Thunderbird Entertainment Group Inc

XTSX:TBRD

Earnings Call Transcript 2020-Q3

[Operator]

Thank you for joining us. We are here to provide a corporate update and report on the third quarter results of Thunderbird Entertainment Group's 2020 fiscal year, which ended March 31, 2020. Speaking on today's call are Mr. Brian Paes-Braga, Chairman of Thunderbird's Board of Directors; Ms. Jennifer Twiner McCarron, Thunderbird's CEO; and Ms. Barb Harwood, Thunderbird's CFO. Mr. Paes-Braga and Ms. Twiner McCarron will provide a strategic overview of Thunderbird Entertainment Group, and Ms. Harwood will review the company's third quarter financials. [Operator Instructions] Alternatively, if you have any questions call 1 [phone] 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 will be frontward-looking statements or forward-looking information under applicable securities laws. Forward-looking statements and information discussed on this 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's 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 or other judicial regulatory, political and competitive developments.Those additional risks 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 Q3 news release. Although the company believes that the assumptions and factors used in preparing the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as 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 which -- I'm sorry, whether as a result of new information, future events or otherwise.For your convenience, the press release, the MD&A and unedited interim financial statements for the 3 months and 9 ended March 31, 2020, of Thunderbird Entertainment Group are filed on SEDAR and are available online under the Investors section of our website. We do not expect to update forward-looking statements conditionally as conditioned challenges.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.Mr. Paes-Braga and Ms. Twiner McCarron will now provide the corporate update.

[Jennifer Twiner McCarron, CEO & Director]

Hello. Thank you so much for joining us today. This is Jennifer Twiner McCarron, and I'm the CEO of Thunderbird Entertainment Group. I am thrilled to participate in today's call with Brian and Barb to highlight Thunderbird's progress, which is driven by continued unprecedented demand for premium content, universally across leading broadcasters and streaming companies. Before we take you through the details of the company's third quarter, I want to address what is happening in the world with COVID 19. The coronavirus has challenged all of our communities in new ways and created new levels of uncertainty. It goes without saying that most of us have never experienced anything like this before. Today, I will share the Thunderbird story. It differs from many organizations. Thunderbird has remained fully operational throughout the pandemic. Thanks to the hard work of the people across our entire team. We are fortunate for the role we have and consider it a great privilege to be storytellers and content creators during a time when people need entertainment more than ever. In February, upon recognizing how the pandemic was continuing to unfold around the world, our IT teams took preemptive action and began planning how to ship the company's working structure. This foresight included investments in new technology, which enabled the company to swiftly relocate our entire team of more than 1,000 people to work from home by March 30, 2020. During this transition, the team's resiliency was an inspiration, and we all came together in new agile ways to continue our work with overall global health and safety as our collective priority. During the transition, we also stayed close to all of our partners, working together to minimize any possible disruptions and navigate the workflow in our new virtual environments. Every production development is continuing, and our company is carrying on with pitching, developing, producing, selling and delivering content to media outlets, including Netflix, Disney+ NBCUniversal, Nickelodeon, PBS, WGBH, Bell Media Discovery, APTN, Corus Entertainment, The Weather Channel and the CBC. We have also continued to hire during the pandemic to keep up with the heightened demand. Our ability to keep working is a testament to our team, business model and the role of high-quality content during COVID-19. As people are sheltering in place and confined to their homes, content becomes of increased value and the importance of a good story became so much more meaningful. Everyone needs this escape. In March alone, according to a Nielsen report, the total estimated number of minutes streams was 400 billion, up 85% to the same period last year. And in Netflix's Q1 2020 results, it was highlighted how the company had topped their global net new subscriber goal by 80% with nearly 16 million subscribers in the first quarter of the year. Before the pandemic, the demand for content was exploding with many new streamers like Disney+, Apple TV+, Peacock and HBO Max entering the scene, not to mention traditional broadcasters, seeking new ways to stand out. This demand has only been heightened during COVID-19 with animation and factual being particularly popular because both genres are perfect for co-viewing. And when you factor in that many productions have had to halt their work, there are also now more buyers looking to fill slots and schedules with premium content.Before moving on to our Q3 updates, I want to share that Thunderbird remains deeply concerned about COVID-19 and the health and safety of all. We are actively following announcements being made by the World Health organization and public health agencies in Canada and the United States to ensure compliance with the most current recommendations. We have also engaged in continuous scenario planning to safeguard our business into the future and keep our team members healthy and base. Nothing is more important to us.We are committed to doing our part, which is to produce authentic stories that provide people with the necessary escape and bright spots in their days and also to protect jobs and keep our teams looking safely. We've recognized how fortunate we are to be working in an industry where demand still outweighs supply and technology, and the technology allows us to continue our work remotely, and we remain dedicated to creating high-quality healthy entertainment for all ages.On to our Q3 update. Q3 is typically is on quarter for Thunderbird. Because in this quarter, we recognized the majority of the revenues from our intellectual property. Thunderbird's unique business model dynamically blends both service and IT production. Revenues for service production are ongoing, Whereas revenues for IP production are only recognized when a production is complete and delivered. Service productions continue to offer the company's stability as they internally generate cash flow. This, in turn, supports our focus on acquiring and delivering top-quality IP to expand Thunderbird's already-rich content library while also unlocking new revenue streams through licensing and other partnerships. While Barb will detail our financials, I am thrilled to share that Q3 was a record-breaking quarter for Thunderbird with a revenue of $29.3 million and adjusted EBITDA of $6.9 million. This represents year-over-year increases of 40% and 45%, respectively, and is further contemplated with a record cash flow from the quarter of $4.5 million, which will open up new opportunities for Thunderbird as we continue to grow and thrive as a company.During Q3, we delivered strong results and had 20 programs across all our divisions and production. We delivered 43 half-hour episodes and 21 full-hour episodes. All of the 1-hour episodes and 24 of the half-hour episodes were company-owned IP. This aligns very well with the company's strategic priority of building franchises through developing owned IP.In Q3, the company also expanded its Kids & Family Division with the opening of our new Los Angeles animation studio. This is our third animation studio overall and our first animation studio in the United States.The L.A. studio's first project is already in production with 80 employees working remotely. The new studio expands our footprint provides increased access to some of our valuable partners located in L.A. and open doors to work more closely with some of the amazing local animation talent base there. During the quarter and subsequently after, the company also received several recognitions worth noting. The Last Kids on Earth received a nomination for a Daytime Emmy in the outstanding special class animated program category. This is the Oscars of Emmy's of daytime animation. Molly of Denali was selected as a finalist for the PRIX JEUNESSE INTERNATIONAL 2020. Molly of Denali was also recently nominated for an esteemed Peabody Award, and 1 -- is 1 of just 2 nominees in the children and youth category. This Peabody Award celebrate stories that are important, authentic and have meaning. Thunderbird was also named to Fast Company's prestigious annual list of the world's most innovative companies for 2020. The company received 11 nominations in total for the 2020 Canadian Screen Awards. Thunderbird also received a total of 20 nominations in the 2020 Leo Awards, with all divisions being recognized.Every single member of our team on every single production we are working on has played a hugely vital role in the continued growth and success of Thunderbird, having the opportunity to be acknowledged by our peers in the industry and be embraced by audiences around the world is incredibly gratifying. And the immense sense of pride we feel never gets old. I sincerely want to congratulate all of the teams on these productions and to the esteemed nominees. Thank you.Now on to the divisional updates. I will start with our incredible factual division, Great Pacific Media. GPM is a market leader in the industry, and all of its productions are IP owned. Selectively, our factual series have distribution in more than 200 territories in over 15 languages. This includes a number of nonexclusive licenses, and several series are available on different platforms concurrently.In 2019, 100% of our factual series were renewed. And to date, GPM is 100% contracted for 2020 and already 80% for 2021. Led by Mark Miller, our factual division is a critical driver in the continued growth in Thunderbird in the quality of their content and an incredible revenue generation. During the quarter, our factual division was in production on 6 series and 1 documentary: Highway Thru Hell season 9, Heavy Rescue: 401 season 5, $ave My RenoSeason 3, Queen of the Oil Patch season 2, High Arctic Haulers season 1, Untitled Factual Series season 1, and the Teenager and the Lost Mayan City.Highway Thru Hell season 9 completed principal photography on the series largest season to date. The new episodes will premiere in the fall of 2020 on Discovery Canada. Highway Thru Hell is Discovery Canada's top-rated factual series. Since its premier in 2012, we have delivered 8 seasons, consisting of 126 hour-long episodes. And the already-commissioned ninth season will add to that impressive catalog. Heavy Rescue: 401 season 5 completed principal photography in the quarter. Season 5 will feature 18 hour-long episodes and is scheduled to premiere in January 2021 on Discovery. Heavy Rescue: 401 is another one of Discovery top-rated factual series. It is embraced by audiences globally, thanks to a mix of streaming and cable TV distribution partnerships.Season 2 of the critically acclaimed documentary series Queen of the Oil Patch wrapped post-production in Q3 with 8 episodes being produced. The series is produced in collaboration with a Kah-Kitowak Films. It is scheduled to premiere on APTN on June 7, 2020. The company also premiered our newest high action factual series, High Arctic Haulers in January in partnership with the CBC. $ave My Reno season 3 premiered on HGTV Canada in February, generating very impressive ratings. The title was renewed for a fourth season, consisting of 14 episodes by our partners at Corus Entertainment. The Teenager and the Lost Mayan City continued principle photography in Quebec and Mexico for CBC The Nature of Things.Lastly, the company began principal photography on an exciting new series for Canadian and international broadcasters, which will consist of 8 hour-long episodes. All of our factual productions remain on schedule. At the onset of the pandemic, we were fortunate that most had moved into post-production stage, which can be done remotely. For those still in production, fieldwork is now continuing with small, physically distant crews working in isolated locations, while prioritizing health at all times, our factual teams have successfully adopted by using innovative gorilla filmmaking techniques, adopting shifts and leveraging technology.In our scripted division, subsequent to the quarter, the fourth season of Kim's Convenience began streaming April 1 on Netflix outside of Canada. It remains available in Canada and on CBC Gem. Kim's Convenience was also renewed for season 5 and 6, which are scheduled to premiere in 2021 and 2022, respectively. We were also delighted that the series was included by TV guide in April 2020, ranking of the best feel-good series currently available on Netflix, Amazon, Hulu and Disney+. It was also recently endorsed by Oprah magazine as a perfect quarantine distraction. Kim's Convenience is in the writing phase of production on its upcoming seasons, which can be done remotely.Now let's take a look at our Kids & Family Division, Atomic Cartoons. Atomic is recognized as a global leader in animation by partners around the world, including Disney, Netflix, NBC and so many more. We remain a highly robust service business and our stable of owned IP projects in development is continuing to grow. As we look to the future, owned IP is incredibly important to Thunderbird because it provides ancillary revenue opportunities, such as toys, apparel and video.As such, our team is focusing on acquiring, developing and producing premium quality content that has the ability to evolve into global entertainment franchises such as our acclaimed, The Last Kids on Earth series. During the quarter, Atomic was in various stages of production on 14 animated television programs, reflecting a blend of service and IP work. Service productions include Hello Ninja for Netflix; Molly of Denali for WGBH, PBS Kids and CBC; 101 Dalmatian Street for Disney+; and LEGO Jurassic World for NBCUniversal.Owned IP series include The Last Kids on Earth, which subsequent to the quarter, debuted its second season on April 17, exclusively on Netflix, available in 190 countries and 28 different languages. It featured 10 new episodes and more episodes are in production, including an interactive one. Season 2 featured a star set of voice cast, including Catherine O'Hara, Mark Hamill, Rosario Dawson, and in addition to the highly anticipated toy line, it's now available as is the T-shirt line and a video game is also in development coming soon.Other highlights from the quarter include: a new partnership with the visionary Jim Henson Company was announced to develop a newly animated series called Nate Create. A partnership with Spin Master and Netflix was announced to produce a new CG animated series for preschoolers called Mighty Express. Spin Master is the creator of the popular PAW Patrol franchise, which I'm sure many of you are familiar with.Our Marvel Super Hero animated short films for Disney surpassed more than 240 million views on YouTube in the quarter, with 20 million views in March alone for the Black Panther. Shorts are also highly popular on the Disney Junior channel. Lastly, subsequent to the quarter, season 2 of Hello Ninja began streaming on Netflix on April 24, 2020, in 28 different languages and 190 countries. Less than a month later in mid-May, a third season of this popular kid series was announced.Before passing things off to Brian, I want to say how honored I am to be part of the Thunderbird leadership team. We are living through a time of deep uncertainty, and I've been so impressed by the resilience and dedication of all of the teams. It is by cultivating such incredible teams that we were able to keep growing and continuing to deliver outstanding content to our partners.And that concludes my update for this quarter. Let's pass things on to Brian for his insights, and then Barb will lead us through the Q3 financials. Thank you all so much for tuning in.

[Brian Alexander Paes-Braga]

Thank you, Jen. It's great to have the opportunity to update our shareholders and discuss Thunderbird's incredible quarter results and further highlight how the company's profitable business model continued to enable its rapid growth. Q3 was phenomenal with the trifecta company records: third quarter revenue, adjusted EBITDA and free cash flow. Q3 also marked a transformational shift in consumer behavior with record streaming numbers and heightened demand for content due to the global pandemic. Thunderbird's strong financial position along its reputation as a key supplier of premium content uniquely positions the company to be agile and adaptable in these unprecedented times and ready to capitalize on new opportunities as the economy looks to reopen. As Jen described, Thunderbird responded to the pandemic resourcefully and nimbly and within a 2-week time frame was able to shift its entire team to a new virtual working structure. Motivated by health and safety, expeditious actions were -- allowed Thunderbird to remain fully operational. These actions also create opportunity for the company, which included taking on more work in hiring additional team members to meet demand for content, which continues to sore due to shelter-in-place restrictions. I'm incredibly proud of Thunderbird's resilience and hard work. The leadership of Jen and Mark also needs to be recognized as they pivoted the company in a major way, safeguarding the business and safely protecting jobs and even hiring new team members without missing a beat. And now as economies cautiously and optimistically reopen, distinct silver linings of Thunderbird's new work-from-home structure are beginning to surface. No longer confined to the in-house studios and with the right technology in place, the company's ability to scale-up has taken on a whole new meaning. Many team members have successfully adapted to working from home and their productivity further reinforces this. The company's production studios are also being adapted to adhere to physical differencing best practice for the future. However, Thunderbird now also has the ability to offer hybrid working structures with work-from-home flexibility for the long term. This shifts Thunderbird into a whole new paradigm, changing how the company can scale up to demand and opening up new opportunities for organic growth and acquisitions. COVID-19 has challenged the entertainment industry to think differently about almost everything we do. In doing so, it has validated that virtual production is a viable way to work going forward. It has also expanded how companies can recruit talent. And using virtual platforms, organizations can now draw top talent from anywhere in the world. Thunderbird is renowned throughout the industry for attracting and retaining the best creative talent in the business. Under the new setup, you could be based in Dawson Creek, British Columbia, New York City or Portland, Oregon, and still be an active part of the Thunderbird production. This new way of working means Thunderbird can now scale up in new ways to keep up with demand for what we do. That's really exciting for Thunderbird because the company has lots of job opportunities to fill. And now geographically restrict -- geographical restrictions, excuse me, are no longer the barrier they once were.In our current world, the demand for content continues to escalate. Netflix is the most established platform worldwide, recorded 15.8 million new subscribers in the first 3 months this year, including more than $2.3 million in North America alone. The streaming giant has also forecasted to spend $17 billion on original content in 2020, estimated another 7.5 million new subscribers in their second quarter.Apple TV+ and Disney+ both joined the streaming wars in November 2019 with Disney+ surpassing 10 million subscribers in its first day. Disney+ now house more than 54.5 million. NBCUniversal and Warner Media are newcomers this year with Peacock and HBO Max. The streaming wars remain in full effect. And with 5G rolling out globally, the next-generation of mobile technology is poised to enhance the consumer experience with faster speeds, higher capacity, better mobility and overall more reliability.The appetite for content, which is heightened during the pandemic is predicted to continue and streaming services are forecasting large audiences for the foreseeable future and post pandemic. Thunderbird is uniquely positioned to benefit from the demand for content with the company's development experience and diversified portfolio that includes 2D and 3D animated factual lifestyle and reality and scripted content.All of Thunderbird's divisions, Atomic Cartoons, Thunderbird Scripted and Great Pacific Media are renowned for producing award-winning premium content for broadcasters, OTT platforms and cable channels worldwide. And the teams are definitely not becoming complacent as they continue to push creative boundaries, pioneering new production techniques and keep adding the Thunderbird's ever-expanding content library that's embraced and beloved by audiences of all ages around the world. Furthermore, Thunderbird plans to continue to grow its business and library through the acquisition of complementary companies in the entertainment industry and through strategic business alliances. This work is being led by incredible management teams across all divisions. With deep expertise in both content creation and sourcing the best creative talent in the industry. The outcome the company has been able to achieve today are a testament to their determination and excellence. Since Thunderbird was founded, the company has never wavered from its pursuit of quality, creativity and innovation, and by maintaining an artist-driven culture, it continues to attract world-class industry talent to keep doing exactly that. The Thunderbird team is also unrelenting in the company mission to produce content with affirming messages that helps make the world a better place. The dedications will motivate all Thunderbird teams to select, invest in and develop brands with longevity and global appeal. In turn, these brands will lead to new opportunities across the company, including new licensing partnerships, such as those based on Thunderbird ancillary IP rights for The Last Kids on Earth.In addition to the new episodes Jen described earlier, a global merchandise line is now in stores. A T-shirt line is launched, and a video game is slated for a 2021 debut. This is an approach we are definitely looking to replicate in other brands we have in development. The company's strong balance sheet, incredible team and new working structures open exciting new doors. Our people have what it takes to succeed for the long-term and nothing confirms that better than how they've definitely adapted to keep working during these unprecedented times. And there is so much more to come in the months and years ahead. Thank you from the bottom of my heart for giving us your time today. We appreciate your interest in Thunderbird, and we look forward to sharing further updates with you as new productions and new partnerships are announced in the future. There's a lot to be excited about on the horizon. Now let's hear from Barb on the financials.Thank you, again, to everyone, and please stay safe.

[Barb Harwood, Chief Financial Officer]

Thanks, Brian. Hello. Thanks for joining us all today. This is Barb Harwood, and I'm the CFO of Thunderbird Entertainment Group. As expected. And as Jen and Brian alluded to, Thunderbird had a great quarter. During the last few fiscal years, we have typically had a strong third quarter. And as Jen mentioned, this has been our strongest yet. This quarter is when the majority of the revenue from our series renewals have been recognized. We tend to have volatility or lumpiness in our results over the fiscal year because there are differences in how revenues and related expenses are recognized between our IP content and the projects that we service for third-party clients. Jen talked about this a little earlier. Production service revenue and expenses are recognized on an ongoing basis as the production work is completed. IP content, on the other hand, is only recognized once the production is delivered to the broadcaster, streamer or distributor, and that party has the right to air it. Therefore, we can be at capacity producing on all our IP contents throughout the fiscal year, but the financial results will only hit once the project is complete. And now on to the results, which Jen summarized earlier in this call. Revenue for the 3 and 9 months ended March 31, 2020, with $29.3 million and $59.6 million as compared to $20.9 million and $44.7 million for the comparative periods of fiscal 2019, increases of $8.4 million and $14.9 million, respectively. Although all divisions had increases in revenue, the majority of this increase is related to growth in the Kids & Family Division, specifically in the production service work. Net income was $3 million and $2.5 million after loss from discontinued operations of $205,000 and $773,000 as compared to net income of $1.9 million and a net loss of $2.7 million after loss from discontinued operations of $189,000 and $152,000 in the previous periods of 2019. This was an increase of $1.1 million for the 3 months and an increase of $5.2 million in the 9 months as compared to 2019. The company incurred a onetime charge during the comparative period related to the RTO Transaction of $5.3 million, which contributed to the net loss in 2019. Record adjusted EBITDA was $6.9 million and $11.2 million for the 3 and 9 months ended March 31, 2020, compared to $4.7 million and $10.3 million for the comparative period, an increase of $2.2 million for the 3 months and $0.9 million for the 9 months, respectively. The 3-month increase was due to a large increase in production service work as well as an increase in licensing and distribution revenues from our IP projects due to the increase in the number of IP shows delivered over the comparative quarter. This was offset by a related increase in direct costs and amortization of content. There were also increases in salaries, contracting fees and computer software licenses due to a significant growth in the animation and factual divisions. There was also a decrease in rent expense primarily to the adoption of IFRS 16, in which lease obligations for long-term leases are no longer recorded as rent expense but capitalized as right-of-use assets and amortized.Free cash flow was $4.5 million for the 3 months and $4.7 million for the 9 months ending March 31, 2020, as compared to negative free cash flow of $1.5 million and $1.6 million for the comparative period. Also during the quarter, management decided to discontinue operations of its U.K. feature film distribution division to better focus on its core business. The related assets and liabilities have been presented as held for sale in the financial statements and the net revenues and expenses are shown as a loss from discontinued operations.During this most recent quarter, the company paid down the remaining $205,000 of long-term debt that was outstanding as at December 31, 2019. And so right now, the company currently has no outstanding corporate debt other than interim production loans and equipment leases.Again, thanks for joining us today, and I'll turn it back to the moderator.

[Operator]

[Operator Instructions] Your first question will be for Aravinda Galappatthige at Canaccord Genuity.

[Aravinda Suranimala Galappatthige, Managing Director]

Congrats on the strong quarter. I hope you guys are all doing well. A couple from me. First of all, a few on the number side, perhaps for Barb. Obviously, the seasonality has been somewhat predictable over the last couple of years. I know that Q4, we kind of sort of slide down to sort of generally on an EBITDA level, closer to breakeven levels. Given sort of the timing of deliveries, I was wondering if there would be anything different this time around? Or is there any sort of deliveries that are falling out into the following quarter? Or maybe that was sort of taken early? Any kind of color would be helpful.And then also, if you don't mind reminding me the impact of IFRS 16 for EBITDA. I know that if you just go by the rent adjustment, it looks like IFRS would have been like maybe $0.5 million tailwind to the reported EBITDA number. I just wanted to -- some clarification on that.And then operationally, I was wondering -- I know Brian just went over it a little bit, but if you can elaborate a little bit on your merchandise plans. I know that some of the merge for Last Kids on Earth hit this year. I was wondering if there was any changes to that timing, considering the current conditions? Or would some of that be spilling over to 2021? I'll leave it there.

[Barb Harwood, Chief Financial Officer]

Okay. Aravinda, how are you doing, I hope you're well. We'll start with your -- you had 2 financial questions, I believe, and then 1 for Brian. The -- with respect to what we can expect in Q4, I think, as Jen alluded to, we've got -- there was a couple of IP deliveries that happened after the quarter end. One was Kim's Convenience, was released on Netflix, our Kim's Convenience season 4. And the other is that the second season of Last Kids was released on Netflix. And so the -- those are 2 new things that obviously didn't happen in previous years. The Netflix, one, I think, last year was released in Q3. So that would -- those are 2 IP deliveries basically that are going -- have already happened in Q4 that could help you with your numbers.Secondly, you asked about the impact of IFRS 16 on the EBITDA. And if in the MD&A, there's an EBITDA breakdown, starting with net income and driving down to EBITDA and the amortization of those right-to-use assets for the 9 months ended March 31 was $4 million. We expect that, that amortization towards the year-end will be approximately $3 million in total. And Brian, did you have...

[Jennifer Twiner McCarron, CEO & Director]

I think I'll say on the merch...

[Brian Alexander Paes-Braga]

Thanks, Barb. I'm good. Go ahead, Jen.

[Jennifer Twiner McCarron, CEO & Director]

Yes, no problem. So just jumping in on the merchandise question. So we have launched The Last Kids on Earth online. It will be available in select stores as well once those all open. We have a T-shirt line that there's some more news coming about, not just T-shirts. I'm not exactly sure how much I can say because I don't want to rip open the PSA, but it's with a larger deal.And then our video game, which is fantastic, which is with Outright Games, is going to be cited for 2021 debut also coordinating with the interactive episodes that we're doing for Netflix, which are sort of a choose-your-own-adventure style of filmmaking, which is really fun for kids on the Netflix platform. And we're thrilled about the video game and other interactive medium launching alongside that.

[Aravinda Suranimala Galappatthige, Managing Director]

Great. And if I may just ask a quick follow-up. I know you talked about now 3 shows with Netflix. You've got a couple with Disney+ based on the conversations that are happening, what's the outlook to kind of expand those SVOD relationships to taking that to 5, 6, 7 shows? Because that's -- and as we look outside of fiscal 2020, sort of -- that's sort of where I think the growth is expected to come from predominantly. Can you just give us some insight as to some of the conversations that you're having in terms of increasing output with the major platforms?

[Jennifer Twiner McCarron, CEO & Director]

Certainly. Well, I mean, there's never been a better time to be in content subscriptions. As we discussed, we're going through the roof. People are at home with their families watching more screens than ever. So we can only -- these are only the shows that we can discuss. There is a lot more to come. And we're really fortunate to be working with all of the major players. So everybody is coming online and the people starting up like HBO Max and Apple, and these aren't start-ups. They're coming online because this is an amazing business. And so stay tuned. Part of our business is we can't talk about everything, but I will say that, again, we're so fortunate to be in an industry that is doing well right now, and I count my blessings personally every day about that. And so stay tuned, I'll underline that much more to come.

[Brian Alexander Paes-Braga]

And Aravinda, maybe I can comment that what I've noticed is Jen and her team, as these streaming platforms have really started to dominate that -- the barrier to entry given the state of the world has just really increased substantially because of these new work-from-home practices. It took Jen in a couple of weeks to get back to, Jen and her team and Mark, to get 100% productivity. And I think what you're seeing now is the reliability of having service providers and partners like Thunderbird has just become that much more valuable for these platforms and the familiarity in having that reliability in that relationship.So without being able to give you exact numbers, as Jen skated around, I think you will see some very positive developments, given our ability now as a company to scale outside of the 4 walls that we previously were confined to in offices.

[Operator]

Next question will be from Sid Dilawari at Cormark Securities.

[Siddhant Dilawari, Associate of Institutional Equity Research]

I just have a few questions, 2 for Jen and then maybe 1 for Brian. Jen, can you maybe help us understand the split in production service revenue for the quarter in the different divisions? And maybe provide some commentary on how you expect that to evolve in the following quarters given the pandemic? I would assume that all other types of production other than animation, for the most part, to be currently slow or halted. So is the mix of your pipeline/future projects changing at all? Or is it staying fairly consistent?

[Jennifer Twiner McCarron, CEO & Director]

It's staying fairly consistent. I'll defer to Barb if she wants to break down the divisional. But Kids & Families is doing extremely well. Factual, which is a huge driver for us, is also doing extremely well. The difference between factual and live action, whereas we have a very small footprint in live-action with Kim's Convenience currently. And they were -- we were luckily in a writing phase. So writing can continue in people's homes and bedroom offices, whereas the factual was able to keep working. These are small documentary-style gorilla crews where you can -- it's almost like watching a documentary unfold, so you can shoot in a socially distant acceptable fashion. Animation obviously can go offline and thrive because there's hundreds and hundred animators and supporting talent with headphones on in 1 big, great coordinated machine. We've gotten all of factual, all of the animation off-site. We had an initial dip, maybe down to 90% of productivity, where we just optimized people's homes setups. We were delivering equipment to everyone. But now in both GPM and Atomic, we're back up at 100% functioning. In some ways, we've seen increases to productivity. And so we're no rush to change that. The #1 goal of our company is that employees feel safe and comfortable. We're not going to make a move to change that until we're sure that, that's acceptable. And again, our live-action footprint, very, very small, likely because what we're hearing in the news is true, you can't get 250 people on the set right now, shooting a scene. But luckily, Kim's was scheduled to shoot during the writing phase, so we're watching and preparing for that time when they are able to shoot again.And Barb, I don't know if you want to add anything -- flavor divisionally or if that answers your question enough.

[Barb Harwood, Chief Financial Officer]

Yes. No, Jen, you were kind of bang on. We don't expect to see too much difference as the production services, mainly in the animation, and the licensing and distribution is a combination of the animation, scripted and factual. And given that everything is still a go, we don't expect any changes there.

[Siddhant Dilawari, Associate of Institutional Equity Research]

Okay. And then maybe just 1 more for Jen. It looks like your IP library is building up quite nicely. I was wondering if you can maybe provide some color on the first window broadcasting right on your deliveries. Like how long are they? When can we expect to see some margin improvement for that once the first window broadcasting rights conclude?

[Jennifer Twiner McCarron, CEO & Director]

Are you asking specifically around The Last Kids on Earth? Or how -- like are you -- or just in general?

[Siddhant Dilawari, Associate of Institutional Equity Research]

Just in general, I would say.

[Jennifer Twiner McCarron, CEO & Director]

So we constantly have IP circulating into the system that we own and then can capitalize on for more forms of recurring revenue, and they're all at different timing. So the more IP we own, the more that we can then capitalize on that and continue to see that forms of recurring revenue, be it in merchandise, gaming, consumer products, distribution, sponsorship within shows. So there's many different streams of that, which allows for a healthy cash flow-positive business with recurring revenue at all time.

[Siddhant Dilawari, Associate of Institutional Equity Research]

Okay. Okay. And then just 1 last 1 for me for Brian. Obviously, your balance sheet looks strong, and there was some mention regarding potential M&A opportunity. I just wanted to get some more color on that. It might be early stages, but maybe you can give us some more details in terms of what our target company might look like? And if there any potential targets you have identified in a particular division?

[Brian Alexander Paes-Braga]

Thank you for the question, and thanks for tuning in. I think we were -- we're looking at a lot of things, both within our industry of expanding both production service and IP. But I'd say that we're generating so much organic growth as it is right now. And we're so fortunate to have the people and the growth that we're experiencing internally that it's hard to actually think about doing anything that would be, let's say, in the same industry. I think where we're looking is where is the entertainment world going. And where are things being innovative? Where is the growth? And if we have such a great strong core business that's growing at double-digit top and bottom line for the years to come, how do we utilize this very special moment in this consumer behavior change and be opportunistic on something or an industry that has even more high growth? And I'll take you back to where Tim Gamble, the founder of this company, had a great business and then found Jen and the entire team at Atomic and was able to create a deal where there was a path to acquisition for Atomic, and now you've seen the real parabolic growth, the biggest revenue generator now at Thunderbird has been Atomic over the last 4 or 5 years, but that was going into animation when the company previously didn't have as much experience in this and finding the best talent and building it. So I think that we are -- we've never been more on the lookout for M&A given the strength of the balance sheet. And it's something that's at the top of all of our minds right now. But we still feel so fortunate that we have a company that is delivering the type of results that it is. And at the same time, tucking away IP that over the long term, will build immense shareholder value in my opinion. So I hope that answers your question.

[Siddhant Dilawari, Associate of Institutional Equity Research]

Yes. No, that's great. That's helpful, guys.

[Operator]

Next question will be from [ Matt Rock ], Investor.

[Unknown Attendee]

2 questions for Barb. Barb, could you just provide a bit of detail with respect to revenue recognition for company IP? I think both you and Jen mentioned that you account for it. What was the term you used? Project is completed. Does that mean like when the entire series order is delivered or on a per-episode basis? That's question one. Second question, could you break out the percentage of revenue that's allocated or generated by animation? And I'll let you go.

[Barb Harwood, Chief Financial Officer]

Thanks, [ Matt ]. Yes, the revenue recognition is basically not to get too technical, but I see it as having 2 measurements: one is delivery and the second is whether the broadcaster streamer or distributor has the right to exploit the content.So first of all, we look at the date that the broadcaster is able to exploit the content. And if the broadcaster has been delivered the IP content, then we can recognize it. If we've delivered the content and the broadcaster doesn't yet have the right, in other words, what is called the term has not started, we can't recognize the content. If the broadcaster's term has started, but they don't have the content, then again, we don't recognize it. So it sort of goes hand-in-hand. Both the broadcaster has the right, and they have to have the content in order for the revenue to be recognized.And in terms of your second question, we don't actually break down the divisions. We don't report on a divisional basis in terms of revenue and EBITDA.

[Unknown Attendee]

Am I still on the call?

[Barb Harwood, Chief Financial Officer]

Yes.

[Unknown Attendee]

Great. Pardon me, guys. Yes. Is there a reason -- I mean, given the importance of atomic in terms of the overall business, is there a reason you don't break up the different divisions as far as the revenue?

[Barb Harwood, Chief Financial Officer]

Yes. We see it as 1 large company, and also divisionally, if we broke it up, it is a little bit of a competitive disadvantage for our competitors to see those metrics. So that's why we don't do it.

[Unknown Attendee]

Okay. I understand. If we could just circle back to the first call. And Barb, what the question that I was -- I'm familiar with revenue recognition in the media space. So I understand what you're saying. It is specifically though, the question is that -- and let's say, you were to deliver a tranche of 4 episodes to a broadcaster and assuming the license transfers use of those programs as well, would you recognize that tranche of 4 episodes on your revenue statement? Or would you be more inclined, let's say, to wait for, let's say, a full 13 episodes to be delivered on before you would actually recognize that revenue for the entire series. Does that make sense? Or...

[Barb Harwood, Chief Financial Officer]

Yes. That's -- yes, it absolutely does. And thanks, that's a good question. We would recognize all 4 of those episodes, even if there was 13 in the whole cycle.

[Operator]

[Operator Instructions] Your next question will be from Keith Schaefer at Investing Whisperer.

[Keith Schaefer;Investing Whisperer;CEO/Publisher]

A couple of quick questions, guys. What scale here, you've drawn quite positively here. What kind of EBITDA margins would you be looking for here? Like, I guess, there's a couple of angles there. Just assuming that your Atomic Cartoons is probably going to be your growth sector. What kind of opportunities does scale really offer the model? Because don't you just need to hire more and more animators for the more shows you do, and then I guess you get residuals and things like that.And the second question would be just on new IP The Last Kids on Earth was a couple of years ago now, I'm just curious what kind of cadence you would offer the market for new IP of Tier 1 content like that.

[Jennifer Twiner McCarron, CEO & Director]

I can jump in here. So with regards to the cadence, I think stay tuned again for more announcements. There are certainly many different ways these deals take shape. And we do have a lot of exciting high-echelon IP on our slate. And then -- sorry if you wouldn't mind referring back to the first part of your question, I'm not sure exactly what you're hoping to hear, Keith.

[Keith Schaefer;Investing Whisperer;CEO/Publisher]

Well, just your EBITDA margins are what they are now. And as the business ramps up from $100 million to $150 million to $200 million over the next 3 or 4 or 5 years, hopefully. Do you see EBITDA more than keeping pace with that? Like where does the scale come in the business? Right now, if you've got the EBITDA margins where they are, can that increase a lot with scale? Or is it going to stay fairly steady? Are costs going to keep up with revenue? Where would we see the scale in the model?

[Jennifer Twiner McCarron, CEO & Director]

Oh, I see. Yes. No, they're definitely -- again, stay tuned. There'll be some nice EBITDA increases. We've built out a lot of our model. Factual continues to just overachieve and so do Kids & Family. And we don't need to just keep hiring and hiring and keeping pace with costs. The IP that we're developing and own will translate into more forms of recurring revenue. And so again, I think the next 3 to 5 years are extremely bright.

[Barb Harwood, Chief Financial Officer]

And if I could just jump in here just quickly because you said -- I think you said that The Last Kids on Earth was a couple of years ago, I think you mentioned, we're continuing to record the results of The Last Kids on Earth, as I mentioned to Aravinda. The second series dropped in the fourth quarter. So we'll be recognizing some of that in the fourth quarter, and we're still continuing production on other quarters that will be recognized in future fiscals. So we're just sort of starting on the whole Last Kids bandwagon, to be honest.

[Brian Alexander Paes-Braga]

Yes. And Keith, if I could mention what I witnessed -- thank you for your question, and I hope you're well. What I've witnessed is maybe to take your -- just slogan of the Whisperer, Jen and her team have become whisperers now to talents like Max Brallier because I was on a call last week and the agent for Max was representing how happy they were and how happy Max was with this partnership and what Atomic and Thunderbird have been able to do for him as an author of a best-selling book and expanding his profile and his ability to build his franchises in partnership with Atomic, and I think what that has yielded is what I've seen is many, many more, and they're hard to find, but many more opportunities to work with -- it becomes like self-fulfilling prophecy where you do good by these creators and you partner with them in intelligent ways where everybody wins, the author wins the streaming platform wins, we win, and you just create a ton of value. And what happens is more and more of these creators now come and knock on Jen's door, and say, "Hey, that looks pretty good. Maybe we can do something." And I think that's where we just start to get smarter with our business model in utilizing these amazingly talented people that we have that, again, has been built up in no small feet over the last 3 or 4 years from a couple of hundred people to almost 1,000 and now utilize each person's time better with partner-owned IP or our own IP. And then on the factual side, Mark has continued to build a very special business model that is 100%-owned IP that he just continues to find ways to monetize that basket of IP, which you'll see in the coming weeks and months.And so I think -- that's all right, that's all right, Keith. I think long story short is, I think, you should start to see EBITDA margins increase just based on all this ancillary work and investment that's been made over the last few years, which is quite amazing to see the growth that is being experienced with this company by bringing on -- and not putting the balance sheet at risk but bringing on immense amount of equity dilution. it really has hit that inflection point and I think investors are slowly starting to see that.

[Operator]

Ladies and gentlemen, this concludes our call for today. If you have any questions, please call 1 [phone] or email [e-mail]. At this time you may disconnect your lines. Thank you again for attending.