Thunderbird Entertainment Group Inc

XTSX:TBRD

Earnings Call Transcript 2021-Q1

[Operator]

Thank you for joining us. We are here to provide a corporate update and report on Thunderbird Entertainment Group's First Quarter 2021 fiscal results, which ended September 30, 2020. Speaking on today's call are Ms. Jennifer Twiner McCarron, Thunderbird's CEO; and Ms. Barb Harwood, Thunderbird's CFO. Ms. Twiner McCarron will provide a strategic overview of Thunderbird Entertainment Group, and Ms. Harwood will review the company's Q1 financials. [Operator Instructions] Alternatively if you have any questions you can call 1 [phone] or e-mail [e-mail], and the company will follow-up directly after the call. At this time, all lines have to front any background noise. I'd like to remind everyone that certain statements made on today's call will be forward-looking and constitute forward-looking statements or forward-looking information under applicable securities laws. Forward-looking statements and information discussed on this conference call include, but are not limited to, statements with respect to the company's objectives, goals or future plans. And the business and operations of the company. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties and other factors, which may cause actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, general business, economic and social uncertainties, litigation, legislative, environmental and other due to regulatory, political and competitive developments. Those additional risks are set out in the company's filing statements and other public documents filed on SEDAR at www.sedar.com and other matters discussed in the company's year-end news release. Although the company believes that the assumptions and factors used in preparing these forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this presentation, and no assurance can be given that such events will occur in the disclosed time frames or at all. Except where required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements. Whether as a result of new information, future events or otherwise. For your convenience, the press release, the MD&A and unaudited financial statements for the first quarter of 2021 of Thunderbird Entertainment Group which ended September 30, 2020, are filed on SEDAR and are available online under the Investors section of the website. We do not expect to update forward-looking statements continually as conditions change. This conference call is being webcast live, and the archive will be available on the company's website at www.thunderbird.tv following today's call. Please note that Thunderbird reports in Canadian dollars unless otherwise stated. Ms. Twiner McCarron will now provide the corporate update.

[Jennifer Twiner McCarron, CEO & Director]

Hello. Thank you so much for joining us. We really appreciate you being here today. My name is Jennifer Twiner McCarron, and I am the CEO of Thunderbird Entertainment Group. Barb and I are thrilled to provide a review of Thunderbird's progress for the first quarter of fiscal 2021, which ended on September 30 of this year. We are extremely proud of the work in progress that was completed in Q1. Throughout the quarter, Thunderbird was right on track with 25 shows in various stages of production, an increase from 21 at this time last year. We started the quarter by launching new partnerships with several major players and bringing on additional crew members to respond to the ever-increasing demand for content. While I'm unable to delve into the specifics of these productions at this time, I am thrilled with Thunderbird's slate of production, especially with how they ladder into the company's overall mission of creating content that has a focus on diversity and inclusivity and strives positively to influence the world. Throughout Q1, Thunderbird's client base included Netflix, Peacock, HBO Max, Apple TV, Nickelodeon, Sony, PBS, Bell Media's Discovery, Disney+, Corus Entertainment and CBC, among others. Of the 25 productions in development, 10 are company-owned IP or partner managed which means Thunderbird has ownership in these productions and can leverage this IP on content into many ancillary businesses, such as toys, video games, mobile, console, and micro transactional and all forms of cross-media exploitation. For example, bedsheets, ice skating shows you name it. Additionally, we can also distribute this own content around the world, and the demand for high-quality content just continues to grow. Digging in a little deeper from July to September, 27 half-hour episodes and 12 1-hour episodes were delivered collectively across our Factual, Scripted and Kids & Family Divisions. All of the 1-hour episodes were company-owned IP projects, again, further building on our rich home content library that can be licensed for a myriad of possibilities. Stay tuned for some exciting announcements in January regarding our increasing push into consumer products and distribution. Our Factual division, Great Pacific Media, owns nearly 100% of this IP. And the majority of its projects are consistently generating cash flow through global library sales and distribution. Our scripted comedy, Kim's Convenience is also company-owned IP. And in our Kids & Family Division, Atomic Cartoons, our productions are a blend of service work, IP-owned partner managed projects. For partner managed production, Thunderbird is hired to handle all creative elements, beginning with writing and continuing all the way through post-production and delivery. These productions are fully cash flowed and Thunderbird receives a substantial producer fee, which includes a percentage of the back-end sales related to consumer products, merchandise, gaming and other cross media opportunities. Increasingly, companies are coming to us for partner managed shows as the streamers need to constantly refresh content on their sites, and they also need high-quality full-service companies like Thunderbird to handle everything for them. To this end, I will now touch on our Q1 numbers, which Barb will go through more thoroughly after my corporate update. As a whole, Thunderbird recognized $19.8 million in revenue in the first 3 months of fiscal '21, an increase of 20% compared to the same quarter in fiscal '20. Our adjusted EBITDA increased by $1.2 million from the comparative period last year to $4.8 million. This increase was primarily due to the growth in production services attributed to the Kids & Family Division. Production services revenue for the quarter increased by 41% to $14.7 million, which was due to an increase in the number and size of contracts. This revenue consists of animation production services in the Kids & Family division, which continues to experience sustained growth. Due mainly to the timing of deliveries, licensing and distribution revenues decreased slightly over the comparative period last year, where the company delivered 3 episodes of Last Kids on Earth. The next batch of Last Kids is set to deliver in Q2 this fiscal year. Thunderbird is in a quarter-to-quarter business in terms of revenue growth because the timing and delivery of projects creates an ebb and flow in our revenue. Our year-over-year results clearly reflect more linear company growth. And confirm that Thunderbird continues to execute and deliver on the company's strategic goals and financial objectives. Looking ahead to the remainder of our current fiscal year and beyond, we have visibility and bookings well into 2022, and are positively positioned to continue achieving our business targets. Q1 represents an exciting time in our business because it usually coincides with the debut of many broadcasters new schedules, which means we get to share our work with audiences around the world. In September, we announced a list of all the Thunderbird production set to premiere in fall '20 and winter '21, which includes 7 new and returning animated Scripted and Factual series. This included LEGO Jurassic World Double Trouble for Nickelodeon, Mighty Express with Spin Master for Netflix. Curious George: Go Wild, Go West for Peacock, The Last Kids on Earth for Netflix, Kim's Convenience for CBC, Highway Thru Hell for Discovery Canada, Heavy Rescue: 401 for Discovery Canada as well. And since the end of Q1, we've also added 2 additional premiers to that list, including a brand-new Star Wars special with our partners at Lego and Lucasfilm. The Lego Star Wars holiday special is now streaming on Disney+ and is receiving incredible reviews. In fact, we received a note from Bob Iger, who watched this special and noted the quality is on par with the movies they produce. We also launched a new animated Kids series Trolls: TrollsTopia which is the next component of the hugely popular Trolls franchise. Developed in partnerships with DreamWorks, the new Trolls series is streaming now on Hulu and Peacock. Being asked by partners to produce new content based on properties of this caliber, is a huge vote of confidence in the entire Thunderbird team. And like every partner we have worked with, both past and present, we're incredibly honored by the trust that has been placed in us. We're also grateful that new and ongoing partners continue to seek us out for new projects and ones yet to come. Moving on to high-level updates for each division. Our Kids & Family Division, Atomic Cartoons, was in various stages of production on 19 animated series during the quarter for partners, including, again, Disney+, Netflix, CBC, NBCUniversal, just to name a few. These productions involved working with 12 separate major clients, 4 of which are new relationships for the first quarter of '20. Our Factual division, Great Pacific Media, was in production on 4 series and 1 documentary special, Highway Thru Hell, seasons 9 and 10; Heavy Rescue: 401, season 5 and 6; and Save My Reno, seasons 4; Mud Mountain Haulers season 1; and the Teenager and the Lost Mayan City, a documentary for CBC. Subsequent to the quarter, Great Pacific Media announced 2 new productions are in the works. In October, the division unveiled a partnership with Underknown to develop a multibillion view -- Webby award-winning social media brand, What If for television. And in November, Great Pacific announced plans to develop a limited drama series based on the life of controversial Natzi scientist, Wernher Von Braun. Based on an IP we acquired from the Smithsonian Institute in 2019, the series is being developed with Simon Barry, who produced the recent hit Warrior Nun for Netflix. Simon will assume as the executive producer, writer and director on the series. This will be Great Pacific Media's first ever drama series, which is part of a forward-looking strategy to develop scripted content based on factual events. On the Scripted side, production also began on the fifth season of our scripted comedy Kim's Convenience. Kim's Convenience has already been renewed for season 6. As you can see, Thunderbird has an impressive slate of content, and I would like to add that a lot of this work is taking place remotely. With the health and safety of our teams, always being our #1 top priority, all Thunderbird divisions continue to work predominantly from home. We're closely monitoring guidelines from esteemed public health officials in all of our jurisdictions across North America, and we continue to ensure full compliance with all of the recommendations and requirements. We are extremely grateful to be in a somewhat pandemic resistant industry. And truthfully, we haven't even seen the impact of increased work due to COVID. That will come in fiscal year '22 and beyond.Our relationships with the streamers and broadcasters have only gotten stronger as we have built more trust, executing at such a high level during this very tough time for the world. Plus the volume of streamers continues to increase and people staying at home watching content is not going away anytime soon. There are no plans to return to our physical studio spaces at this time. And when it's inappropriate to return -- or when it's appropriate to return, we are considering ways to shift our operations to a hybrid working model to allow team members to work in the locations they are most comfortable and productive in, offering flexibility and work-life balance, which is key to retention for all of our amazing talent. In fact, just this October, we managed to sublease our head office further optimizing our efficiency of the company. It is extremely important that Thunderbird protect and promote in artist-driven culture in studio and now remotely, a culture that draws people in, supports the safe space. Where artists feel trusted to take risks, and this enables individuals to do their best work and innovate. This is a type of an environment that fosters creativity, innovation and excellence. All of which Thunderbird relies on to produce the premium content that our partners have come to expect from us. Before passing things off to Barb, I'd like to also take a moment to highlight just how interested people are becoming to be working in this industry and Thunderbird, in particular. Over the last 2 months, I've been invited to participate in numerous panel conversations with students and industry professionals who are hungry to learn about our company, our culture and how they can get their foot in the door, including The Rotman School of Management and Vancouver Film School. And it's not just Canada and the United States where people are eagle to learn from our team. This week, Mark Miller, Thunderbird's President; and Tony Chung, Director of Finance of Great Pacific Media have been invited as industry experts to discuss production safety during COVID-19 at China's leading documentary content, the international documentary film festival. This is really a thrilling opportunity for Thunderbird as we were looking closely at Asia Pacific for future partnership and production opportunities, particularly as many streaming platforms recognize the region as key to their growth strategy. In conclusion, I want to reiterate that Q1 of 2021 remained on track with our business expectations and, in some cases, exceeded them. We are in production again on 25 projects across all divisions, up from 21 at this time last year. We're securing brand-new partnerships with some of the biggest names in entertainment, and we're continuing to grow revenues year-over-year while keeping our balance sheet in an incredibly healthy position, again, 0 company debt. All of this combined means that Thunderbird's business is strong and that our company is prepared to act swiftly to pursue new opportunities coming down the line. Our premium content is a testament to Thunderbird's execution and the exceptional value we're creating for our partners, which includes their subscribers and our shareholders. We can't wait to see how audiences respond to what's coming down the pipeline. And lastly, I want to thank you all for being here and wish you and your families a really safe happy holiday season and cheers to all good things in 2021. Stay tuned, and over to you, Barb.

[Barb Harwood, Chief Financial Officer]

Thanks, Jen. Good afternoon, everybody, and thanks for joining us today. I'll just dive into the summary of the financial results for Q1 2021. Consolidated revenue for the 3 months ended September 30, 2020, was $19.8 million, as Jen mentioned, compared to $16.5 million for the comparative period of fiscal 2020, an increase of $3.3 million or 20% over the comparative quarter. Of this revenue, $14.7 million related to production services revenue in our Kids & Family Division, an increase of $4.3 million over Q1 2020 or 41%. Licensing and distribution revenue is revenue related to any projects where we own the copyright, otherwise known as IP. Licensing and distribution revenues decreased this quarter by $1.1 million or 17% as compared to Q1 2020 due to the timing of when certain projects were delivered and recognized. In Q1 2020, we recognized 3 episodes of Last Kids on Earth. Whereas this quarter, we had no comparable revenue recognition. As Jen also mentioned, the next batch of Last Kids will be recognized in Q2 of 2021. In the current quarter, the company also recognized revenue from 12 episodes of a Factual series, while in the comparative quarter, revenue was recognized from 13 episodes of 2 Factual series. Adjusted EBITDA was $4.8 million for the 3 months ended September 30, 2020, compared to $3.6 million for Q1 2020, an increase of $1.2 million, as mentioned in the revenue section. This increase was primarily due to growth in production services attributed to the Kids & Family Division. And finally, free cash flow was $1.2 million as compared to $4 million in the comparative quarter. A decrease of $2.8 million. This represents a significant investment in content of $3.6 million during the quarter compared to just $0.2 million in Q1 of 2021. And this significant investment in content, we'll see the benefits -- the benefits of this will be realized during this fiscal year and beyond. Now I think it's time for a short Q&A. So over to the moderator. Thanks, everybody.

[Operator]

[Operator Instructions] Our first question comes from Matthew Lee with Canaccord.

[Matthew James Lee, Associate Analyst of Telecom and Media]

This is Matt Lee from Canaccord on the call in place of Aravinda. I want to start with kind of a big picture question on M&A. Can you maybe drill down on which areas your interests particularly lie? Are you looking for brands to revitalize gaming assets, international firms or maybe something else?

[Jennifer Twiner McCarron, CEO & Director]

It's a great question, Matt. Focusing a lot on international expansion. We have such great relationships with all of the streamers and broadcasters. And as we know, they're all judged by merit on increasing subscriptions. And North America will tap out. So where do the streamers need to go? They need to -- publicly, many of them have announced increased focus in Europe and Southeast Asia. And by us having ownership in those countries, especially ones with governments that are supportive of the industry. They're requiring streamers that sort of up to 30% of whatever they stream needs to be from that region. We can recognize -- if we have ownership in those areas, we can recognize that content, help get it set up and airing and streaming and then further run that content through our burgeoning consumer products and distribution division. So that would be 1 area of interest. Certainly, we're in a great position as a company. To start making acquisitions. We have great cash balance and 0 debt. And so I think now is the time for us to be nimble and opportunistic only as it ties into our core strategy and how do we get stronger, not just getting bigger for the sake of getting bigger.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Yes. That's a great answer. And then maybe on the merchandising side, can you give us any updates on the sale of Last Kids on Earth toys and products throughout the business period?

[Jennifer Twiner McCarron, CEO & Director]

Those will be more readily available in the sort of by March of calendar year '21.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Okay. And then maybe we can switch over to the financial performance a bit. Maybe talk a bit about the seasonality you expect. I noticed you commented that you're going to have 3 Last Kids on Earth episodes delivered in Q2 '21. How does that compare to Q2 '20 and maybe what is distribution growth and growth in general looked like for the last 3 quarters of the year?

[Jennifer Twiner McCarron, CEO & Director]

Yes, for sure, Matt. Yes, as you know, this business is very seasonal, at least on the on the IP side because we don't recognize the revenue from our IP projects until they're delivered to the broadcaster streamer and the term starts. So you can have a lot of volatility between quarters. For example, last year -- last quarter, Q1 2020, we recognized 3 episodes of Last Kids. And this quarter, we have not. But we're recognizing the -- we'll have 3 episodes of Last Kids to recognize in Q2. So it's always kind of bouncing around. And as we do more work with the streamers, I think that will continue to bounce around from quarter-to-quarter. There used to be a sort of set season with, say, the Canadian broadcasters where you'd kind of know you'd have really, really high quarters 1 and 3 and low quarters 2 and 4, just because of how they're scheduling work. But I'm finding it's increasingly harder to predict what quarters are going to be up or less because the streamers can release at any time. But thanks for bringing up that particular seasonality.

[Matthew James Lee, Associate Analyst of Telecom and Media]

And I guess just a last question for me. How are we thinking about the free cash flow profile for F '21?

[Jennifer Twiner McCarron, CEO & Director]

For Q1?

[Matthew James Lee, Associate Analyst of Telecom and Media]

No, no. For 2021.

[Jennifer Twiner McCarron, CEO & Director]

2021. Well, I mean, we -- I think we'll be seeing positive free cash flow all along. There will be dips depending on when we're making our more significant investment in content versus when we're seeing that recognition of the revenue. That's why this quarter was down compared to last quarter because we had about $3.6 million from our cash flow statement that we put into investment in content. And that investment in content won't be recognized until later in this fiscal season.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Right. Sorry, did you say that every quarter was going to be positive free cash flow?

[Jennifer Twiner McCarron, CEO & Director]

It might. It's looking a little bit like that.

[Operator]

[Operator Instructions] Our next question comes from Siddhant Dilawari with Cormark Securities.

[Siddhant Dilawari, Associate of Institutional Equity Research]

This is Sid sitting in for David McFadgen. Just first off, just following on Matt's question regarding M&A. I know you, Jennifer mentioned that one of the primary focus is to expand globally. But just diving a little bit deeper into it, would it be in a certain segment, given your expertise in the animation production segment? Would it be focus in that area? Or would you be looking at potential acquisition opportunities within the Scripted or Factual division as well?

[Jennifer Twiner McCarron, CEO & Director]

I think we're -- our main North Star as a company is quality. And content, and we're looking to work and create major global brands. So that isn't isolated to animation. That covers all types of content that people are consuming. How are people watching content in 2021 and beyond, and we want to be a part of that ever-changing narrative.

[Siddhant Dilawari, Associate of Institutional Equity Research]

Okay. Okay, great. And then just going back to free cash flow. Sorry, did Barb -- did you say that the free cash flow for the year is going to be up year-over-year? And it should kind of stabilize on an annual basis in terms of investment in content?

[Barb Harwood, Chief Financial Officer]

I didn't quite say that. What I did say is like the quarters that have lesser free cash flow are the quarters we're -- in which we're putting a lot of investment in content. Before everything is being recognized. So the pattern that I usually see is that when we have quarters where we recognize a lot of investment in content when we're recognizing that IP, those are our high free cash flow quarters.

[Siddhant Dilawari, Associate of Institutional Equity Research]

Okay. Okay. Great. And then just one last one for me. With the recent spike in number of cases worldwide, do you expect any delays in some of your deliveries within the Factual and Scripted divisions for fiscal '21?

[Jennifer Twiner McCarron, CEO & Director]

No, we don't. Our Factual teams, because we're able to work socially distant, it's more of a gorilla style of filmmaking. We're really like a really just small core journalistic team watching events unfold, and then the bulk of the work happens back in editorial, which, again, you can create a very safe environment. So no problems at all on Factual. And we have a really small footprint in Scripted. That was sort of serendipitous as you would see other content companies with larger footprints in Scripted struggling. The only thing we have shooting right now is Kim's Convenience Season 5, which we took the early part of COVID to get all the writing, the development done on the shelves. And then we started shooting on September 9. And have been able to finishing complete shooting with following all government protocols and great support from our partners at CBC, who have been just wonderful to work with and go hand-in-hand to make sure that we could execute on the production. So no slowdowns at all in those areas.

[Operator]

There are no further questions in queue at this time. This concludes our call today. If you have any questions, please call 1 [phone] or e-mail [e-mail]. Thank you.