'll now turn it over to Milton <unk> Our C F.
Thank you Bill and good afternoon, everyone I will now discuss results for the quarter ended September 32022.
Revenues for the quarter were approximately $9 9 million.
As compared to approximately $9 $4 million for the quarter ended September 32021.
Operating expenses for the quarter ended September 32022 were approximately $11 million compared to approximately $10 $5 million in the same period of the prior year.
Operating expenses are comprised of direct cost.
Payroll and benefits selling general and administrative costs, SG&A acquisition costs, depreciation and amortization legal and professional fees and changes in the fair value of contingent consideration.
Direct costs decreased by approximately $200000 to approximately $837000.
The decrease is primarily attributable to the decrease in viewpoint revenue in comparison with the same period in the prior year as deeply encourage third party costs related to the production of marketing materials, which are included in direct costs.
Payroll and benefit expense increased by approximately $1 2 million to approximately $7 million.
Primarily due to additional head count in 2022.
Point, the growth of our business and stock compensation issued to employees under the 2017 plan.
SG&A costs were approximately the same during the three months ended September 32022, as compared to the same period in the prior year.
Acquisition costs of approximately $300000 or primarily legal and professional fees related to.
Two the socialite Neil there were no acquisition cost during the same period in the prior year.
Legal and professional fees increased by approximately $300000 to approximately $800000.
Increase was primarily due to legal and audit fees.
Associated with the Lincoln Park agreement and the filing of the S. One and consulting fees for the implementation of a new enterprise resource planning system. These are all onetime costs.
Operating loss for the quarter ended September 32022 of $1 1 million includes the noncash items from depreciation and amortization of $415836.
And the change of fair value of contingent consideration of $5000 as compared to an operating loss of $1 1 million.
For the quarter ended September 32021, which included noncash items from depreciation and amortization.
<unk> hundred $75207 and a loss on the change in fair value of contingent consideration of $1 1 million.
Net loss of approximately $1 $3 million or <unk> <unk> per share based on $9 million 664681 weighted average shares outstanding from basic loss per share and <unk> per share based on $9 million 793715 weighted average share.
Fully diluted loss per share basis for the three months ended September 32022.
The net loss of $1 $3 million includes noncash items from depreciation and amortization of $415836 and gain in the change in fair value of contingent consideration of $5000.
Gain in the change of fair value of warrants and convertible notes of $55642 and a loss on equity investments and non consolidated affiliates of approximately $100000.
Net income was $141651 or <unk> <unk> per share based on 7.740 million 85 weighted average shares outstanding both basic and diluted earnings per share for the three months ended September 32021.
Net income for the quarter ended September 32021 of $141651 includes noncash items from depreciation and amortization of $475207 a loss on the change in fair value contingent consideration of $1 $1 million.
A loss on the change in fair value of warrants and convertible notes of $278923 and a net gain of $1 7 million extinguishment of debt.
That concludes my financial remarks, I will now ask the operator to open the phone line for Q&A Operator would you. Please poll for questions.
Thank you at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
You may remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question.
First we will go to James Carbonara with our Investor Relations.
Thank you, operator, and Hi, Bill Allen Klee of Maxim group emailed in for questions.
First one is what is your plan on NFC.
Given all that's happening with MTX current prices and volumes.
Sure. This is unusual.
Yes.
I'll pretend you're Allen James.
I would say, what's our plan yet we need to evaluate it to be quite honest I mean, the crypto space has obviously been quite a bit of turmoil right now.
We've weathered and PA.
The launch of creature chronicles two two.
<unk> past, what was supposed to be the crypto winter into spring and summer.
We had a very successful launch I don't know where crypto is going to go from here and we need to just take it day by day without.
Making any any hard promises one way or the other.
As I mentioned and Alan May not have heard it because of the easy mailings questions, but as I mentioned.
In my prepared remarks, we don't.
Have any exposure on the <unk> side.
And.
We'll see what it all means as we go forward kind of limit day by day.
We do believe we have an expertise in being able to market in that in that space.
By treating chronicle as proven by the hard work the team does for a variety of clients every day.
But.
I don't know that we can commit.
Today to knowing what the future is going to hold.
And then his next one which I think you may have already addressed was.
Please provide an update on the night theater and hidden leaf.
Yes, and just put a little color on those prepared remarks.
For those who haven't seen it.
<unk>.
It's gorgeous the theaters gorgeous the restaurants gorgeous.
Theaters unique those walls that are interactive and.
High Fidelity protection mapping allow for some really cool experiences.
He knew I was <unk>.
Education on the process during the process about how.
How.
Popular space would be for private events. The team believes that they knew it from the beginning.
Brookfield was very complimentary of the concepts toward private events during the construction phase.
And it seems to be proving true needs.
In these first few weeks.
As I mentioned some of the names I mean the <unk>.
Not only did they.
Book, the theater for private events.
Without even being fully opened.
I think to a to a sponsor of those private events. They all want to come back for more so it's a really nice environment in <unk>.
New space So it gives us.
Private events, our lifeblood for any venue.
Which by definition you only do a private event it was going to bring you in more revenue and profit than if you just hold your own program.
So you can keep your own programming in there right. So.
It's an encouraging sign ahead of getting our programming right and getting it up southern Missouri.
Great and then as a third of his four questions.
Any other changes in two <unk> initiatives.
Well, you probably would've liked the comments about charge off I mean.
I know there are some of our <unk>.
Folks probably listening this call it really like the shop model and so do we.
It's not just the <unk> itself models I was talking about the prepared remarks, but we do feel like.
Having access to the Super group only bolstered by social light right now.
It gives us an opportunity to participate in the revenues or profits or clients.
Or an equity clients and so or initiatives and so.
Yes.
We've done a couple of those deals in the past Shah.
One that combines that concept.
Being a client.
We can.
Market shop shop, and get paid the market sure.
But also have a meaningful ownership percentage in that asked us to help.
Sure sure New Orleans more of a success.
Expanded nationally so.
That's a very good deal for both sides.
We feel very good about that so.
Those types of deals where we get them.
A little bit of festivals worlds are very appealing it.
And to Charlie Doug yellow and the credit of the door. They were there from the ground floor and what that could be so there is an example of quite frankly division of putting a super group together.
That they could.
Each of our senior leaders and quite frankly all of them.
The staff can have ideas that could be the ideal outcomes like Shaw.
<unk>.
Which are what we're talking about it James Beard Award winning shot.
Yes.
Compton is pretty darn big.
The group of 12 celebrity chefs has a pretty big deal.
And so I think.
Open up lounge, that's open to the public but also as a membership program component. So there is a good example of US I think something that we're excited about two point out since we last spoke.
Great and then Alan last question any commentary related to outlook.
Yes, sure lets see well I mean, obviously.
Whatever I would've said.
Before socially would change with socially right Oh and by the way.
Sure.
Fund commentary I was thinking about.
Just how to convey and brief comments the growth of the Influencer marketing industry to those who may not be as familiar with it.
I went back and our member linked Dolphin was pretty.
Are you seeing shows with Nickelodeon and Youre, starting to dabble with online content.
This is before Netflix streaming with house of cards or even for that with the Norwegian series really hammer.
Backlog 2008.
On the cost side on the air at our member.
Having the first conversations with digital groups at Caa and others.
Brands didn't have social media budgets, let alone departments and Facebook I think Facebook somebody can correct me if im wrong one pub.
Public six coming on that's about right and I looked up from OE.
Playing the beginning played space and we made an original series for <unk>.
Yeah.
And Facebook.
Called the aim high.
This is a great question what was the average time in American spent on social media 2008, two years after Facebook went public.
It was eight minutes eight minutes a day.
And last year, it was two hours and 24% today.
Average.
So it's not a surprise that brands followed eyeballs eyeballs.
Eyeballs are the average Americans you get younger even more so in two hours 24 minutes a day is what I read.
<unk>.
Online yesterday, just to get that stat metals like Wow. So.
Socially.
We'll change things, but <unk>.
Obviously on both revenue and profit but.
As I.
I look back at Q3, I am happy with our revenue growth.
I think that.
Had <unk> chronicles gone in Q3, instead of Q4, we would've had.
Double digit revenue growth story again year over year.
So on pace for the $40 million.
Revenue this year without social life.
And.
And.
I do think that Q3 would look vastly different if we didn't have the noncash charges in the nonrecurring expenses and the acquisition costs and the professional and legal fees.
Our run rate for professional and legal fees should be about 350% range maybe between them 400.
Elevated last year's Q3, because we had filed a baby shelf.
Which obviously whenever you do at registration study.
It's expensive it was again this year for the reasons mentioned so.
If you took away those onetime expenses.
Professional and legal fees.
At or above normal.
Transaction costs and the noncash depreciation them.
Ms.
Small profit would have been a bigger profit $5 million or so which would have been happier with the <unk> chronicles launched two days earlier, but.
It's.
I think our outlook stays the same.
We're happy with where Q4 shaping up but our revenue is going to be and then obviously next year.
Profits will increase our revenues will significantly increase.
Both will actually and we're excited about that.
I think I think that's a fair summary, and as I had mentioned in the prepared remarks.
We now have an influencer marketing combination that.
Is equivalent to one of our PR firms verticals.
The combination of social and social Rip will represent about 25% of our company's revenue.
And that's very meaningful and that's that's.
That's on par with.
Each of our <unk> verticals right obviously.
<unk>.
It's a strong legged stool.
I think that TR and earned media attention as I said, PR and Influencer marketing.
Two legs of our media.
Complement each other like peanut butter jelly and the back and forth or it's going to be tremendous tremendous.
Tremendous flywheel for us as it has would be social.
Social it's grown very well within our family.
And I expect the same essentially.
Thank you Bill that concludes the questions received from Allen Klee of Maxim Group I will hand, it back to the operator operator.
Thank you and at this time this will conclude our Q&A session I will turn it back to management for any additional or closing remarks.
Oh man.
Both Alan's voice and then another question.
The.
Well. Thank you. Thank you for.
Listening and obviously, a very exciting day I don't want to Bury the lead as I say in the PR business.
I could not be more thrilled.
To add socialite.
So the dolphin family the management team as I quickly alluded to in the prepared remarks are outstanding.
Sarah Boyce were aligned and very very impressive.
Great leader.
Staying with them Sorenson on the brand side or Peters out of Los Angeles, I, just ive really enjoyed getting to know them.
I have a lot of respect for those out of family market oven.
Very talented people and I know that they're going to be allies of dolphin for years to come.
Insignificant shareholders' involvement so it's.
It's an exciting time for dolphin.
And I really am very very happy about this transaction heading into the holiday season, which as everyone knows is the prime seats and FERC Influencer marketing.
It's not out of the ordinary that happy profits of market come in the fourth quarter. So.
I hope, we all have a holiday season, if I don't talk to everyone on the call before then.
Our best to you and yours and look forward to the next time, we get an opportunity to speak.
Thank you everybody.
Okay.
Thank you. This concludes today's call. Thank you for your participation you may disconnect at any time.
Okay.
Yes.
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Okay.
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