Thunderbird Entertainment Group Inc. (OTCQX: THBRF) Third Quarter 2022 Earnings Conference Call May 16, 2022 2:00 p. m. Eastern Time
Participating companies
Jennifer Twiner McCarron – President and CEO
Barb Harwood – Chief Financial Officer
Conference Call Participants
Max Ingram
Barry Sine – Spartan Capital Securities
David McFadgen – Cormark
Operator
Thank you for being with us. We are here to provide an update and corporate report on Thunderbird Entertainment Group’s third quarter of fiscal year 2022 results, which ended March 31, 2022.
Speaking on today’s call, Ms. Jennifer Twiner McCarron, CEO of Thunderbird; and Ms. Barb Harwood, Chief Financial Officer of Thunderbird. Twiner McCarron will provide a strategic review for a strategic review of Thunderbird Entertainment Group, and Ms. Harwood will review the company’s third quarter 2022 financial statements. After the company update and review: financial review of the business, the call for a consultation will be opened. and respond to the session. [Operator Instructions] At this time, the lines were muted by any background noise.
I would like to remind everyone that certain statements made on today’s conference call will be forward-looking and will constitute forward-looking statements or forward-looking data under applicable securities laws. Forward-looking statements and data discussed in this conference call include, but are not limited to, statements regarding the Company’s long-term objectives, goals or plans, as well as the Company’s business and operations.
Forward-looking statements are necessarily based on a number of moderated estimates and assumptions that are subject to known and unknown risks, uncertainties and other factors, which could cause actual and likely long-term effects that differ materially from those expressed or implied through such Forward-Looking Statements. These points include, but are not limited to, general commercial, economic and social uncertainties, litigation, legislative and environmental developments, and other judicial, regulatory, political and competitive developments.
These additional hazards are set forth in the Company’s filing statements and other public documents filed with SEDAR in ww. sedar. com and other topics addressed in the quarterly press release. Although the Company believes that the assumptions and points used in the preparation of those preliminary statements are reasonable, those statements, which apply only as of the date of such filing, should not be unduly relied upon and such occasions cannot be guaranteed to occur within the stated time frames or will not occur at all. Except as required by law, and the Company disclaims any legal objective or responsibility to update or revise any forward-looking statements, whether as a result of new information, long-term events or otherwise.
For your convenience, Thunderbird Entertainment Group’s press release, management discussion and analysis, and unaudited financial statements for the third quarter of 2022, which ended March 31, 2022, were filed with SEDAR and are online in the Investors segment of our online page. We do not expect to continually update any forward-looking statements as situations change. The convention call is broadcast live over the Internet and the archives will be available on the Company’s online page in www. thunderbird. tv after today’s convention call. Please note that Thunderbird earns in Canadian dollars unless otherwise stated.
Ms. Twiner McCarron will now provide the corporate update.
Jennifer Twiner McCarron
Thank you so much. My call is Jennifer Twiner McCarron and I am the CEO of Thunderbird Entertainment Group. On behalf of the company, I would like to welcome you to today’s call to discuss our results for the third quarter of 2022, which ended March 31, 2022. Barb, Chief Financial Officer of Thunderbird Harwood is with me today, and we thank you for joining us and following the Thunderbird story. I will provide individual corporate updates and Barb will provide percentage monetary data.
Sorry for my voice, I have an outdated smart cold, which after 2 years of dressing in a mask with the satan of those. Anyway, I do break my voice. Once Barb and I are done, we will be happy to respond. any questions you may have.
I would like to begin our appeal by addressing some of the conversations that are taking place around the years of recession in the entertainment industry. We’re seeing more and more hypotheses in the industry after Netflix’s announcement related to the expansion of its subscribers and the closure of streaming outlets like CNN.
While this has been offset somewhat by Disney and Warner Bros. , Discovery reports earnings and news about Paramount and SHOWTIMES’ combined subscribers topping $62 million. There seems to be a persistent background of uncertainty. We have entered a new phase of the streaming revolution and for our company, Thunderbird, this is very smart news.
Leading streamers are tweaking their offerings to attract and retain subscribers by creating multi-level packages and opening doors to more advertising to remain competitive and win in a fierce market.
What Thunderbird investors deserve to have great confidence in is that, as broadcast wars enter a new era, Thunderbird is the beneficiary of those events. in demand, as core players reduce their internal expenses and turn to Thunderbird for high-quality, varied, and inclusive A content. This is the case with quality rather than quantity.
Still, the most sensible and wealthy streamers continue to execute their expansion strategy, which includes premium, diverse, and inclusive content. Buyers may tighten their belts, so to speak, but they won’t leave. All streamers will have to constantly update their sites to close subscribers. More than ever, this fits back into a discussion about quality rather than quantity and quality will prevail. This is what we specialize in to maintain quality as our north star.
We maintain ongoing relationships with all major broadcasters and are famous for our award-winning premium content. There is no doubt that the landscape will continue to evolve to remain competitive. And we will continue to be well placed to grow there.
Ultimately, for platforms to win and retain customers, they want to spend on premium content, and we’re seeing that. Take, for example, our presence in animation. Currently, we use major brands such as Molly of Denali, for GBH and PDS. Pinecone
And adult animation also sees a massive container. We are also toasting in this space, adding beacons in Asia, which we produce for swimming. When physical production stops, animators paint from home, keeping the industry afloat. of the maximum and cinematically directed terms of the year. In ’21, Luca, Raya and the Last Dragon and The Mitchells and The Machines were 3 of the 10 most released roles of the year.
According to the American streaming platform followed by Nielsen, in total, 7 out of 10 were animated. Animation is for everyone and studios know it, so we’re seeing unprecedented investments in animation production.
Add to that, after relying heavily on unscripted programming during the pandemic and seeing broadcasters and transmitters at retail outlets of the genre continue to solicit and provide a steady stream of factual programming despite the return to general scripted production, and factual programming has a lower production. very high costs and approval ratings. Fact series will continue to be a key component of all buying strategies, as highlighted through this year’s Upfront TV.
This is further reinforced through National Geographic’s recent announcement related to the launch of National Geographic premium with Disney, with original shows, documentaries and more. positioned as a component of Thunderbird’s overall long-term purpose of adapting to the next major global study.
At Thunderbird, we have a balanced technique and play the game long, so many of you have heard me and our Thunderbird team members refer to Exercise 22 as our year of construction, it’s a reflux and for our company and within our industry. in general, depending on when the production is delivered.
We have visibility into this and have conscientiously followed the company’s adventure as we maximize the price of our narrative of the great opportunity that FY22 has brought to the company through building our strengths and our greatest expansion opportunities, as well as diversifying our portfolio, securing attractive high-end properties, one in our global distribution in the client and spouse products department with the most sensitive ability in the industry such as HBO Max, Netflix, Disney, among others, to create global success.
While we can’t absolutely lift the curtain on everything we’re executing as much as we’d like, we can percentage of the fact that we’re building a portfolio with recognizable brands and meaningful brand functions to drive long-term profitable growth.
And we do it methodically with 0 corporate debt, so we can act with agility and capitalize on opportunities that other content creators in the same position simply can’t. to marry streamers as they seek to accumulate subscriptions internationally.
This is just the beginning, and as we look to the future, we can assure you that we are delighted. Our groups continue to grow. We now have more than 1400 team members across North America, and our flexible hybrid paint design continues to contribute to our continued expansion and ability to evolve strategically as needed and demand-driven.
We have been working from home for over two years and many other people continue to do so. We didn’t miss a single installment, and it’s a testament to our talented and hard-working team and also a major contributor to the strong and ongoing relationships we have with the most productive players in the industry. The team’s remarkable reputation precedes us and we look forward to proceed to create and disseminate award-winning successes around the world.
With that, I’ll pass the numbers on to Barb and then come back to provide a high-level update on the company. Thanks a lot.
Barb Harwood
Thank you, Jenn. Hello everyone. These are the effects for the 3 and nine months ending March 31, 2022. Consolidated revenue increased from $37. 7 million to $36. 9 million or 2% and more than $85. 4 million to $104. 9 million or 23% for the 3 and nine months ended March 31, 2022, compared to last year’s comparative periods. A slight reduction in revenue in the current quarter is due to the timing of deliveries of our IP projects. Most of them are expected to remain until the end of the year. The decrease was almost entirely offset by the expansion of productive projects.
Revenue from production facilities increased 66% to $31. 2 million and 64% to $87. 4 million during the 3- and 6-month comparative periods due to an increase in the number and duration of contracts. This turnover is basically made up of animation production facilities, which have experienced continuous growth. Growth in revenue from production facilities reduces the volatility of effects during quarters compared to recognition of high-level assets, revenues from production facilities are recorded when works are completed than when works are delivered and the deadline begins with the broadcaster. .
Licensing and distribution revenue, which constitutes our intellectual property projects, decreased to $47 million and $17. 5 million and $18. 3 million and $32. 2 million for the 3 months ending March 31, 2022.
In the current quarter, earnings of thirteen episodes of the factual series Heavy Rescue: 401 Season 6 and 1 episode of a documentary Teenager and Lost Maya City were recorded. Distribution gains were also recorded in the current quarter due to sales to Symrise, a streaming service based on, for the scripted series Kim’s Convenience Seasons 1-5.
By comparison, in the comparative quarter, earnings of 3 episodes of an animated series Last Kids on Earth, thirteen episodes of Kim’s Convenience Season five and 40 episodes of 3 real series, Heavy Rescue: 401 Season five, Mud Mountain Haulers Season 1 and Reno Safe Season 4 were recorded.
Adjusted EBITDA decreased $1 million or 14% to $6. 4 million and increased $0. 4 million or 2% to $17. 7 million for the three and nine months, compared to $7. 4 million and $17. 3 million for the comparative era of March 31, 2021. Gross profit margin in the existing quarter consisting year over year, partially offset through an accumulation in wages to facilitate our continued growth.
And lastly, loose money declined from $7 million to $5. 2 million in the current quarter, basically due to an increase in content investments as the company accelerates the increase in production volume from $7. 2 million to $14. 7 million for the nine months through the end of March. due to the timing of receipt and reimbursement of net interim production financing of incremental production volumes, compared to $1. 8 million and $7. 5 million for the same periods of the prior fiscal year.
We’re going to get to you, Jen.
Jennifer Twiner McCarron
Thank you very much, Barbe. Je will now provide the corporate update. As of March 31, 22, the Company had 26 systems in production stages with another 16 customers. 12 of those productions are the intellectual assets of the company and are service productions controlled through partners, where the company receives a percentage of safe downstream profit flows.
At the end of the third quarter, the company was in production stages of 16 animated series. Most of these productions are intellectual property and are controlled by partners. These systems reflect a combination of proprietary and service-based paints and come with Molly from Denali. Season 2 for GBH PDF Kids, CoComelon Lane for Moonbug Entertainment and Netflix, Trolls: TrollsTopia for DreamWorks and Peacock, Dogs in Space for Netflix, Marvel’s Spidey and His Amazing Frifinishs Season 1 for Disney Junior and Young Love with Sony Pictures Animation for HBO Max, among others.
The company’s new animation productions they announced included Pinecone.
Changing direction, the company in the production of seven series of facts and a documentary route through Highway Thru Hell Season 11, Heavy Rescue: 401 Season 7, Mud Mountain Haulers Season 2, Deadman’s Curse, is the current name Season 1, Gut Job Season 1, Styled Season 1, Dr. Savannah: Wild Rose Vet Season 1, in collaboration with Wapanatahk Media, and After The Storm, a documentary in production for Discovery Canada based on the 2021 floods in British Columbia. running on two series: Reginald the Vampire Season 1 and Strays Season 2, which was renewed for a moment as part of CBC’s ’22 and ’23 comedy roster.
Finally, before concluding before I’m in position for the Q&A period, I want to highlight some of the recent accolades the company has earned and an announcement. Kim’s Convenience won 3 Canadian Screen Awards, which were in the evening. . GTM nominated for the BC business of smart award in 2022 and for the Champion of Diversity and Inclusion and on the RealStream Global Hundred Canada list, LEGO Star Wars Terrifying Tales nominated in the Animation Children Five to 10 category and The Last Kids on Earth nominated in the Interactive category: Children under 10 for the Rockie Awards of the Banff World Media Festival.
We are also pleased to announce that Great Pacific Media has partnered with Sean Connolly, Original Content Labs, to produce more unscripted children’s and primetime series. This is an exciting progression for us. And that brings us to the end of our business update today. We are very proud of the equipment’s effects and hard paints this quarter, and expect a very smart fourth quarter and a solid end to our fiscal year 22. We remain busier than ever and are excited to continue creating meaningful, high-quality content that resonates with audiences around the world.
We are very grateful for our team’s material, and weArray would not be here without them today. As we look to continue our expansion and expansion beyond North America, we are confident that we have the infrastructure and leadership in position to become the next major global studio. Quality and varied content are still kings, and that’s where we excel. We look to the future to share with you the even more exciting main points about the upcoming ongoing projects at Thunderbird. The long term is brilliant. And on behalf of all of our teams, thank you so much for being a part of this journey.
Now, Barb and I are happy to answer any questions you may have.
Q&A session
Operator
[Operator Instructions] We have the first information about our Max Ingram phone lines from Canaccord. Go ahead. Your line is open, Max.
maximum ingram
Congratulations on the quarter. I only have 3 questions, if you agree. First of all, I wanted to ask if we can get an update of everything. I know Jen talked about this briefly on the call, but an update on M&A efforts and her position in terms of whether she’s still interested in doing something and what kinds of opportunities are she considering?
Jennifer Twiner McCarron
Awesome. Okay. I imagine you were going to list the 3 questions, I’m going to dive into the first one. Thank you very much, Max.
We are making great strides in Europe with M&A opportunities. We work with our buyers to understand their needs. And since places like Disney and Netflix have publicly announced, they have to travel abroad, like Europe and Southeast Asia, to create subscriptions. By owning those areas, we can help meet a need that our buyers would have to deal with us as they look. to expand your portfolio. We may only allow local IP for those regions.
And then, the last detail of the strategy is that we can also develop our capacity. So, there are amazing studios with a lot of skill. And it would allow us to settle for more paintings that we lately rejected, in part because of skill. and production restrictions. This will allow us to grow faster, have more foreign IPs, have foreign tutors, which is imperative for a major global studio and meet a genuine need of our buyers.
maximum ingram
Perfect. Yes. It makes sense. Secondly, on the customer’s product side, I wonder if you can provide some kind of color for this division, if there is any progression there. What if there are specific titles that you think lead to good fortune?in the future? Anything you can carry in all likelihood would be useful.
Jennifer Twiner McCarron
Yes. Thanks. We expect to have smart ads before the end of the exercise, if not soon after. And we’re making great strides. Having our own distribution department and customer products has been a real game changer when it comes to trust.
This will allow us to activate more IP with the right agreements to install them in all the territories sold and also bring video game partners. This allows us to act as an external distributor for other corporations that would possibly not have this internal vertical. We are very pleased with the progress and look forward to deliver some of the progress we have made in the not-too-distant future.
maximum ingram
Good. Perfect. Can’t we wait to hear those announcements either?And finally, their long-term goal is to reorient the composition of the source of income towards distribution. Does it give us a concept of when you might expect to see this form upside down?And would looking in your pipeline be more immediate?Or is it some kind of longer-term development?
Jennifer Twiner McCarron
Yes. We do a healthy combination of IP and service. And certainly, IP, you are paid on delivery. Their service, their cash flow through our facilities business has grown incredibly, just with the building refresh call we’re seeing that rarely has a huge impact on all fronts. As we increase the long-term price of the business, we need and will continue to enrich our library of intellectual assets.
So, in the coming years, we deserve to see a replacement as those emissions are made and delivered. But a healthy mix of facilities and IT will be key to our business, with facilities moving abnormal money flows. It’s a wonderful opportunity when they’re doing a smart job serving big global brands like Donald Duck or Spider-Man or 101 Dalmatians. It’s much less difficult for us to turn around and sell our own intellectual property. But to answer your query directly, Mark, we’re going to get started to see a further shift towards IP in the coming years.
Operator
Now we have the following from Barry Sine of Spartan Capital Securities. Your line is open.
barry sine
I looked to continue. I like the way you started the call with feedback on the macro broadcast environment and how streaming wars replace a bit. And I think you’re focusing correctly on quality. And as you said, for as long as I can remember, it’s the quality of their North Star. How do buyers recognize and not quality?
And I made this query because we’ve noticed that streamers feature products that have less than stellar quality. So I don’t think they say that, it’s intentional. And how do you perceive this assignment that the Thunderbirds’ tone is of higher quality than some other assignment from some other producer?
Jennifer Twiner McCarron
Yes, that’s a wonderful question, Barry. Merci. Je I think our track record speaks for itself. We have won several awards. We have been identified as the most varied and inclusive company in British Columbia. We won the Peabody First frames there. Therefore, those smart rewards are a bit of complacency. They help demonstrate the quality we produce.
In addition, we are – we have been designated as one of the most trusted studios. We controlled to take everyone off the site on March 22, without wasting a moment, without missing any delivery. And consumers get a lot of concepts when we sit down at the table. There are a lot of paintings for us that testify to the quality we make.
Being a corporation domiciled in Canada, we provide tax credits to ts. So, we need to put more paintings on the screen. And when streamers have complex ideas, most of the time it seems like a smart creator, how do they put them together?. They have to locate all portions with us. It’s smart, it’s smart idea, it’s smart business.
We know precisely how they are going to do it. They have all this concept evidence in front of them. And we don’t say yes to work. We know we can’t get through. And whether we’re doing our buyers or intellectual assets a favor, we treat it like it’s our own. And we keep aiming for the moon because we’ve known it all along. at a time when there is so much content available for the most powerful people to stand out.
barry sine
And then, I sought to focus on his script business. As a big fan of Kim, I know what his qualities are. the pandemic, you just couldn’t get other people together for scripted productions.
Now that the pandemic has passed, I know they have production parasites and the regional vampire in production. Is it a segment of the business that sees more opportunities?Do they have more capabilities? It turns out that you have the artistic ability to succeed in this endeavor. But I would like to, I think you can do more than two.
Jennifer Twiner McCarron
Définitivement. Et is the plan. We have seen this opportunistically and made wise decisions, I would say, in this area, but we need to concentrate more. Reginald, the vampire, is wise at this time. This is our first southwest-facing display scripted by Amazon, Zulu, and Sci-Fi.
And so, as our goals shape and continue our path to install a leading global studio, we need a strong footprint that is high quality, very varied and inclusive for young people and the circle of family and real, scripted animation, and those are in our plans.
barry sine
And he talked about his limitations in his ability to grow even faster than when he goes up to the M&A consultation, which would give him more capabilities. What do you see as limitations now?Or do you have to turn down potentially lucrative projects because you don’t have the talent?What are the limitations we are seeing now in expansion or are there any?
Jennifer Twiner McCarron
The restrictions on expansion are actually what the rest of the world is facing, just unlimited skill pools. We invest massively in every city where we are, in education, we can recruit more footers geographically, and other corporations as well. therefore, I hope that things will be sorted out in the coming months. And we, because we’ve focused on a smart culture, retention, and recruiting, are doing better than others. But those exhibits require skill, time, and experience.
And I would say anything else, two years of being absolutely off site, a lot of what we’re noticing, and I’m sure other corporations are too, this junior skill that would have evolved to more intermediate. I haven’t moved like temporarily just because it’s weird to be a young user learning business, but a lot of that comes from the osmosis of being off-site has been difficult. But we’re regaining that traction, proceeding to invest and expand our workforce, our main asset. And that’s also a component of our M&A plans, which is to expand into other markets, to have access to other skill groups.
So, I wouldn’t say we’re turning down large amounts of work, but with our expansion plan, which is looming in the coming years. We want to make sure our talents are healthy and dynamic, and that’s part of our strategic vision.
barry sine
And then my last question, maybe I’ll direct this one to Barb and let Jen rest her voice. In terms of the typical seasonality of the fourth quarter, I know you’re optimistic. I know you’re not giving express directions in the fourth trimester either. Could you give us a little instruction and take inventory of what Thunderbird regularly looks like in the fourth trimester?Why? And I know there’s a mix between facilities and distribution, give us an update on how we think about the fourth quarter as we take a look at the model.
Barb Harwood
Yes, right. Barry, it’s interesting, as I look at the last five years, we’re moving away from a more typical kind of seasonality, like I used to expect quarters like one and 3 would be the big quarters because there were a lot of stations in our combined streamers. And now, as we work with more streamers, deliveries in the content aspect can be anywhere. Therefore, it is not what was expected. It is to be expected from my side.
It’s not as predictable to know, for example, as last year, the third quarter is a massive quarter for us. It’s a very big quarter, 40 episodes of factual series, Kim’s Convenience and our last 3 episodes of Last Kids. And of course, this quarter there are not so many deliveries. However, we are thinking about the fourth quarter and we are going to have more deliveries in the fourth quarter compared to the fourth quarter of last year.
So, we’ll be pretty much in the same position as last year in terms of IP content in the fourth quarter. So, in short, a much less predictable seasonality in IP deliveries because we deliver more to the streamers and they don’t have a first season express type like the classic announcers. Help?
barry sine
Jen, healed quickly.
Jennifer Twiner McCarron
Thank you, Barry.
Operator
[Operator Instructions] We now have an online consultation of David McFadgen of Cormark. Continue.
David Mc Fadgen
A few questions. Maybe you can go back to what was asked earlier in the call, the combination of licenses and distribution profits instead of service. I was wondering if you could give us an idea of where you think you’re going to finish the exercise. 22 in terms of mixing?
Jennifer Twiner McCarron
Barb, do you want to try?
Barb Harwood
Yes, as I said, as I said to Barry, we’re going to be, we’re going to land in the last quarter in the same domain in terms of intellectual assets that we did the year before in the same kind of stadium. And as you may have noticed during the quarters of this year, our production continues to grow.
As we build our own, see that production facilities are a pretty big component of profits because, as you know, as soon as we sign a contract, as soon as we get to work, we start recording only the effects in the production facilities. , while when we build our IP library type, it will take some time for the effects to fall.
David Mc Fadgen
Does this mean that if I look at their revenue for FY21, the percentage would be, or the split between production facilities and license distribution would be similar at 22?Is this how he should look?
Barb Harwood
I think we’ve followed more, I think, because production has grown exponentially. I think we’ll probably follow the production aspect more through the end of Fiscal Year 22. As we saw in the first 3 quarters.
David Mc Fadgen
Yes well. And when you talk about a physically powerful fourth quarter, that clearly means we’re going to have a year-over-year expansion in the fourth quarter, right?Because in the past, as you indicated, the fourth quarter has been your smallest quarter, but now, with the update on the delivery schedule with streamers and the stage, do we expect expansion in the fourth quarter 22 compared to 21?
Barb Harwood
Yes okay.
David Mc Fadgen
Yes well. And then, maybe you can just comment, okay. And then maybe you can only provide a comment on Netflix with downcast subscribers, there are discussions in the market that they’re going to be more specific with the content they license. And I was just wondering if there had been a replacement between you and your netflix date.
Jennifer Twiner McCarron
No, not at all, actually, it’s like I alluded to when I opened the call, it’s good news for us. History now privileges quality over quantity. All streamers, who add Netflix, will have to constantly update their sites to close subscribers.
But now, other people like Netflix are destined to engage with their most productive providers to create this high-quality content that will bring other people together, keep other people coming back in lower volume, and that’s what we’re known for. , and this has been enjoyed by all our buyers, adding Netflix.
That’s good news for us. Possibly not because of the many other animation societies or real societies. Some will probably pay but we won’t. This will allow us to be stronger. And then, eventually, more skill will seem to be available.
So, this is a very new story for us.
Operator
[Operator Instructions] Since we have no more questions. If you have more, call 1604-683-3555 or email inverter@thunderbirdtv. Thank you. This concludes our matrix
A-Jennifer Twiner McCarron
Thank you.
Operator
Now you can disconnect your lines and have a day.