Thunderbird Entertainment Group Inc. (TBRD.V) Earnings Call Transcript

Thank you for joining us. We are here to provide a corporate update and report on Thunderbird Entertainment Group's Fourth Quarter and Year-end Fiscal 2021 results, which ended June 30, 2021. Speaking on today's call are Ms. Jennifer Twiner McCarron, Thunderbird's President and 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 Q4 and year-end financials. [Operator Instructions] Alternatively, if you have any questions, you can call 1 (604) 683-3555 or e-mail investors@thunderbird.tv, 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 forward-looking and constitute forward-looking statements or forward-looking information under applicable securities laws. Forward-looking statements and information discussed on the 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 are necessarily based on a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties and other factors, which may cause actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, general business, economic and social uncertainties, litigation, legislative, environmental and other judicial regulatory, political and competitive developments. Those additional risks set out in the company's filing statements and other public documents filed on SEDAR at www.sedar.com and other matters discussed in the company's year-end news release. Although the company believes that the assumptions and factors used in preparing these forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this presentation, and no assurance can be given that such events will occur in the disclosed time frames or at all. Except where required by law, the company disclaims any intention or obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise. For your convenience, the press release, the MD&A and unaudited financial statements for the Q4 and fiscal 2021 year-end Thunderbird Entertainment Group, which ended June 30, 2021, are filed on SEDAR and are available online under the Investors section of our website. We do not expect to update forward-looking statements continually as conditions change. This conference call is being webcast live, and the archive will be available on the company's website at www.thunderbird.tv. Please note that Thunderbird reports in Canadian dollars unless otherwise stated. Ms. Twiner McCarron will now provide the corporate update.

Thank you so much. On behalf of everyone at Thunderbird, I'd like to welcome you to this morning's call to discuss our Q4 and fiscal 2021 year-end results. which ended June 30, 2021, and these results are audited. My name is Jennifer Twiner McCarron, and I'm the President and CEO of Thunderbird Entertainment Group. I'm here today with our CFO, Barb Harwood, and we're both extremely thankful to have you here with us. Once Barb and I finish our updates, we're more than happy to answer any questions you may have. Thunderbird Entertainment is on a journey to become the next major global studio. We have world-class projects, world-class partners, offices in Vancouver, Toronto, Ottawa and Los Angeles, and award-winning teams who are producing premium content for leading over-the-top platforms and international broadcasters. Our fiscal 2021 numbers represent everything I just mentioned from our talented teams to our trusted partnerships to our contributions in building global brands. They reflect strategic and mindful thought around the content we choose to produce, and the fruition of several initiatives that were put into place years in advance to set Thunderbird up for long-term growth. And I'm thrilled to say we are continuing to build for our future, mapping out clear pathways and new initiatives for Thunderbird's growth moving forward. These growth opportunities cover a spectrum of initiatives, some of which I will touch on today. The first growth opportunity is the demand for content globally continues to boom. Direct-to-consumer subscription and ad-supported platforms as well as traditional television broadcasters and networks continue to invest in new content as competition for audience share is fierce. The industry overall remains very bullish that the demand for great television and streaming content will stay strong for many, many years to come. Netflix now has 213.5 million subscribers globally. And according to a recent SVOD forecast update, it is projected to add another 53 million subscribers to reach 271 million subscribers by 2026. Disney+ topped more than 100 million subscribers within 16 months from the platform's launch, beating its own 3-year projection. The same SVOD forecast report highlights that Disney+ will add 140 million subscribers between 2021 and 2026 to bring its total to 284 million. Overall, Grande Research predicts that the global video streaming market will expand at a 21% compound annual growth rate over the next 7 years to reach nearly USD 224 billion of global revenue by 2028, up from over USD 50 billion in 2020. We know that in this saturated market, only the highest quality content will stand out, which is why we are both excited and confident about our strategy to focus on producing top-quality content to the global marketplace. In addition, we believe our strategy to have a diversified portfolio of companies producing animation, factual and scripted content will be instrumental in Thunderbird's long-term growth. Another growth opportunity is our global distribution and consumer products division, which was established in January of 2021 and launched with Richard Goldsmith helm. Having team members at Thunderbird, who are focused solely on distribution and who support all 3 production units increases our access to platforms around the world for potential sales and production financing opportunities. This team is also looking to invest in extraordinary productions from other companies that we can distribute. Meanwhile, the consumer products team is focused on turning an IP into toys, video games, apparel, all forms of cross-media exploitation. Our well-established foothold is the stickiest of all categories. Kids & Family is another point of differentiation for our company, and one that continues to propel Thunderbird's growth forward. For example, Atomic Cartoons, our Kids & Family Division, is producing CoComelon [indiscernible] compilation to Netflix. CoComelon generated 109 billion views on YouTube and has been one of the 10 most popular shows in all but a handful of countries. This is just one example of a service opportunity that demonstrates our expertise when it comes to Kids & Family content. Most of the television series produced by Atomic Cartoons are 4 of the top names in the industry such as Disney, WarnerMedia, Netflix, Peacock and PBS. Atomic has experienced significant growth over the last few years, and we've also increased the development of company-owned or controlled IP, some good announcements to come. And our team has pitched more new series to platforms worldwide this calendar year than any other year in our history. Atomic Cartoons plans to commence production on some of these series in late fiscal year '22 and into '23. Thunderbird is also championing industry-leading diversity and inclusion initiatives, on screen and off. We know this is the right thing to do, and we're doubling down on our D&I efforts. Add to this, studies have shown that diversity and inclusivity positively affect the bottom line. Our recent Boston Consulting Group study of 1,700 companies demonstrated that a positive relationship between management diversity and innovation is statistically significant, meaning that companies with higher levels of diversity, get more revenue from new products and services. Also on the diversity front, streamers are looking to create and buy diverse and inclusive content and are continually seeking out new and authentic storytellers. Thunderbird is uniquely positioned to deliver in this area with our proven track record with shows on our production site like Molly of Denali, Queen of the Oil Patch, Young Love, Reginald the Vampire, and Dr.Savannah: Wild Rose Vet. I can't say enough how thrilled we are to execute on this new and what I would say, amazing and long overdue wonderful industry mandate. Another area of growth for Thunderbird involves M&A. We remain focused on opportunities to expand our content portfolio on all fronts, including strategic international expansion opportunities in Europe and Asia. We are heavily exploring acquisitions that support expanding the company's IP as well as increase our capacity as we look to grow our own production output as well. This is a mere snapshot of the exciting things going on at the company, and I'm delighted for the opportunity to continue to share our progress as we move forward. The teams at Thunderbird are building for the future. And with visibility into 2024, we know that the investments we are making will continue to drive long-term growth that extends beyond year-over-year results. With this, I will turn it over to Barb to go over the numbers, and then I can provide a high-level corporate update. Over to you, Barb.

Thanks, Jen, and thanks to everyone who called in today. I'd like to join Jen in expressing how proud we are of the team at Thunderbird and of the fiscal 2021 results that continue to grow exponentially year-over-year since we first went public in November of 2018. Consolidated revenue for the 3 months and year ended June 30, 2021, was $26.1 million and $111.5 million as compared to $21.1 million and $81.3 million for the comparative period of fiscal 2020, increases of $5 million or 24% and $30.2 million, 37%, respectively. The majority of these increases over the comparative periods in 2020 is related to growth in production service projects. Production services revenue consists primarily of animation production services, which experienced continued growth. For the 3 months and year ended June 30, 2021, these revenues increased by 91% or $11.4 million and 63%, $29.8 million, over the comparative period due to an increase in the number and size of projects. Growth in this area reduces the volatility of results over quarters as the production services revenue is recognized as the work is completed. Licensing and distribution revenue is earned when Thunderbird owns the copyright to a project, and is recognized once that project is considered fully delivered to the broadcaster, distributor or streamer. Licensing and distribution revenue was similar compared to last year, with an increase of 1% or $0.2 million over fiscal 2020 due to the continued renewal of series like Highway Thru Hell, Heavy Rescue: 401, and Kim's Convenience. Consolidated net loss was $0.9 million and consolidated net income was $5.7 million for the 3 and 12 months ended June 30, 2021, compared to a net loss of $0.5 million and net income of $3 million for the comparative period, a decrease of $0.4 million or 53% and an increase of $2.7 million or 89%, respectively. Adjusted EBITDA was $2.3 million and $19.6 million for the 3 months and year ended June 30, 2021, compared to $2.9 million and $15.5 million for the comparative period of fiscal 2020, an increase of $4.1 million, 26%, respectively, over the last year. These increases were primarily due to growth in production services, as I mentioned previously. In addition, with the constantly changing entertainment industry, where commercial success of content can be unpredictable. The company continues to be conservative with respect to the value of our library on the balance sheet. Consequently, we recorded additional amortization related to certain titles in our release content totaling $4.6 million during fiscal 2021, with $2.25 million being in Q4 2021 as compared to $2.2 million in fiscal 2020. We remain very optimistic as we build our library that we will continue to be able to generate significant revenues from it. And finally, a short comment about backlog. In Q3 of 2021, we reported a new metric that we defined as backlog, which was related to production service and license agreements we had executed but where revenue would be recognized sometime in the future. The backlog number was meant to be reassuring about the amount of work booked. However, meetings after the Q3 results were released, we observed that many investors interpreted the measurement improperly, which created uncertainty about the company's future prospects. Consequently, we have decided to eliminate reporting a backlog number in the immediate future. Again, thanks for joining us today and looking forward to your questions. Back to you, Jen. Jen, you maybe on mute.

Oh, sorry, there we go. Thank you, Barb. I will now provide a focus on Q4 and where we finished the fiscal year. As fiscal year-end, Thunderbird was in production on 18 productions with 8 of them being owned IP or partner managed. It should be noted that subsequent to the year-end, the company released an update announcing 27 shows in production, an increase of 9 shows since the fiscal year-end. We were so excited to share this update and put it into one place, the steady stream of new production titles and updates to our studio. At the end of Q4, our Kids & Family Division, Atomic Cartoons, was in various stages of production on 11 animated series and 2 feature-length animation projects, 13 productions in total. These programs reflect a blend of both proprietary and service-based work, including coproducing Marvel's Spidey and His Amazing Friends with Disney Junior; Molly of Denali Season 2 for GBH and PBS Kids; CoComelon Lane for [indiscernible] and Netflix; My Little Pony for eOne/Hasbro; a Curious George Production for Peacock; and the highly anticipated series, Young Love, with Sony Pictures Animation for HBO Max. Atomic owned IP, the Last Kids on Earth launched our first video game with Outright Games, and Atomic also received the following renewals by broadcast and streaming partners. Season 2 of Molly of Denali for GBH and PBS Kids and season 2 of Marvel's Spidey and His Amazing Friends for Disney Junior. Shifting focus our factual and scripted division, Great Pacific Media was in production on 5 series. Highway Thru Hell, season 10; Heavy Rescue, Season 6; Deadman's Curse, The Working Title, season 1; Stray, Season 1; and Dr.Savannah: Wild Rose Vet in conjunction with [indiscernible] media. In Q4, [indiscernible] media in partnership with Great Pacific Media also announced the development deal with Anthony Johnson and Dr. James Mcokes, the first 2 spirit indigenous couple to win the Amazing Race Canada. Demand for factual content has surged through the pandemic. A recent Forbes article highlighted that in 2020, audience has spent twice as much time watching documentaries and reality TV than they did any other year prior. And factual series are proven to stay on streamers most watch lists longer than scripted shows. Great Pacific Media is renowned throughout the industry for its factual programming with multiple long-running television series like Highway Thru Hell, which has aired more than 100 episodes, and is distributed in more than 190 territories worldwide. In fact, in June, Great Pacific Media received renewals of its 3 hit factual series, Highway Thru Health, Heavy Rescue: 401 and Mud Mountain Haulers, all airing on Discovery Canada. All 3 series also air in the U.S. on the Weather Channel, and GPM also confirmed that the 3 new projects in development were ordered to series by Corus Entertainment, Styles, Gut Job and Deadman's Curse. The factual division also announced that it commenced production. And our lifestyle series starting San favorite Canadian contractor Sebastian Clovis of saved by rental. This series was born from Sebastian's years of coaching homeowners through all types of housing and renovation issues, and we are delighted to be working with Sebastian and another lifestyle production. [indiscernible] is produced in partnership with Corus Studios and were air on HDTV Canada in 2022. GPM also began broadening its content horizons to serve key audience demographics globally from Kids on Up. In development at GPM is a diverse group of productions that range from how to pop culture to science, high actions, kids reality shows and drama. Thunderbird's scripted programming rolls under GPM. Our scripted group is also gaining significant momentum with the recent launch of the new CBC Comedy series [indiscernible], a spin-off of the hit series Kim's Convenience. And the imminent start of principal photography on our upcoming series Reginald the Vampire, which we will co-produce with modern story company in December film. This concludes the corporate update for today. There's truly never been a better time to be in the business from content creation, and this is especially true for the animated and factual industries. With content spending on the rise and keeping quality of our North Star, we are proudly building a reputation of housing world-class talent to create exceptional production. As a company, we are working together to grow organically, and we are investing in our future as a major global studio. As I wrap up today's remarks, I'd like to thank you once again for joining us to discuss our fiscal 2021 results. The opportunities ahead are so with incredible potential. And on behalf of the amazing and talented teams in our Thunderbird family, thank you again for joining us on this very exciting ride. Now Barb and I are happy to take any of your questions.

[Operator Instructions] Your first question will come from the line of Laura Martin with Needham.

Sorry, I was on mute. So let me ask again. So yesterday on the Netflix call, they said that they did not expect either video game or consumer products to contribute to revenue in the next sort of 3 to 5 years. And even at peak, they didn't expect consumer products to be a meaningful contributor to revenue. I know you also are pursuing sort of the video game and consumer product strategy. Can you proceed in your -- when you think about projections, do you think those will be material upside drivers to your revenue line? And if so, what's your time line on those 2 ancillary businesses?

Yes. That's a great question, Laura. So we are setting very much -- that's why we opened the consumer products and distribution department was to sort of set up more of our own IP and then exploit and leverage that IP. It does take a while to make, which is why Netflix is likely projecting -- the right to protect out that part because once you set the show up, you develop it, you need the content on air, a significant block of content to support the launch than the toys games have to be made. So it really is sort of a 3- to 5-year perspective. As it relates to Thunderbird, we have a bit of a head start. We'll start seeing some uptick in '23, and things really start to comp in '24 or '25 and beyond.

And do you think they can be like 25% of total revenue at peak? Is that your goal? How big do you think -- give me a magnitude, if you can, for like video games and consumer products that could be upside to that?

Well, I mean, [indiscernible], we're always trying to be conservative. That's what we're putting into our projections. We always do ultimate -- low, mid- and high level ultimates. And we don't project high ultimate because you can't make a hit happen. But when you look at why eOne bought has Hasbro -- or Hasbro bought eOne for $5 billion, it was because of [indiscernible]. And the power of those brands when they hit, it's transformative. So we're -- we have over 50 projects coming up through our IP pipelines to set up and sell. And we're very hopeful that there is a transformative IP in there. Of course, you can't make that happen, but that's certainly -- we're putting all the measures in place to give us the best shot.

Excellent. And then I know one of your strategy is balancing, sort of creating your own IP compared to working for other people's IP. Can you give us that mix right now of how much of your -- I'm going to call it backlog, which would just not discontinued. But how much of your late now is for your own account versus for someone else?

Yes. I'd say just over 50% of our site is IP, and then the rest would be service and partner managed in which -- sorry IP, right up IP and partner managed, and partner managers when we have ownership in the back end. So while we may not retain the copyright, we do have ownership in any toys, video games cross-media exploitation.

So you basically have an economic claim in everything you do. It's just you own 100% of IP at about 50%. Did I hear that correctly?

That's right. And then the rest is a mix of service and partnership, and that's across both divisions, Factual and Kids and Family.

Okay. Great results.

Your next question will come from the line of Aravinda Galappatthige with Canaccord Genuity.

Congrats on the quarter and the year, guys. I wanted to actually just flush out the service and proprietary mix a little bit. Obviously, Q4 was very skewed to its service. I know that's not an indicator. But when you go by the financial results, it's sort of -- last year was 31%, maybe a bit more than that, distribution and licensing. Should we kind of expect that maybe a move towards 40% or 50% quickly in terms of fiscal '22? Or would that be a more gradual process as we kind of look beyond '22?

I would say it's a more gradual process. There's ebbs and flows in terms of when things deliver. And I heard Barb jumping in, probably has a more granular answer. Barb?

Yes. I was just about to say that. Yes, definitely. And it all -- as you know, in it all depends on timing of when those licensing and distribution projects are going to be recognized. And as we build out more of our IP and more of our library, we're not going to see the results until everything is delivered. So while right now in the results, we're seeing about an 80-20 split on the revenue side is because we've spent the time in the last couple of years building out L.A., building out Ottawa, and so we're seeing the results of that. And so now we just need a little bit of time to build out that IP and to see it hit and kind of change those percentages down from being so weighted on production services to being a little bit more equal.

Okay. That makes sense. And with respect to the -- just focusing on the proprietary side a little bit. Obviously, you've talked a lot about Last Kids on Earth and the success that you had there. Is there anything else you want to call out in terms of owned IP on the kids side that is a period to be prospective right now? Or is it just a portfolio at this point?

Well, I can say we certainly have deals in place, but we're not able to announce. So the second that we can, we will be announcing it. And we can't wait to do that. We just have to make sure we're following proper protocol.

Absolutely. And my last question is, there's been a fair bit of -- I guess a fair bit of literature on what's going on in terms of the [indiscernible] space, quite a bit of M&A. I mean on the very high end, we saw MGM get taken out on, I guess, on the mid-cap side, let's call it. We've seen a number of independent studios get sold, including Hello Sunshine and so forth. What appears to be attractive multiples. Obviously, great for you guys on one side when you think about the stock. But on the other hand, a company with cash looking to grow, potentially looking to acquire. Does that make it a little bit difficult for you to pursue sort of your M&A strategy? Are you seeing sort of potential targets starting to kind of price themselves up a little bit?

Yes. It's a great question and one that we roundtable. Certainly, when we look at M&A, we're looking at different approaches to it. And we still do feel it's very achievable with the strategy that I've outlined before. But just as everybody else's multiples going up, those are. So that's not necessarily a bad thing. But definitely, it's hot. And I think it's just a good nod to the power of content, and what a massively lucrative industry is.