Thunderbird Entertainment Group Inc

XTSX:TBRD

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Hello, and thank you for joining Thunderbird Entertainment Group's Q1 2024 Earnings Call. Frank Alfano from Bristol Capital will read the forward-looking statement disclaimer.

[Frank Alfano]

Thank you, everyone, for joining us today. We're here to provide a corporate update and report on Thunderbird Entertainment Group's Q1 2024 results for the 3 months ended September 30, 2023.On today's call are Ms. Jennifer Twiner McCarron, CEO and Chair of the Thunderbird Board 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 financial Q1 2024. [Operator Instructions] Alternatively, if you have any questions, you could call 1(604) 683-3555 or e-mail [e-mail], and the company will follow-up directly after the call. [Operator Instructions]I'd like to remind everyone that certain statements made on today's call constitute forward-looking statements or information under applicable securities laws. Forward-looking statements and information discussed on this conference call include, but are not limited to, becoming the next major global studio, volume of post-strike content and new shows arriving on streaming services, content heading to different platforms, providing further details regarding the proposed normal course issuer bid, growth in adjusted EBITDA, strategic initiatives materializing in the future and being well positioned to remain an industry leader.In addition, statements made today related to financial outlook or future-oriented financial information have been approved by management of Thunderbird. Such financial outlook or future-oriented financial information is provided for the purpose of providing information about management's current expectations and plans relating to the future and may not be appropriate for other purposes.Forward-looking statements are based on estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties and other factors, which are set out in the company's most recent MD&A and other public documents filed under the company's profile on SEDAR. 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 timeframes or at all.Except where required by law, the company disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 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.And Ms. Twiner McCarron will now provide the corporate update.

[Jennifer McCarron, executive]

Thank you, Frank. My name is Jennifer McCarron, and I am the CEO and Chair of Thunderbird Entertainment Group. On behalf of our company, I'd like to thank you for joining today's call to discuss the first quarter of 2024. Thunderbird's CFO, Barb Harwood, is with me and we appreciate you taking the time to hear the company's earnings update. Once Barb and I are finished, we will answer your questions and provide clarity where needed.We are happy to have had several touchpoints with our shareholders this fall, including our year-end 2023 call in October and investor webinar we hosted through Bristol Capital in November and now our Q1 '24 call. These opportunities are important, as they allow us to come together and engage in meaningful discussion, about how we are strategically growing Thunderbird, while also pursuing ways to maximize shareholder value.During each opportunity, we highlighted our company's current position and our perspective on Thunderbird's bright future. As we move further into '24, we remain dedicated to our ambitious goals for the year. We have clear insight into our deliveries and are poised for solid double-digit EBITDA growth in '24.At the same time, we must recognize that it may take time for our business to adequately reflect the positive progress we are making following the headwinds of fiscal '23. As expected, our Q1 was our smallest quarter, and we will continue to ramp up with each fiscal quarter ahead, finishing on a strong result by the end of fiscal year '24. The majority of our shows deliver in the second half of the year, and this, combined with our operational streamlining that we have done is leading to great future results.Our company maintains a strong financial standing, free of debt with a substantial cash reserve. This positions us exceptionally well to continue providing high-caliber content, to our buyers and Q1 was full of exciting announcements that demonstrated this. For example, in Q1, renowned toymaker Jazwares signed on to be the global master toy licensee for Mermicorno: Starfall. This is the original animated series produced by Atomic Cartoons in partnership with tokidoki, with the licensing program being co-managed by Thunderbird Brands and tokidoki.In Q1, we also announced a new original Atomic produced TV special called Rocket Saves the Day. This IP special will debut on PBS Kids in December and Thunderbird will manage and control its global media rights. In Q1, we also started production of our first owned IP adult animation series. We recently sold this series with Thunderbird handling global distribution with more details to be announced soon. Additionally, Thunderbird distribution announcements include the adorable animal-centric preschool series Mittens & Pants, launching in the U.S. on several streaming platforms and Thunderbird acquiring global media and consumer products rights, excluding the U.K.Two new series called BooSnoo!, a Sky Kids original commission. Atomic produced shows CoComelon and My Little Pony are currently streaming #1 and 2 on Netflix. We are proven to deliver premium quality and deliver on the promise of major global brands. And in Q1, NBCUniversal International Networks announced that it acquired season 2 of Reginald the Vampire, introducing this series to new European markets. M6's 6play streaming platform also bought the series, plus Reginald the Vampire also made its Canadian broadcast premiere on CTV Sci-Fi. These announcements are a sampling of some of the exciting things happening at Thunderbird, and there are many more on the horizon. I genuinely can't wait to share them all with you when we are allowed to speak about them at the right time.Similarly, I will provide updates on the work being done with our Strategic Advisory Committee and ACF Investment Bank, which is part of the cooperation agreement we entered into Voss following the proxy contest we had in fiscal '23. On November 10, we amended and restated the cooperation agreement with Voss, replacing the existing agreement in its entirety. Under our new agreement, Taylor Henderson a representative and employee of Voss is now nominated for election to our Board of Directors at the upcoming AGM, which is scheduled for December 14. The new agreement also includes the appointment of one additional independent Director to be mutually agreed upon by the company and Voss following the AGM.Current directors, Linda Michaelson and Mark Trachuk will not stand for reelection, and we sincerely thank them both for their valuable contributions. In terms of the work being done by the company's Strategic Advisory Committee during the year-end call, I shared that our current analysis showed that today's macro environment has resulted in a gap between Thunderbird's internal assessment of our company valuation versus the valuation that prospective buyers might be willing to offer.Because of this, we've determined that it was in the best interest of the company and the shareholders to wait until more of Thunderbird's strategic initiatives start materializing to demonstrate the true worth. And our viewpoint on this matter is unchanged. When we officially go-to-market, which is on track for the first half of '24, we want the company to operate from a position of strength to ensure maximum value.We truly know that Thunderbird is a strong company with incredibly valuable assets and ACF is recommending that further into '24 when our deliveries are up, combined with our strong forecast for '25 and '26, this is the right timing. As further testament to this belief, the Board has approved the implementation of a normal course issuer bid, pursuant to which the company may repurchase its own common shares for cancellation through the facilities of the TSXV in an amount that does not exceed 10% of its public float as may be permitted by the TSXV and applicable securities laws.We will be providing further details on concrete next steps regarding this proposed issuer bid in a press news release that will be distributed on December 1. Thunderbird's journey is exciting and full of great potential. Our team knows how to produce and deliver amazing stories. While the transformation within the industry have tested our agility, we put our heads down and doubled down on the health of the business, creating great content, because there's still a major need for content, now more than ever.And Disney has made its intentions clear that it will be strategically focusing on premium quality content moving forward. And Apple has made it clear that we are one of their #1 partners, handling the majority of their major global brands. So has Netflix's Scott Stuber, who recently shared in Variety interview that the streaming giant will now be doubling down on quality.Apple TV has also built a reputation for its quality over quantity approach to content. Thunderbird, as a studio, is perfectly positioned to deliver on all of this. And in the same way that Apple TV+ has strategically use premium content as a core differentiator, we have too. Our team's incredible talent and reputation for delivering premium content sets Thunderbird apart. We hear this from all of our partners.We've also embraced a proactive approach and an active strategic cost savings initiatives such as reduced travel, entertainment in cases the elimination of specific roles, to enhance our operational efficiency and better support sustainable growth. We have an unwavering belief in our company and remain committed to making critical business decisions that allow us to guide the future of Thunderbird.With this, I will pass things over to Barb to go over the numbers. I'll then share specific updates from the teams before we move to the Q&A. Over to Barb.

[Barb Harwood, executive]

Good morning and good afternoon, everyone, wherever you are. I'm going to go over the Q1 2024 results. Revenue decreased from $43.7 million to $33.6 million for the 3 months ended September 30, 2023, a variance of $10.1 million or 23%, mainly due to the differences in the timing of IP delivery as compared to the period ended September 30, 2022.Licensing and distribution revenue, which is IP, decreased due to the timing of IP recognition from $13.9 million to $3.1 million over the comparative quarter. In Q1 of 2024, the company delivered 20 half-hours of unscripted versus 26 half-hours of unscripted in Q1 of 2023.In the current quarter, revenue was recognized from the delivery of 10 episodes of Highway Thru Hell, Season 12 versus 13 episodes of 3 unscripted series, Gut Job, Deadman's Curse Season 1, and Highway Thru Hell, Season 11, which were delivered in Q1 of 2023. Later in fiscal 2024, we expect to be recognizing the remaining episodes of Highway Thru Hell Season 12, Deadman's Curse Season 2, Styled Season 2 and Timber Titans, Season 1. In terms of scripted series, Reginald the Vampire Season 1 and Strays Season 2 were recognized in the comparative quarter versus no scripted series being recognized in Q1 of 2024.As you may be aware, Reginald Season 2 has completed production and is set to be recognized later in fiscal 2024. Production services revenue increased from $29.8 million to $30.5 million over the comparative quarter, due to a slight increase in the number and scope of projects. Projects with significant revenues during the quarter include Princess Power, Marvel's Spidey and His Amazing Friends, LEGO Jurassic Park, Zombies and CoComelon.Adjusted EBITDA decreased from $4.1 million to $2.5 million for the 3 months ended September 30, 2023, as compared to the comparative quarter, a variance of $1.6 million. As I've just mentioned, this decrease is mainly attributable to the differences in timing of IP deliveries, versus the comparative period.In fiscal 2023, the greenlighting of several animated IP projects set the stage for anticipated contributions to net income through fiscal 2025. Management is ambitious in their goals for fiscal 2024, targeting over 20% growth in adjusted EBITDA. Additionally, the company's modest expectations are for 5% revenue growth in fiscal '24 over fiscal '23. These expectations are anchored in the completion of 43 additional hours of content delivery in the remaining months of fiscal '24.Looking ahead, the company aims for sustained growth with a compounded 20% increase in adjusted EBITDA forecasted through 2026. While navigating current industry challenges, Thunderbird remains proactive. As Jen has just mentioned, subsequent to the quarter, the company has streamlined operational processes, including reductions in travel entertainment as well as the elimination of certain roles. These measures were strategically implemented to address market uncertainties and create capacity for investment in growth opportunities. Thunderbird remains committed to maintaining a robust balance sheet and to exercise a prudent management decisions to stay nimble in evolving conditions while steadfastly pursuing sustained growth.And back to you, Jen.

[Jennifer McCarron, executive]

Thanks so much, Barb. During the quarter, the company has 30 programs in various stages of production and was working with 23 clients. Of the 30 programs in production, 10 were Thunderbird IP and 20 were service productions.In Q1, 2024, the company was in various stages of production on 22 animated series, one of which is our first-owned IP adult-targeted animation series. Examples of these programs include Princess Power Season 2 for Netflix; CoComelon Lane for Moonbug and Netflix; Marvel's Spidey and His Amazing Friends, Season 2, 3 and 4 for Disney Junior; My Little Pony: Make Your Mark for eOne/Hasbro; The Mindful Adventures of Unicorn Island for Headspace/YouTube; Zombies: The Re-Animated Series for Disney TVA; and LEGO Jurassic Park: The Unofficial Retelling for Peacock, among others.On the scripted side of the business, the company was in production of 7 programs in Q1, '24, including Deadman's Curse Season 2 and 3 for History Channel; Styled Season 2 for Hulu, Wild Rose Vets Season 3, formerly known as Dr. Savannah: Wild Rose Vet for APTN, Timber Titans Season 1 for Discovery, and Highway Thru Hell Season 12 for Discovery.[ TX ] GPM was also in production on Reginald the Vampire Season 2 and NBCU International Networks announced that it has acquired the season and will be introducing the series to new European markets. Speaking of scripted series, the company currently has 20 scripted projects in network development, two of which are active in network development, which means we are actively collaborating with a specific broadcaster or a streamer to shape scripts on the visual development of a project. Having a footprint in animation, unscripted and scripted allows us to be nimble and participate in all areas of production and content needs depending on market preference. And post-strike as content orders continue to see the light of day, we are ready to go.This concludes our corporate update. And as we move forward in our next phase of growth, we remain optimistic, but are also pragmatic. The impact of the writers and actors' strikes will continue for some time and will create more industry transformation, which ultimately will be positive. Navigating this will require nimbleness, resilience and talent. The incredible teams at Thunderbird possess all of these qualities in spades. We built this company with a solid foundation and a reputation for delivering premium content, and we are well positioned to remain a leader in an ever-evolving industry.We will now open things up for questions. Thank you all so much for joining.

[Operator]

[Operator Instructions] Our first question comes from Aravinda Galappatthige with Canaccord Genuity.

[Aravinda Galappatthige, analyst]

I just wanted to start with the changes to guidance. I know that, obviously, the revenue number is 5% now. Perhaps you're trying to be a little bit more conservative given the macro and then perhaps even more importantly, the adjusted EBITDA number seems like it changed by a few million dollars, maybe close to 4. I know that you were targeting to get as close as possible to the pre-fiscal '23 number. And now it looks like you're targeting sort of just above 15. Maybe just talk to that variance. Is it timing? Were there projects that maybe got pushed out? What kind of drove that change following the previous call?

[Jennifer McCarron, executive]

I think really, it's just the -- we're getting new at giving guidance, and we've been given advice to just be ultra-conservative. We're doing low, medium and high projections. So we're just catering to the low projections. That really is the bulk of it, Aravinda. We still are 95% booked for the year. It's sort of also EBITDA.We've been sort of signaled is the main indicator of success in our business and increasing revenues without increasing EBITDA hasn't boded well for us. So essentially, it's just as we get better at giving guidance, trying -- to lock the black box nature of our business, there's some stumbling blocks, but we're certainly erring on ultra-conservative. Barb, do you want to add to that?

[Barb Harwood, executive]

Yes. I think we're just trying to be a little bit more modest in our approach. We're certainly shooting for our high set of projections, and we're comfortable with our mid, but we just want to be careful with what we're putting out there.

[Aravinda Galappatthige, analyst]

Okay. Okay. And then with respect to the mix, I know that there was obviously a timing factor on the distribution revenues, the IP side of things. I know that, Barb you alluded to Reginald - coming in later in the year, should we -- I mean, the ratios sort of been in that middle 20s in terms of service and IP? Should we expect that to kind of be the case this year, the way you see it? Or would that shift a little bit given Q1, I just wanted some indication around that, please?

[Barb Harwood, executive]

Yes, in '24, the mix is going to be probably similar to '23. We've got a lot of new IP content shows in production right now that will be delivering subsequent to '24, and that's when the mix will start to change quite a bit from the production services versus content.

[Aravinda Galappatthige, analyst]

Okay. Okay. And then lastly, on the lease cost, I guess, more of a free cash flow question, but I did note that the lease costs came down. I don't know if it was part of your cost reduction program, or whether there was something anomalous there -- perhaps for Barb, I was wondering if there's any clarity on that front?

[Barb Harwood, executive]

Sure. That was on the amort of ROU assets, are you thinking of?

[Aravinda Galappatthige, analyst]

No, it's the 1.775 leasing expenses. Yes, it's -- of the cash flow statement?

[Barb Harwood, executive]

Yes. There was a couple of things happening there. Yes, we just -- we didn't have -- to buy as many capital assets like right-of-use assets this year as we did last year. There was a huge amount of investment in those kind of assets last year, and we just didn't have to have as much this year. And some of them last year were very specific to a couple of the shows that are -- sort of the one-time only thing. So that's why it's come down.

[Jennifer McCarron, executive]

Yes. And I think also Aravinda -- we are going to be, like we are actively subleasing a couple of our buildings, we will always have a home office. We need places to gather and be creative, but we're seeing some success, which could increase savings in those areas, because back in 2019, we weren't greenlit security-wise to do shows unless everyone was under one roof. Now with hybrid, we just don't need as much physical space. So that will be some gains that we should see.

[Barb Harwood, executive]

Yes. The decrease also is mainly due to the equipment nature of the animation division, because that's the main bulk of our lease obligations is all the equipment.

[Jennifer McCarron, executive]

Yes. And we did our large investment last year. We're kind of over that.

[Operator]

Our next question comes from David McFadgen with Cormark Securities.

[David McFadgen, analyst]

So maybe I'll start with the question on the guidance. So given you've said that 90%, I guess, of your business kind of locked in for fiscal '24 year, I think that was the same situation when you had the last conference call. So I'm just wondering, compared to the last conference call and compared to today, have things changed at all in your mind for fiscal '24?

[Jennifer McCarron, executive]

Not dramatically. I think it's just as we get better at giving guidance, we're doing low, mid to high. We're working closely with our bank sort of following advice from ACF. And the Board, in terms of just being ultra-conservative, because what happens if they're -- like because the majority of our work does deliver in Q3 and 4, what happens if there's an unplanned for push. We're trying to mitigate any surprises. But we're still on track for a really substantial year.

[David McFadgen, analyst]

Okay. All right. And then I was wondering if you could give us an idea on what you think the investment in content spend will be this year as reflected in the cash flow statement?

[Barb Harwood, executive]

I think it will be pretty similar to last year. We've got a lot of -- our content shows, a lot of them got renewed in the past year. There will be some additions on the animation side. So it will probably increase by about 20% from over last year. And then -- and again, it depends on timing, because one series like Reginald are recognized, a lot of that will come off and flip to the income statement.

[David McFadgen, analyst]

Okay. So just to make sure we all understand things correctly, the baseline for last year, when we're talking about investment content, it's $21.4 million, right? So you're thinking it's probably up about 20% from that?

[Barb Harwood, executive]

I'd say between 15% to 20%.

[Operator]

[Operator Instructions] At this time, we have no further questions. So I'll turn the call back to Jennifer and Barb for any closing remarks.

[Jennifer McCarron, executive]

I'll just say thank you for joining us. Again, the best is in front of us for this fiscal. And please reach out for any further clarification or one-on-ones and look forward to speaking with people.

[Operator]

Thank you. This concludes our call today. If you have any questions, please call ([phone] or e-mail [e-mail]. Thank you, everyone, for your participation. You may now disconnect your lines.