Thunderbird Entertainment Group Inc

XTSX:TBRD

Earnings Call Transcript 2022-Q2

[Operator]

Thank you for joining us. We have -- we are here to provide a corporate update and report on Thunderbird Entertainment Group Second Quarter Fiscal 2022 results, which ended December 31, 2021. Speaking on today's call, we have 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 Q2 2022 financials. [Operator Instructions] 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 that 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 judicial regulatory, political and competitive developments. Those additional risks set out in the company's filing statements and other public documents filed under SEDAR at www.sedar.com and other matters discussed in the quarterly 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 statement, whether as a result of new information, future events or otherwise. For your convenience, the press release and MD&A and unaudited financial statements for the Q2, 2022 of Thunderbird Entertainment Group, which ended December 31, 2021, are filed on SEDAR and are available online under the Investors section of our 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]

Thank you so much. My name is Jennifer Twiner McCarron, and I am the CEO of Thunderbird Entertainment Group. On behalf of the company, I'd like to welcome you to today's call to discuss our Q2, 2022 results, which ended December 31, 2021. Thunderbird's CFO, Barb Harwood, is with me today and we appreciate you tuning in and following Thunderbird's trajectory. I will provide the corporate and divisional updates and Barb will share the financials. Once Barb and I are finished, we'd be happy to answer it all and any questions you may have. I want to start by taking a moment to share that as a company, we are deeply saddened about the recent events in the Ukraine, and our hearts are with those affected and for anyone listening in that may have loved ones there. I'll now start my update. Many followers of Thunderbird have their fingers on the pulses of the major streaming companies such as Netflix, Disney+ and HBO Max and stay informed on their content budget, subscriber numbers and international market expansion plans. With content budgets of $17 billion for Netflix, $33 billion for Disney+, $22 billion for Warner Bros, and Discovery to list a few, it's no secret that the industry is booming and demand for this type of high-quality content that Thunderbird specializes in remains strong and will do so for the foreseeable future. Thunderbird is recognized as a trusted provider across many of the major broadcasters and streamers, well known for producing and delivering great stories that are A-plus quality, authentic and diverse. As such, our business is healthy within the industry and very well positioned for future growth. While subscriber numbers for the individual platforms may shuffle or redistribute from 1 streamer to the next, it should be noted that more companies are continuing to come online, further adding competition to an already fiercely competitive market. And the companies coming online are not start-ups. They are major global corporations that need platforms for their own content and more. Additionally, they have deep pockets to invest in new content to attract and retain subscribers and move into international markets for growth and expansion. For example, HBO Max is set to launch in 15 additional European countries on March 8. This follows the successful launch of HBO Max in the Nordics and Spain in October 2021. Currently, HBO Max is in 46 territories across the Americas and Europe, and will be in 61 territories with the new European countries. They will need to air Europe and will be with 61 new European countries. And again, they need this content native to these regions, which is why M&A and international ownership is key for Thunderbird to further enable the company to fill that niche for trusted buyers like HBO, who we are currently working with. Also set to launch in Q1 of this year is CNN+, which will mark the arrival of yet another global streamer within the industry. And the streaming business of the newly re-branded Paramount, Paramount+, recently unveiled several new content initiatives, as the company further embarks on the global opportunity in streaming in addition to linear TV and film. As a leading provider of content for many global streamers such as Marvel’s Spidey and His Amazing Friends Disney and My Little Pony for Hasbro, eOne and Netflix, this bodes very well for our company. Moreover, it's such an exciting time with Thunderbird, we're having 26 shows in production, 12 of which are IP or partner managed, and 50 more coming up through our pipeline. Add to this, our location in L.A. has been a game changer for the company and having people on the ground there has been a tremendous lift, as we are close to our buyers and can expand our crew in L.A. with local show runners, directors, writers, designers, storyboard artists, editorial team, you name it. The addition of the global distribution and Consumer Products division and the potential yield exploit IP and open new revenue streams in the years to come is huge. Through this division, we can further leverage some of our most popular owned IPs, such as Highway Thru Hell on the factual side, with consumer products opportunities. There is such great value in mining the consumer products right, and we are deep into deals that set the foundation for establishing our existing IP into major global brands through toy deals and more. On top of this, we are now able to distribute third-party content, and we look forward to when we can share our first series as a distributor, expanding suite of services that Thunderbird already offered. So stay tuned for some good announcements. I often talk about how for content to be successful, it needs to appeal to the entire family and glue that key co-viewing audience, attracting and retaining the audience is part of all the streamers strategies. And again, Thunderbird's foothold in animation and factual content positions the company nicely as both genres have great appeal for family co-viewing, which exploded during the pandemic, and still presents an excellent opportunity for streamers to continue reaching a whole family, especially as theatrical releases are just no longer what they once were. On that note, despite a slight uptick in the number of expected theatrical releases in 2022, compared to 2021 and 2020, we can still expect to see far few theatrical releases post pandemic as Hollywood studios continue to battle pandemic's follow. This, of course, means many of these films will arrive direct to streaming, again, driving more eyeballs to stay at home viewing and creating more opportunity for us of content creators. Premium content is king and this will continue to escalate in the years to come.With that said, there's no question buyers also want to see authentic content that celebrates diversity. Truly, the increased push for diverse and authentic content was a silver lining of the pandemic. In '22 and beyond, audiences will demand representation and narrative for new areas of the world, places the industry hasn't explored. This is why international expansion is a critical component of many of the streamers' growth strategies and why we, at Thunderbird, are also looking to expand our studios into new jurisdictions around the world. Many conversations are underway.Again, creating diverse and authentic content is a real focus for Thunderbird and also a differentiator for the company, as this has been an area of concentration for us for many years. We strongly believe that diversity should be leaved into the DNA of the shows we create for the next generation, and it's why we are proud to be behind shows that are celebrated for this, such as Peabody Award-winning Molly of Denali and our upcoming HBO series for HBO Max, Young Love, which is based on the Oscar award-winning short Hair Love.Our push for diversity also extends into our casting practices for upcoming factual shows, which have been picked up by Corus, Styled, Gut Job and Deadman’s Curse, just some of the title. We're also proud to partner with Wapanatahk Media for bringing authentic, inspiring indigenous stories to the forefront, and we are incredibly thrilled for both Tania Koenig-Gauchier & Shirley McLean, the co-founders of Wapanatahk, who were also recently recognized in '22's top 25 women of influence list.We look forward to the premiere of Wapanatahk Media's first series Dr. Savannah: Wild Rose Vet, which is said to debut this spring. At Thunderbird, we take our role as content creators seriously and acknowledge that we have a responsibility for every person regardless of race and gender to see themselves any content reflected back to a positive light. As noted, this is also very good for business. We are very proud to be a go-to supplier of high-quality content and since the onset of the pandemic in March of 2020, when we were successfully able to transition to fully remote work, we haven't created any overages or had any delivery delays for our partners. This has only deepened our relationships with them and is a major driver of our growth. Beyond this, our reputation, which is the result of the incredibly talented team, also includes phenomenal artistry, creativity and I would say kindness.Thunderbird's success continues to be rooted in our people and we work hard to create safe working environment to our teams to flourish, and in many cases, reach new heights. If people feel safe trying these things and accept the mistakes may happen, the door is open to innovation and the risks are worth taking. The result is the top-quality content witnessed in all of our top-tier production. It's a true privilege to be able to do this alongside of the most talented artists in the world. At Thunderbird, we work for our people, and I believe this is the way to a healthy bottom line.Before passing things over to Barb, I want to emphasize that we don't see an end to the demand for content, rather continued evolution on what and how people consume it. Be it special snackable series, serialized series, via FAST channels and more digitization because people have it, especially kids change quickly. We've set the right foundation in place to evolve and adapt with content trends, and we are continuing to invest in our own IP and the infrastructure and people to support the company's phenomenal growth.Our outlook for the next 12 to 24 months is fantastic, and we look forward to updating you on our progress. We also look forward to being a more hybrid workplace in the future, when it's safe to do so, hopefully very soon, increasingly so as we miss the intangibles that come with having the ability to connect with our teams in person. We've added more than 440 people since the onset of the pandemic and are firing on all cylinders. We've had great organic growth, and this is ahead of any M&A opportunities or potential studio expansions that we are deeply exploring.With this, I will turn it over to Barb to go over the numbers, and then I can provide a high-level corporate update.

[Barb Harwood, Chief Financial Officer]

Thanks, Jen.

[Jennifer Twiner McCarron, CEO & Director]

Over to you, Barbie.

[Barb Harwood, Chief Financial Officer]

Thanks, Jen. The company recognized revenue of $33 million and $68 million in the 3 and 6 months ended December 31, 2021, increases of 18%, $5 million, and 43%, $20.2 million, respectively, over the comparative period. Production Services revenue for the 3 and 6 months ended December 31, 2021, increased by $11 million or 58% and $21.4 million, 63%, respectively, over the comparative period, due to an increase in the number and size of contracts. This revenue consists primarily of animation production services, which experienced continued growth. The growth in Production Services revenue reduces the volatility of results over quarters, as the Production Service revenue is recognized as the work is complete.Licensing and distribution revenue coming from our own IP, decreased by $6 million or 68%, and $1.1 million, 8%, respectively, for the 3 and 6 months ended December 31, 2021, over the comparative period, due mainly to the timing of recognition of IP projects. In the current quarter, revenue was recognized from 7 episodes of the factual series, Highway Thru Hell Season 10, and in the comparative quarter, revenue was recognized from 10 episodes of Last Kids on Earth and 6 episodes of the previous season 9 of Highway Thru Hell. Adjusted EBITDA decreased by $0.2 million or 4% to $5 million and increased $1.3 million, 13% over the 6 months to $1.3 million for the 3 and 6 months ended December 31, 2021, respectively, as compared to $5.2 million and $10 million for the comparative period. Gross margin on revenue in the current quarter was consistent year-over-year, partially offset by an increase in salaries to facilitate our continued growth. Free cash flow increased by $12 million to $16.4 million, and $14.3 million to $19.9 million for the 3 and 6 months ended December 31, 2021, as compared to $4.4 million and $5.6 million for the comparative periods at December 31, 2020, mainly due to interim production borrowing in excess of repayment as the company ramps up production volume. It's customary for our free cash flow to fluctuate over quarters relative to the timing of borrowing for our production. And that's it. Back to you, Jen.

[Jennifer Twiner McCarron, CEO & Director]

Thank you so much, Barb. I'll now provide the corporate and divisional updates. As of December 31, 2021, the company had 26 programs in various stages of production. And again, 12 of these productions are company IP or partner managed service productions where the company receives a percentage of certain revenue streams on the back end. At the end of Q2, our Kids and Family Division, Atomic Cartoons was in various stages of production on 17 animated series, of which 2 are feature linked animated projects; and three are IP or partner managed. These programs reflect a blend of both proprietary and service-based work and include the ones that we can mention. Molly of Denali Season 2 for GBH/PBS kids, CoComelon Lane for Moonbug to Netflix,Trolls: TrollsTopia for Dreamworks and Peacock, My Little Pony for Netflix, a feature length films for Disney, Marvel’s Spidey and His Amazing Friends Season 1, and Young Love with Sony Pictures Animation for HBO Max, among others. Add to this, the work that was produced by Atomic also included Dogs In Space debuting exclusively on Netflix in November and the LEGO Star Wars Terrifying Tales special streaming on Disney+ in October. Shifting our folks to the Factual division, Great Pacific Media, was in production on 7 series and 1 documentary; Highway Thru Hell, Season 1; Heavy Rescue: 401, Season 7; Mud Mountain Haulers, Season 2; Deadman’s Curse that is working title, Season 1; Gut Job, Season 1; Styled, Season 1, Teenager and the Lost Maya City; and Dr. Savannah: Wild Rose Vet, Season 1 in conjunction with Wapanatahk Media. The sixth season of Heavy Rescue: 401, which is the first of 2 spin-offs from Highway Thru Hell, also premiered in January. Great Pacific Media also announced new projects in development with Paul Sun-Hyung Lee, called Fandemonium that will examine the sub-cultures of makers, artists and collectors who are inspired by larger-than-life franchises such as Star Wars, Ghostbusters, Nintendo, anime and wrestling, among others. We worked with Paul in our hit comedy series, Kim's Convenience, and can speak firsthand to how immensely talented Paul is and how much enthusiasm he brings to his work. We're so excited to be working with him now on another series. Speaking of Kim's, we were also thrilled to share that FilmRise, a New York-based streaming service has acquired the FAST, which stands for free ad supporting streaming TV services rights to Kim’s Convenience and the hit series will air across FilmRise and existing FAST channels. On top of this, the deal will also allow for the creation of dedicated marathon FAST channels of the series across the U.S., Latin America, German-speaking Europe, French-speaking Europe, Italy and Spain, allowing Kim’s, which already has had a huge impact on a wide range of people, to reach a brand-new audience worldwide. This is Thunderbird's first production to be featured on a FAST channel, and we're thrilled that this beloved show will have the chance to delight new audiences internationally. And on our scripted side, we have exciting updates on a new scripted series Reginald the Vampire that we own. Two series regulars were announced Mandela Van Peebles from the Mayor of Kingstown and Em Haine from Fargo will join us series lead, Jacob Batalon as well as 4 incredible recurring cast members. GPM only owns Senior Vice President of Content Business Development, Lindsay Macadam, is one of the show's executive producers. And this series has been picked up straight-to-series for the 10-episode order by SyFy and is being co-produced with Modern Story Company and December Films.Lastly, before closing of our Q&A, I want to highlight some recent recognition the company, its divisions and the teams have received. Thunderbird's CFO, Barb Harwood, on the line with me here, was named as one of business in Vancouver's 2021 BC CFO award winners. Atomic’s Head of Production Joel Bradley, was recognized as one of business in Vancouver's Top Forty Under 40 in 2021. Board Director, Linda Michaelson, was recognized in Variety’s 2021 Dealmakers Impact Report. Our Board Director and Founder, Frank Giustra, was once again named to Vancouver's Power 50 list. Atomic was named to Kidscreen’s Hot 50 2021, ranking in the top 10 of the production category. I, on behalf of my team and because of all their hard work, was recognized by business in Vancouver as one of the publications with influential business women in 2022. The company received 12 Canadian Screen Awards nominations, including best comedy for Strays, best factual series for Highway Thru Hell and 10 nominations for Kim's Convenience.Thunderbird was also listed on the 22 OTCQX top 50 companies, a ranking of top performing companies traded on the OTCQX. Best market in the 2021 calendar year. This is the first time Thunderbird has been included on this list. I also want to share how excited we were to promote Matthew Berkowitz to the role of President of Thunderbird Entertainment. Matthew's vision for growth and ability to foster great partnerships has made him a valuable to our team, and I feel incredibly lucky to have worked alongside Matt for the last 5 years and look forward to continuing the journey alongside him. I also want to welcome former Vice Chair of Archie Comics Publications, Jerome Levy to the company's Board of Directors. Jerome has built very successful major global brands like Riverdale and we look forward to his absolutely amazing contributions to our Board going forward. This concludes the corporate update for today. We're so excited for the months ahead and the opportunities that lay before us. The possibilities are endless. Thanks to the incredible dedication and hard work from our talented teams, our commitment to timeness, putting people first and of course, keeping quality as our North Star. On behalf of our incredible teams at Thunderbird, thank you so much for joining us on this exciting ride.Now Barb and I are happy to take any questions you may have.

[Operator]

[Operator Instructions] Our first question comes from Barry Sine with Spartan Capital. Oh, he dropped his question. Okay. Our next question is with Aravinda Galappatthige. I'm sorry if I messed up your name.

[Aravinda Suranimala Galappatthige, Managing Director]

You did quite well. So congrats guys for another great quarter. I had a few questions. I wanted to start with Reginald the Vampire. Is that -- I wasn't fully clear on how we go forward from here. Is the -- are we still slated to deliver these 10 episodes or the majority of it back half of this year? Or would it still over due to '23?

[Jennifer Twiner McCarron, CEO & Director]

Barb, do you want to jump in on the latest deliveries for Reginald?

[Barb Harwood, Chief Financial Officer]

Yes. Yes, absolutely. We just received word that SyFy our main broadcaster will air the series after our year-end in June. So our recognition of that series is probably going to be some in '22 and some in '23.

[Aravinda Suranimala Galappatthige, Managing Director]

Okay. Okay. Excellent. Does that sort of dramatically change your sort of top line expectations from maybe what you discussed early in the year?

[Barb Harwood, Chief Financial Officer]

Not significantly, no.

[Aravinda Suranimala Galappatthige, Managing Director]

Okay. That's helpful.

[Jennifer Twiner McCarron, CEO & Director]

Yes. It is what happens sort of with -- because IP is recognized upon delivery and when the air content that's some of the shifts that can happen. But no, we're not expecting a huge swing as a result.

[Aravinda Suranimala Galappatthige, Managing Director]

Okay. Excellent. And then I wanted to go back, I think, Jennifer, we've talked about sort of this -- I think sort of your longer-term intention to kind of -- to shift the mix of revenues back towards distribution -- towards license distribution. When we look at sort of the first half results, it's sort of 80% service. Can you kind of give us a sense of sort of when you expect to see that shape in the other direction again, looking at sort of your pipeline, would that be sort of more immediate? Or is that sort of more of a long-term sort of development?

[Jennifer Twiner McCarron, CEO & Director]

Yes, it will be increasingly starting in fiscal year '23, '24, '25. We're having great success in that division. But again, as we just spoke about with Reginald, it's recognized upon delivery. And a lot of these shows take a while once you sell them to actually make them and deliver them. And then we, of course, can't announce things too early, because then we put both ourselves and our partners, whoever our buyers are at a disadvantage. Because if you announce things too early, especially in today's, everyone forgets about them. So we have to kind of get the momentum going closer to air date and delivery, which is, of course, when we're paid. So everything is well underway. We're feeling good about the trajectory. We just -- the wheels are in motion in '23 and beyond.

[Aravinda Suranimala Galappatthige, Managing Director]

Okay. And then last question. I mean, in that direction. Reginald is sort of a move towards the scripted side. I mean, obviously, you had Kim's Convenience, but this is -- this can be perhaps a larger budget endeavor. What is the outlook for shows like this going forward or maybe even bigger budget sort of the mall maybe even more drama oriented kind of production. Is that the direction you want to go? And should we expect to see more of that in the upcoming years?

[Jennifer Twiner McCarron, CEO & Director]

Yes, we should. We're exploring it heavily right now. We're, of course, thrilled that our 2 main drivers, Atomic and Great Pacific continue to do so well. We have looked at scripted more opportunistically. The Reginald was great because it was U.S. facing. Traditionally, we've done a lot of Canadian scripted, which we're so proud of, and it's done very well for us. But this was with major U.S. buyers and that sort of changes the trajectory. So like everything we've done in our company, we're taking calculated strategic risks that will grow the company towards being a major global studio without really compromising the bottom line. We can look to peers that have pushed too hard in the scripted and it hasn't worked out. I think when I look around the leadership team, we have enough -- and the Board, we have enough amazing smarts around the table to, I think, make a really nice play in this area for growth.

[Operator]

Our next question is with David McFadgen with Cormark Securities.

[David John McFadgen, Director of Institutional Equity Research]

Just a couple of questions. So in the -- in your prepared remarks, you talked about demand. You're not seeing really any change in demand for your business. So I was just wondering if the outlook is still basically the same this year. It's a bit of a lower growth to consolidate and then back on track for higher growth in 2023. Is that still the case?

[Jennifer Twiner McCarron, CEO & Director]

Very much so. Yes, 100%. And we've got great visibility in terms of what's booked.

[David John McFadgen, Director of Institutional Equity Research]

Okay. Okay. So just looking at Great Pacific Media. That division is obviously very successful and Highway Thru Hell and Heavy Rescue: 401 in many year renewals. And I was just wondering, can you comment at all about how the ratings are trending? Just wondering if you're seeing any rating on weakness that could cause us a little bit of concern if those shows don't continue to be renewed?

[Jennifer Twiner McCarron, CEO & Director]

No, not at all. The shows continue to perform extremely well with great renewals. The demand for that type of show hasn't lessened in the pandemic, it's only increased. And again, with so much family and co-viewing going on, what all the data analytics show they like to watch animated shows and factual shows. And there is that kind of, I think, what I'll use Highway Thru Hell as an example is done, is really found characters and real people that you can relate to having difficult times. And now more than ever, there's a bit of an escape in that for people. So yes, the ratings remain really strong. Renewals remain good, and we're so proud of the hard looking team on all of those ventures.

[Operator]

Our next question is with [indiscernible]. Sorry, once again, if I messed up your name.

[Unknown Analyst]

No worries. That was great. Jennifer and Barb, congratulations on the quarter. As the cartoon division experienced obviously high growth as a result of the pandemic, going forward as we hopefully transition out of it, how do you foresee or maybe what is your goal of revenue split between the cartoon and factual division?

[Jennifer Twiner McCarron, CEO & Director]

Yes. They -- both divisions are coming extremely well and have proven to be very robust in terms of surviving a global pandemic and being able to deliver on time, on budget at a really high level of quality. So again, because of the demand for co-viewing through the roof, that's the stickiest for all of our buyers. They have to glue families or less likely to subscribe and unsubscribe it. The people in their households are watching shows together, which is, again, traditionally animated or factual. Both divisions continue to boom and accelerate. And with animation, it's taken on -- one point I will make is pre-pandemic adult animation was more of a niche, and now more than ever, there's a focus on it, I think, consuming content as adult is now more normalized and widely accepted. And so it's starting to boom in that area and things that may have been considered for live action pre-pandemic when that was really unable to shoot earnestly with all of the COVID protocols and getting 200 people on a set was so challenging. Some of those projects moved into the world of animation. And that's an exciting new way of storytelling that's now accepted. So yes, I think both divisions continue to accelerate and then we look at strategic growth from other areas like opportunistic scripted, to M&A that we're looking at to increase our international expansion and our Consumer Products and Distribution division, which is coming online and earnest.

[Operator]

[Operator Instructions] There are no further questions waiting at this time. So I'd like to pass the conference back over to the management team for closing remarks.

[Jennifer Twiner McCarron, CEO & Director]

Simply thank you so much for joining us today. We really appreciate you being on this journey with us. And again, Barb and I are happy for any direct reach outs. If anyone wants to have a one-on-one with us, please do reach out, and we look forward to connecting then. Bye-bye.

[Operator]

Thank you all for your participation. You may now disconnect your lines.