Thunderbird Entertainment Group Inc. (THBRF) Q4 2022 Earnings Call Transcript

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Thunderbird Entertainment Group Inc. (OTCQX:THBRF) Q4 2022 Earnings Conference Call October 21, 2022 2:00 PM ET

Company Participants

Jennifer Twiner McCarron – Chief Executive Officer

Barb Harwood – Chief Financial Officer

Conference Call Participants

Aravinda Galappatthige – Canaccord Genuity Corp.

David McFadgen – Cormark Securities Inc.

Operator

Thank you for joining us. We are here to provide a Corporate Update and Report on Thunderbird Entertainment Group’s Year-End Fiscal 2022 Results, which ended June 30, 2022.

Speaking on today’s call are Ms. Jennifer Twiner McCarron, Thunderbird’s CEO; and Ms. Barb Harwood, Thunderbird’s CFO. Ms. Twiner McCarron will provide a strategic overview of Thunderbird Entertainment Group, and Ms. Harwood will review the Company’s year-end 2022 financials. Following the corporate update and financial review, the call will open for a question-and-answer session. [Operator Instructions] Alternatively, if you have any questions you can call, +1604-683-3555 or e-mail investors@thunderbirdtv and the Company will follow-up directly after the call. At this time, all lines have been placed on mute to prevent any background noise.

I’d like to remind everyone that certain statements made on today’s call will be forward-looking and constitute forward-looking statements or forward-looking information under applicable security laws. Forward-looking statements and information discussed on this conference call include, but are not limited to, statements with respect to the Company’s objectives, goals or future plans and the business and operations of the Company.

Forward-looking statements that are necessarily based on a number of estimates and assumptions that while consider 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 quarterly news release. Although the Company believes that these 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 obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For your convenience, the press release, the MD&A and unaudited financial statements for the fiscal 2022 of Thunderbird Entertainment Group, which ended June 30, 2022 are filed on SEDAR and are available online under the Investor 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

Thank you so much. My name is Jennifer Twiner McCarron, and I’m the CEO of Thunderbird Entertainment Group. On behalf of the company, I’d like to welcome you to today’s call to discuss our year-end 2022 results, which ended June 30, 2022. Thunderbird’s CFO, Barb Harwood, is with me today, and we really appreciate you joining us and following Thunderbird’s story. I will provide corporate updates and Barb will share the financials. Once Barb and I are finished, we will be happy to answer any and all questions you may have.

I want to start today’s call reinforcing a message many of you have heard from me say. When it comes to content development, it’s quality and quantity, more quality more than anything, quantity is going to win. It is a time of a need for quality. Premium quality content is king and it’s in great demand. 2022 has been a build year for us, investing millions in new hires, software and technology, and the development of great IP.

From 2020 to 2022, Thunderbird’s revenue has grown 85% and our EBITDA has grown 35% and the best is still yet to come. While there are fears of a recession, content will continue to be in demand. My dad, [Don Twiner], ran Robin Hood Multifoods for many years, decades even, and used to say recessions were great for his business as people stayed home, bought his flour and baked and watched TV. There is always a need for content.

And while change is inevitable, as streamers and broadcasters adopt and shift their business models to remain competitive, the one constant is a need for A-plus content to attract and retain subscribers. Thunderbird is well known as an industry darling because of the amazing content and talented teams and premium content, which is what we create at Thunderbird, and this is the differentiator in this next phase of streaming.

Thunderbird is going to be relied on more heavily than ever before to provide premium, diverse and inclusive content. This was further reinforced this week when I had the privilege of attending MIPCOM in Cannes, France with several members of our Thunderbird team. We met with many key buyers, global streamers and broadcast networks like Disney, Hulu, NBCUniversal, WarnerMedia, just to name a few.

Our development slate was incredibly well received, while our latest third-party distribution acquisitions such as something like Mittens & Pants garnered a ton of interest from international buyers on its first trip to the market. There will be a lot of positive follow-ups on many IP shows in the coming months. We also received a lot of attention at the market for our recently announced show Oddballs, a newly animated partner-managed production with Netflix and YouTube creator James Rallison. Oddballs debuted number one on Netflix Kids Top 10. It was also the number six TV series globally.

Adult content included for the week of October 10 to 16, and its holding steady at the top. In fact, it had 11.9 million viewing hours during this week alone, which didn’t include the first three days from its premiere. We own a nice piece of the backend for all cross media exploitation and it’s really exciting to see where this goes. The fact remains that content spending collectively continues to increase. Disney+ has increased their content spend to almost $33 billion, and Netflix has projected to spend $17 billion again this year and recently signaled. It has started a comeback with the company posting better than expected Q3 results on the top and bottom lines, adding 2.41 million net subscribers during the quarter, which was also higher than the 1 million it had originally forecasted.

Add to this, according to Digital TV Research, global SVOD subscriptions are forecasted to increase 39% to reach 1.68 billion by 2027 with global revenues forecasted at $132 billion. Included in this forecast is that six major platforms are projected to account for 47% of the world’s total subscriptions in 2027, Netflix, Amazon, Disney+, Paramount+, HBO Max, Apple TV, we work with all of these buyers plus more.

Thunderbird has trusted relationships with our partners and together with our reputation for premium award-winning content, we are positioned well, incredibly well for continued growth year-over-year in an ever evolving landscape. What’s more is that in July 2022, we saw the highest rate of streaming content consumption on record with audiences watching an average of 190.9 billion minutes of streamed content per week, surpassing the 169.9 billion minutes that audience watched during the pandemic lockdown period back in April, 2020.

And according to Digital [indiscernible], a media insights business magazine, kids’ profiles on Netflix watched 3.6x more content on Netflix at the start of 2022 compared with 2018, outpacing the growth in adult viewing, and Netflix subscribe households with kids now watch an average of 20 more minutes of content per day than adults or households without kids. We are in the business of creating premium kids’ content and this along with unscripted content remains a cornerstone in content strategies to glue co-viewing audiences.

Thunderbird’s strong industry position is the result of our team’s concerted efforts to mindfully grow the company. Our management team and Board are focused on building a sustainable business with the long-term goal of becoming the next major global studio. We are selective about the projects we take on and this is a part of our strategy to build an impressive portfolio with recognizable brands and significant brand building capabilities. Why? To drive profitable growth and long-term shareholder returns while creating meaningful content that matters and brings happiness into people’s lives. This past year, our focus was on our future, and again, this included investing in new roles within the company to help us grow, such as marketing and communications, distribution, scripted development, business affairs, ESG and more.

Speaking of growth, we expect strategic M&A, strategic and accretive M&A to play a part in our long-term growth when the right opportunity arises. We won’t do M&A unless it makes financial, strategic and cultural sense and we will not dilute our shareholder base. Again, a downturn in the market provides opportunity for companies like ours with very strong balance sheets.

Our company’s strong and prudent fiscal management, which is highlighted by zero corporate debt, will allow us to take advantage of opportunities that allow for accretive growth, increased capacity, new talent and IP and libraries to feed our consumer products and distribution division. We don’t need to be bigger for the sake of getting bigger. Rather, we are looking at acquisitions that both align with our company’s strong value systems and also can add to our areas of expertise.

When evaluating opportunities, we ask ourselves, what does this organization do better than us? What can they teach us? How can we elevate together with what we are already doing and what we are already delivering? We have a strategic and mindful approach when it comes to M&A and we will be selective and patient. Similarly investing in the content production and animation industries means investing in growth over longer term horizon. This is because developing high quality, compelling and creative projects is time intensive, and did we want to get it right?

As content producers, we typically can’t discuss productions until they have been completed and delivered to our distribution partner. For example, our team has been working on Oddballs for over two and a half years by its Netflix debut, it will be close to three years. Any award-winning owned IP, The Last Kids on Earth took well over two years with the initial conception to its Netflix premiere. For IP productions like Last Kids on Earth, revenues are only actualized when their production is delivered.

Development of the brand new original series Deadman’s Curse, which airs on the History Channel Canada, was over two and a half years in the making. Lifestyle series like Styled came together in 21 months with development starting in July, 2020 and the show is premiering in May 2022, and we originally announced our partnership to develop Princess Power by the book Princesses Wear Pants with Allison Oppenheim, Savannah Guthrie and Drew Barrymore’s Flower Films in the fall of 2018. This show was officially announced by Netflix this fall and will debut in 2023.

Atomic optioned and developed this show before selling it to Netflix and like Oddballs, we have a healthy piece of the backend. Netflix is betting on this show as their only princess show, and if it takes off as we believe it will, we stand to benefit from all of the cross media exploitation.

At Thunderbird, we are working hard to maximize the value of our storytelling while capitalizing on the mass of opportunity ahead. This fall alone we produced and were proudly connected to productions like Strays. Season 2 on CBC, Deadman’s Curse on History Canada, Highway Thru Hell Season 11 on Discovery, Reginald the Vampire for SyFy, Amazon Prime in Canada, My Little Pony, Dogs in Space on Netflix, and the two-part documentary After The Storm produced by GPM, which will also debut on Discovery Channel.

And also, our content Turns Heads. For example, New York Times TV critic Mike Hale, recently wrote an article describing Dogs in Space as a [indiscernible] animation series with humor that is consistently smart and deft, just snarky enough, just silly enough and just sentimental enough. His article also gives a shout out to Atomic for throwback 2D animation that is both crisp and endearing. You can’t put a price on feedback like this and the teams deserve this type of praise, the talent at our studio through the roof.

Longstanding unscripted series Highway Thru Hell is another example of our premium content. Now in its 11th season, this falls episodes feature never seen footage and stories from communities impacted by the unprecedented weather disaster of the 2021 step flood. With every production, we work to raise the bar and we are growing to meet the ongoing demands. We are now at 1,400 and more employees across North America and we’ve added many new spaces and invested in our capabilities with our teams to support the company’s long-term growth trajectory.

Now before providing the production updates, I’ll pass things over to Barb to go over the numbers and then after I’m done, we’ll take your questions. Thanks so much.

Barb Harwood

Hello, everyone and thank you for joining Jen and I today. Thunderbird’s revenue increased from $26.1 million to $44 million in the three months ended June 30, a 69% increase, while revenue for the year increased from $111.5 million to $149 million, a 34% increase over the prior year. This revenue consists primarily of animation production services, which experienced continued growth. Production service revenue for the quarter ending June 30 increased $32.5 million from $24 million and to $120 million from $77 million in the prior year, a 55% increase year-over-year. This was due to an increase in the number and size of contracts being produced at the company.

Revenues from owned IP increased from $2.1 million to $11.6 million in the quarter, mainly due to the delivery and recognition of four episodes of Reginald the Vampire to SyFy. The remaining episodes and recognition of revenue of this title will continue into fiscal 2023. During the quarters, the company also recognized 19 episodes of the two factual series Gut Job and Styled. In the comparative quarter, there were no IP deliveries, however significant distribution revenue was recognized for Kim’s Convenience and Beat Bugs. Revenues from owned IP decreased to $29 million from $34 million from the prior year due to timing of deliveries of IP projects.

In the prior year, 13 episodes of the animated series, The Last Kids on Earth were delivered with no comparative delivery in the current year. Gross margin percentage in the current year and year decreased due to the unmentioned timing and mix of IP deliveries, changes in production services schedules, and increased investments in production talent in fiscal 2022.

In addition, the company recorded an accelerated amortization charge of $3.1 million related to a decrease in the estimated useful life of the title Last Kids on Earth. Consumer products for this title such as toys and merchandise were released in March, 2020. Previous future estimates from this revenue stream have not met expectations due to the downturn in the consumer products market related to the COVID pandemic. The company is confident that other revenue streams of this title such as distribution and video games will continue to deliver future results as expected.

The company ended fiscal 2022 with adjusted EBITDA of $2.4 million for the quarter and $20.1 million for the year ended, a 4% and 3% increase over the prior quarter and year. Adjusted EBITDA over both periods was relatively flat due to the company investing in talent retention, key new hires and software and technology upgrades to further facilitate long-term growth.

Thank you. And now Jen will provide production update throughout the company.

Jennifer Twiner McCarron

I will now provide the corporate updates. As of June 30, 2022, the company had 28 programs in various stages of production. It should be noted that the number of productions in programs generally reflects the timing of contracted deliveries and license period start dates with broadcasters, distributors, and streaming organizations. Of the 28 programs in production, eight were Thunderbird IP and 20 were service productions. Two of those service productions were partner-managed, where the productions are fully funded by the partner with an increased profit boost and entirely managed, creatively tip to tail by Thunderbird. As a result, Thunderbird is entitled to receive a percentage of the net profits from merchandise and licensing.

At the end of fiscal 2022, the company was in various stages of production, again on 19 animated series for 13 collective clients. These programs include Molly of Denali, Season 2 for GBH and PBS Kids, CoComelon Lane for Moonbug Entertainment and Netflix, Teenage Euthanasia for Adult Swim and Young Love with Sony Pictures Animation for HBO Max, among others.

New company animated productions that have been announced include LEGO Star Wars Summer Vacation on Disney+; Little Demon on FX; Oddballs for Netflix and subsequent to the quarter; Princess Power for Netflix, which was announced.

Shifting focus, the company was in production on seven factual series and one documentary. These would include Mud Mountain Haulers Season 2 for Discovery, Deadman’s Curse Season 1 for History, Styled Season 1 for HGTV, Gut Job Season 1, Heavy Rescue: 401 Season 7, Highway Thru Hell Season 11, Dr. Savannah: Wild Rose Vet Season 2 for APTN, and After the Storm, a documentary in production for Discovery Canada based on the 2021 flooding in B.C.

And on this scripted side, the company was working on Strays Season 2, which premiered on CBC and CBC Gem and Reginald the Vampire, which debuted on SyFy in the U.S. and Amazon Prime video in Canada in October. Our consumer products and global distribution team not only expanded with the recent hire of new Canadian distribution sales team member Nelson Huynh, it also acquired global media and consumer product rights to the new preschool series, Mittens & Pants, which will debut on CBC and Gem in Canada, and in the UK on Sky Kids in the late fall of 2022.

Thunderbird’s recognitions in during and subsequent to the quarter included Kim’s Convenience with three Canadian screen awards, Great Pacific Media named to Realscreen’s Annual Global 100 Canada Listing, and Molly of Denali winning a 2022 NAMIC Vision Award and a 2022 Kidscreen Award. Thunderbird Productions were also collectively recognized with eight Leo Awards. Atomic Cartoons in partnership with GBH was also awarded a 2022 BC Reconciliation Award by the Canadian government and the BC Achievement Foundation for our work on Molly of Denali.

This concludes our corporate updates for today. We are so pleased with the company’s continued progress and its position as a go-to provider for creating high quality, meaningful content that’s entertaining, feels good and represents viewers from around the world. We thank you for continuing to be part of our journey and we are really looking forward to sharing more updates on what’s to come in the months ahead. We could not be more excited.

We also would like to invite you to a webcast investor presentation on November 17 at 11:00 AM Pacific, 2:00 PM Eastern that Thunderbird will be hosting. During this presentation, I will provide a corporate presentation covering important areas of Thunderbird’s business at a high level and there will also be a question-and-answer session. A press release will be distributed leading into this with the specific details.

Now, Barb and I are more than happy to take any questions you may have. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Aravinda Galappatthige with Canaccord Genuity. Your line is now open.

Aravinda Galappatthige

Thanks for taking my question.

Jennifer Twiner McCarron

Hi, Aravinda.

Aravinda Galappatthige

Hi, how are you? Thanks for taking my question.

Jennifer Twiner McCarron

And how are you?

Aravinda Galappatthige

Not bad. Not bad at all. I wanted to start with a quick clarification around the 3.1 million write-off for Last Kids that is deducted in EBITDA, right? I mean, when I looked at the reconciliation, net income to EBITDA, I didn’t see it would suggest that it was, but I just wanted to clarify that?

Jennifer Twiner McCarron

That’s correct. Yes. We don’t add it back to get to EBITDA.

Aravinda Galappatthige

Okay, perfect.

Jennifer Twiner McCarron

So we would [indiscernible].

Aravinda Galappatthige

So when I kind of…

Jennifer Twiner McCarron

Please go ahead Aravinda, there’s a bit of a delay, but you keep going.

Aravinda Galappatthige

I know. Yes, I realize that as well. So I’ll just – I’ll have a pause after my questions maybe. So if I look at that and I kind of think about margins going forward, it looks like if I adjust for that, that 15.5%, 16% margin, well, let’s call it 15.5%, is the level that we landed. When you think about your projects going forward, is that still a level that you think you can sustain? I know that it’s hard to get specific on those things, but just wanted to get a sense of when the mix changes a little bit, again, you have a couple of new IP projects hitting the tape here, how that should play out from a margin perspective?

Jennifer Twiner McCarron

Yes. We’re definitely – yes, I’m here. Yes, we’re definitely aiming to keep that margin higher. It always depends as you know on the sort of portfolio of types of projects that we’re doing. As we’ve talked about before, the kind of higher budget scripted shows such as Reginald are at a lower percentage margin than say something like a Highway Thru Hell, even though we’re pulling in the same or more fees into the company. So it’s really going to depend going forward on kind of those mixes. And the more shows we do, the more that’s going to kind of standardize and level out.

And just to touch on Last Kids, we still bullish about the property that we have the rights to make content for years to come with every book that comes out. And we’re still feeling very optimistic, as Barb noted about the video game sales and the distribution. We just got hit with consumer products launch in March of 2020 was ill-timed. And we’re being exceedingly conservative as a company right now, so that we can continue to be very above Board and push great growth in the coming years.

Aravinda Galappatthige

Absolutely. And then just with respect to the investment in content, I mean, obviously you’re doing more work, so you’ve seen that number kind of settle in fiscal 2022 over 2021 from $15 million to $30 million. How should we be thinking of that going into 2023 please?

Jennifer Twiner McCarron

Yes. And if you take a look at the – I’m sorry, there must be quite a delay. If you take a look at the notes and the financial statements, you’ll see about 25 million of that is work in progress. The vast majority of that is due to Reginald because we haven’t recognized the majority of Reginald. As I mentioned, we only recognized four episodes and just to SyFy not to our other partners in 2022. So a lot of that will be released to the income statement in fiscal 2023.

Aravinda Galappatthige

Okay. Great. That’s really helpful because I was going to ask about Reginald, I mean, how many more episodes should we expect in Season 1 in fiscal 2023? And I suspect that won’t be a Season 2 that hits 2023, but maybe any commentary around the episodic count as well as what if there’s a different margin profile here at all that’s what well knowing as well?

Barb Harwood

Yes. There’s six more episodes to be recognized for the SyFy contract and then all the episodes to be recognized for our agreements with Hulu, Amazon, and Cineflix. Cineflix is our international distributor and possibly Jen can comment, but I understand they were selling hard at MIP this week. And so there can be some really future good news on that front too.

Aravinda Galappatthige

Great. Thank you. I’ll leave it there. Thanks a lot.

Barb Harwood

Thank you, Aravinda.

Jennifer Twiner McCarron

Thanks, Aravinda.

Operator

Thank you. Our next question comes from David McFadgen with Cormark Securities. Your line is now open.

David McFadgen

Hi. Yes, a couple of questions. Just wanted to confirm the big budget show that should have a fair amount of revenue, that’s Reginald right for 2023?

Jennifer Twiner McCarron

That’s correct.

David McFadgen

Yes. Okay. So obviously the revenue is going to grow at a fair clip. And I know you don’t like to provide guidance, but I was just wondering, is it reasonable to expect that the EBITDA would grow, say 10% or more in fiscal 2023?

Jennifer Twiner McCarron

Yes. That’s very reasonable expectations, David.

David McFadgen

Okay. And I was just wondering if you could sort of give us your view on which property or properties would have the most upside now for the exploitation of merchandising and so on?

Jennifer Twiner McCarron

Yes. I think, right now, Princess Power is pretty exciting. It’s been set up at Disney – sorry at Netflix as their only Princess show. And they’ve committed to not bringing on any other Princess content to really promote it to go head-to-head with Disney’s entire Princess line. And we own quite a substantial piece at the back end, which in success with toy lines and games and everything being set up now, we could stand to substantially benefit from.

David McFadgen

Okay. And when might we know or what would – when would we see the early signs that that’s actually going to happen? Do we could see some big potential signs?

Jennifer Twiner McCarron

Well, it would be a sort of late calendar year 2023 or into 2024 by the time the momentum has caught and we’ve launched content and the toy lines are getting on – out there and whatnot.

David McFadgen

Okay. Okay. And then a question for Barb. The investment in content was $31 million. I was just wondering if you could give us a ballpark as to what you think the investment in content would be in your fiscal 2023 year?

Barb Harwood

Well, as I mentioned to Aravinda, right now, the – quite a bit of that $30 million is Reginald the Vampire, that’s still work in progress that will be released out of that investment and content line in the first two quarters of fiscal 2023. And I don’t see a Season 2 starting to accumulate there until a little bit later, once we find out the numbers and stuff like that. So at year-end of 2023, it would probably be the same or perhaps a little less just because of that, the timing of the fact that you’ve kind of collected the vast majority of production costs of an unrecognized show in that balance.

David McFadgen

Okay. And then just some…

Jennifer Twiner McCarron

But to answer your question, David, like we are investing more and more every year in the development lifting sale creation of owned IP.

David McFadgen

Yes. And then just given the state of the stock market we’re in and your stock price, I mean, have you thought about potentially buying back some stock here?

Jennifer Twiner McCarron

We have not at this juncture. But that is something we would discuss with our Board. Certainly, the main goal is to honor all of our shareholders and hit this out of the park, which we know we’re going to do, but to have that translate to the stock price. So everything is on the table. As we look at our coming moves, we continue to focus on building a very healthy, strong, profitable business and then working together to make sure our stock reflects that.

David McFadgen

Okay. All right. Thank you.

Jennifer Twiner McCarron

Thank you, David.

Operator

Thank you. There are currently no additional questions waiting at this time. This concludes our call today. If you have any questions, please call +1604-683-3555 or e-mail investors@thunderbird.tv. Thank you.

Jennifer Twiner McCarron

Thank you.



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