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

Greetings, and welcome to the Thunderbird Entertainment Corporate Presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Glen Akselrod, President of Bristol IR. Thank you. You may begin.

Thanks, Diego, and thank you, everybody, for joining our webcast today with Thunderbird Entertainment. The purpose of today's presentation is to give our audience a better understanding of the business via a PowerPoint presentation and then questions and answers with management. Just as a reminder, this is not an earnings call, and that Thunderbird is hosting their Q1 earnings call on Monday, November 29 at 11:00 Eastern Time. Any quarterly related financial questions should be reserved for that call. The discussion today is going to be led by CEO, Jennifer McCarron, who is also joined by CFO, Barb Harwood. You should see the presentation through the webcast. And if you would like to receive a PDF copy of today's presentation, simply e-mail me glen@bristolir.com, and I'll be happy to send it your way. When we do break, as Diego mentioned, you could -- we're going to take questions at the end. We encourage those questions, and we're going to be using only the web portal for those questions. [Operator Instructions] I'll ask those questions on the -- for everyone to hear and for Jennifer or Barb to answer. I'm not going to reference any names, but simply read the questions asked. And as we have a fairly large audience today, if I can't get to your questions online in time and it has not yet been addressed during the call in candy, I'll come back to you through e-mail. I won't read the forward-looking statements, but I do state that they apply, and I reference them on Page 2 of this PowerPoint. With that said, once again, thank you for joining us. Remember, this is fairly informal, and we do encourage you to probably better understand the business and its growth path. And now I'll turn the call over to Jennifer to start her part of the discussion and presentation.

Thank you so much, Glenn. Really appreciate the opportunity to speak with everyone today. Thunderbird Entertainment is a high-quality global content company. We create, own and distribute award-winning factual, animated and scripted content worldwide. We are well on our way to becoming next major global studio and have over 250 partnerships such as Netflix, HBO Max, Apple, Disney, Discovery Channel, NBC Universal and more. Featured here on this slide is our New York Times adaptive best-selling book Last Kids on Earth. It's always on the New York Times top 10 best seller list. In fact, recently was #1 ahead of Diary of a Wimpy Kid and Harry Potter. And it is currently airing on Netflix, and our console video game went live on June 4. Our interactive special with the choose-your-own adventure technology we developed with Netflix is streaming in the top 10 of all Netflix shows, not just kids and family. And last summer, The Last kids on Earth team won the prestigious Emmy Award for best outstanding special class animated program. We could not be more proud of the team. Our mission is to create content that makes the world a better place and tries to make people happy and provides a much needed escape, especially during these unprecedented times. A great example of our mission and styled content is Princesses Wear Pants, which is featured here on this slide. This is a show we developed with Savanna Guthrie from today's show, Alli Oppenheim, her husband Noah runs NBC News, and Drew Barrymore. This is a New York Times best-selling book series, and this works a new take on Princesses, featuring diversity, inclusivity and leadership. It's been set up at a major streamer. I'm sure you can guess which one. As their only princess show to go head-to-head with Disney's entire Princess line. If the show takes off as we hope it will, we'll be there to benefit from all of the sales from merchandise gaming, you name it. And I'm sure anybody listening and with young kids understand how popular this genre can be. Last summer, we won the prestigious Peabody award for our working diversity and inclusivity. Nominated alongside shows you may recognize like Stranger Things, Succession and Fleebag, and the Peabody honors the most powerful enlightening and invigorating stories of the year. Recently, our company also won the Kids Screen Award for Best inclusivity and BC Business voted our company #1 overall in British Columbia for diversity and inclusivity. Our goal to every man, woman and child of every gender and ethnicity to see themselves in popular content reflected back in a positive light. Not only is it the right thing to do, it is actually extremely good for business. We're well on our way to being recognized as a major global studio and never has been a better time to be in the content-creation industry. We're a micro-cap company with revenue of over $110 million, increasing 40% in fiscal year '21 and EBITDA of over $19.5 million, increasing over 26% in fiscal year '21, and we're growing. We have cash flow of over $12.3 million, and this is a 68% year-over-year increase with zero corporate debt. Our award-winning team of 1,000 artists is based in Los Angeles, Vancouver, Ottawa, Toronto and last summer in addition to the Peabody and Emmy, we also won the Television Critics Award Fast Company added Thunderbird Entertainment to its list of 2020's most innovative companies, and we are on Canadian business magazine's list of the fastest-growing company. Our extensive library continues to generate revenue for us from names of Kim's Convenience, Da Vinci's Code, Beat Bugs, Game of Homes and more. And with new alliances with Tolan gaming companies, we are able to further leverage our IP and content into the world of merchandise gaming, microtransactions, you name it, which will be opening up new and possibly very lucrative revenue streams for our company. The 2 main drivers of our company are Atomic Cartoons, the Kids and Family division, which shows like Beat Bugs, last Kids on Earth, Hello Ninja, just announced Dogs in Space with Netflix. My Little Pony with Hasbro, Spider-Man at with Disney+ and more. And Great Pacific, our Factual documentary style with hits like Highway Thru Hell, Save My Reno, newly announced Deadman's Curse for history channel. We have 27 shows in production. We're uniquely positioned in that both Factual and Kids and Family are the cornerstone of each tumor strategy to glue that key co-viewing audience, which is essentially families at home gathering to watch content together. This is the stickiest of all demographics, as people are actually have to subscribe and unsubscribe and Kids and Family are glue. For example, the kids hit property, CoComelon, with its nursery Rhyme, generated over 2 billion views per month on YouTube. Netflix saw that and license compilations of these videos, which I'm proud to announce we're producing for Netflix and Moonbug were handling the entire series. Stay tuned for some amazing episodes in 2022. And these CoComelon videos have been 1 of the 10 most popular shows in 1 country or another for all but a handful of days this year. In fact, Moonbug just sold to Blackstone for USD 3 billion with a 15x multiple because of CoComelon. USD 3 billion, contrasted with successful scripted programming for adults like Bridgeton or Lupin, where the biggest hits are popular for several days and then are eclipsed by next show. Again, we have zero corporate debt for Yahoo or Nimble, and we are growing. Here's a sampling of our customers. We're in over 200 territories, 40 different languages. We're working with all of the top players and have great visibility into our future work with work fully booked through '22 and '23 and '24 and beyond. Taking a look at our scaling and profitability slide. This illustrates our phenomenal growth, and we have great visibility of this pace of growth well into the years to come. The picture here is of our LEGO Star Wars Holiday Special that we developed with Lucasfilm and LEGO, and it dropped November 17 last year on Disney+. Bob Iger and some of her team in note saying you couldn't tell the difference between our special and some of the feature film work. As a result of the team's amazing work, we've embarked on a series of projects with Disney and Lucasfilm and have just released another Disney Star Wars special called Terrifying Tails, which is doing very well on Disney+. Moving into our company overview. We were founded in 2003 with a mission of creating libraries to lift and fund and exploit major global brands. In 2014, Great Pacific Media was acquired and in 2016, Atomic Cartoons. And the original mission remains very much alive today as our major global brands, delight audiences around the world and are increasingly moving into ancillary business like distribution, consumer products, toys and video games. So a look at our experienced executive team Barb, Sarah and myself are highly operational. We've all grown up in this industry. And Matt and Richard are key being in L.A. with the push for IP ownership and ancillary business and an ever commanding presence in Los Angeles, nurturing relationships with all of our key buyers. Taking our granular look at our divisions, at Atomic Cartoons, we produce high-end content across multiple 2D and 3D pipelines and genres, spanning preschool, comedy, action, adventure, adult and everything in between. Here's a look at some of our great titles, which you may recognize, Rick and Morty, LEGO Jurassic World, Hilda, Curious George, 101 Dalmatians, just to name a few. Plus recently announced CoComelon, More Star Wars LEGO, My Little Pony, Dogs in Space and more. We're increasing our IP ownership, providing ancillary revenue in toys, merchandise, music and gaming. In addition to our more recent partnership with Savannah Guthrie and Drew Barrymore, we have a future film partnership with the writers of The Simpsons, that we will be announcing soon and some very good additional announcements coming. We're also working with people like Reese Witherspoon, who also sold her company to Blackstone. From Hello Sunshine, from big payment like Big Little lies to open up their kids and family division and they found our company because of our emphasis and focus on diversity and inclusivity. Taking a look at Great Pacific Media. We're a global leader in factual television, widely considered best-in-class. All of our IP is almost 100% owned, developed by award-winning journalist to an eye for authenticity and truth telling in our Vancouver studios. Highway Thru Hell going into its 11th season with more to come. Here's a look at some amazing titles, which I'm sure you'll recognize: Save My Reno, Daily Planet, Untold Stories of the ER, just to name a few. And new IPs has recently been announced with shows like Styled and Gut Job of course, Deadman's Curse for history channel. And what if we just put a press release about that yesterday with some exciting developments. Also Strays starring Nicole Power from Kim's Convenience link that just launched this September. Again, we own almost 100% of our IP and have an almost unbeatable renewal rate. In fact, Highway Thru Hell, one of the most successfully independently-owned unscripted brands in the world with 2 spin-offs, Rescue 401 and Mud Mountain, which has been renewed for more seasons. In our Consumer Products and Distribution division, on January 11, we were thrilled to announce the hire of industry heavyweight Richard Goldsmith. Well regarded as one of the best in the industry, having worked at Disney, Warner Brothers, the Jim Henson Company running their consumer products and distribution. Richard joined our company because he saw the incredible work and trajectory that we are on. I had many calls that when we hired Richard from Netflix, Disney, everyone saying, "Wow, you guys hired Richard, that is amazing". This new division will allow us to further increase and exploit our IP ownership in video games merge all cross-media exploitation and increased ownership as we distribute content around the globe. Announced properties like Mermicorno from Tokidoki, the insanely popular Japanese lifestyle brand. There's an image of it on this slide, will be set up under this division. And now, also instead of hiring a third-party consumer products and distribution company will be able to further leverage and increase ownership to Thunderbird. Additionally, we can now serve as a distributor in consumer products agent for other companies requiring this expertise, further opening up a new line of business for us. We see this as completely synergistic with our own production. Going forward, our build class talent. As a content creation company, we are absolutely nesting without the amazing talent and creative force of the people we work with. People are joining Thunderbird from Disney, DreamWorks, National Geographic, Pixar, just to name a few. They're coming to Thunderbird because they see something special happening and want to be part of this amazing journey that we're on. Our response to COVID is of no. Because in March of 2020, we managed to successfully transition 100% of staff to home without missing a beat or any deliveries. At a time when many companies stumbled, we didn't miss 1 delivery. We didn't create 1 cost overage for any of our partners. Only deepening their trust in us as a high-quality, high-integrity studio. We're compliant with Tier 1 securities such as Disney and in the time where live action still can't shoot reliably all the time with 200 people on our film set, our 2 main drivers, Animation and Factual can work virtually have really thrived at this time. Our IT and pipeline team did such a great job that Netflix offered our team to present and comment on Teradici and how we ensure such as safe and efficient workflow. We've increased our benefits for our workforce, especially focusing on mental health and are working to do our small part of good corporate citizens to take care of everyone that we can. Additionally, we used to think of our studio by capacity, how many people can we fit into a building. Now if we're offered a show that we love and have passion for, we can go for it, as no longer confined to the four studio walls. Diversity and inclusivity. We're proud of the shows that highlight characters from diverse backgrounds like Peabody Winner, Moly of Denali, on which we worked with over 60 indigenous actors, writers and producers from Denali in Alaska, many of which are now working full time in the industry today. We continue to focus on a safe and healthy workforce, keeping diversity and inclusion at the forefront of our culture. Featured here are some of the initiatives that we have underway. We strive to be industry leaders in D&I. And not only is the right thing to do, it really is good for business. A Boston Consulting Group study of more than 1,700 companies around the world, showed that diversity increases the capacity for innovation by expanding the range of the company's ideas and options leading to better financial performance. Of the 1,700 companies, those reporting above-average diversity on their management team had EBITDA margins that were 9 percentage points higher than those companies with below average diversity. With our newfound ability to have crew work from home, we're further able to recruit and offer opportunities to diverse talent. We're now able to hire people who may not be able to move to one of the cities in which we're located. Thanks to the work-from-home [ tectum ], we can remove geography as a barrier to diversification. Taking a look at diversification and upgrade Pacific Media, industry-wide, we're proud to be known as the safe place to work. Currently, our staff is 40% female, 50% male and 10% gender fluid. Content is a way to change the narrative, and force the messaging of diversity and inclusivity and as content providers, we have the responsibility to get it right. Taking a look at our industry landscape, 2020 and '21 were transformative years for the television and film industry. Demand was strong fallen out to the roof. I'm sure a lot of you listening in have crushed more Netflix than you ever thought possible. In fact, Netflix had 89 million subscribers in 2016 and are predicting 374 million in 2027 as they move internationally into countries around the world. Similarly, Disney's topped more than 100 million subscribers 16 months after they launched, already beating their 3-year projections. And again, as they move into territories like Europe and Southeast Asia, they're predicting 260 million subscribers by 2024. Content spending has reached new heights. These are published commitments to content spending from Disney, Comcast, Amazon, Hulu, Discovery and Netflix and more through 2020 and it's huge. Netflix alone commissions more than 1,000 pieces of original programming in a year. And budgets continue to grow. At a time where content is king, and streamers have to constantly refresh their sites to glue subscribers, budgets are booming. Thunderbirds winning the boom in content as we always have kept quality as our north star and streamers are willing to pay as only the highest quality of content will stand out and succeed. Additionally, they're now looking for diverse and inclusive content with authentic voices, which we also focus on. Industry drivers. Well, much of this I have touched on, but the headline is this. The industry is on fire is booming, and growth is coming from countries and regions all around the world, not just North America. Thunderbird's uniquely positioned with our strong relationships and incredible reputation to fully capitalize on this exploding growth curve. And the new players coming online are not start-ups. These players are Apple and Disney. And because they see the success of Netflix on a massively lucrative and exciting business it is. They're not going anywhere. And people are home watching content even post pandemic as we start to ease out of it, the days of crowding into movie theaters are likely forever altered. Recently, Disney released the Marvel Movie Black Widow, simultaneously in theaters and on Disney+. We grossed over $250 million in its first weekend with strong showings in both the large and small screens. Domestically earned $80 million in theaters and $60 million in rentals. This hybrid strategy allowed for those viewers to enjoy from the opening we can experience at home and now is paving the way to make this the common occurrence going forward. As noted previously, Kids and Family program stays in the top 10 listed streamers longer. Kids to move on to the next biggest thing as quickly as adults. This type of programming has longevity on the streaming platform. Financial overview. Keeping going, our business model, I love this slide is it really breaks down the business of Thunderbirds. These are our 3 main buckets, IP that we fully own where the content and copyright lives in our library forever. Examples on this slide would be Highway Thru Hell, Last Kids on Earth, Kim's Convenience, where once the period of exclusivity is over with whoever we sold it to, we can distribute it around the world. And we can also license consumer products, toys, games, cross-media exploitation, a great form of recurring revenue forever more. We make money making the show, and then an eating in these areas is sort of gravy on top. The services is the second budget and this is where we're hired to execute on projects. That's where we're 100% cash flow plus the producer fee on top of the service work. Example on this slide would be 101 Dalmatians. Previously, we had Donald Duck. Now we're doing Spider-Man, Disney trusting us with their major brands to handle and launch them. And when we do a good job, which we are determined to do, we can turn around and sell our own IP. The partnership model, which we're increasingly seeing is where we're hired to handle all creative for writing through post production and delivery. Increasingly, streamers need companies like Thunderbird that can handle everything from tip to tail as they have to turn on so much content. As a result of our heavy lifting for handling everything, we get a substantial producer fee and a percentage of ownership of back-end sales of consumer products, merchandise, gaming, cross-media exploitation. An example on this slide would be Hello Ninja, which we -- was a tiny board book sold in Starbucks that we wrote 40 episodes for us did absolutely everything. Netflix didn't have to worry about it, and it went on to be the most streamed kids show in November of 2019 and again in January of '21. Looking at our library, substantial additional library that comes from shows like Cold Squad and Da Vinci's Inquest, which live in our library. This adds net key to our total revenue. These pedals are distributed around the world and add to a healthy cash flow with international library sales and also music publishing rights. Tax incentives, a wonderful part of being a Canadian domiciled company with incredible tax incentives that have been around for well over 30 years. A new bill introduced in November 2020 by the Canadian government in prior streamers to invest in and buy a certain percentage of Canadian content. Streamers will go with their trusted partners like Thunderbird. And as a result, this will just further allow us to turn on more of our own IP. Essentially, after 50% of the Canadian resident salary will be covered by the government. This allows us to put higher quality on the screen and present high-quality budgets to broadcasters that are almost impossible to say no to. Our condensed balance sheet, our cash position is strong, and we have zero debt. Here's our update -- thanks, Amy. I think she was excited about our condensed balance sheet. Our condensed income statement. Our revenue was over $111 million compared to $81 million in fiscal year '20. Revenue, EBITDA and free cash flow continued to increase. Our trading information and capital structure. Again, our corporate debt is nothing we're nimble and able to be opportunistic in these times. And we have a large contingent of dedicated insider ownership who believe in and champion our story. And we're just 1 year in tire journey in Bristol, and we're thrilled to really truly be now getting our story out to the world. Growth opportunities. This is my favorite slide, where are we going? We're continuing to develop and acquire IP with over 50 projects coming out through our pipeline. There really are some good announcements coming. This IP can be levered into all forms of recurring revenue like microtransactional games, mobiles, comsole games, toys, bed sheet, I think scary shows, anything you can think of. Our presence in L.A continues to expand due to unprecedented demand from the streamers. In fact, when we opened in our studio in LA, we were booked for 3 years. Being in L.A. gives us access to top talent in the heart of the industry, being able to execute in Canada at top level is an unbeatable proposition. Expanding into animated feature films. There's a huge market now for in-home theater viewing. I discussed the partnership with the Simpson teams and stay tuned for that shortly. And Reed Hastings, the CEO of Netflix credits increased fourth quarter earnings that beat analyst expectations on revenue and net subscriber additions on The Power and The Family movie. Opening up own Consumer Products and Distribution division is a true game changer for us. This is allowing us to further increase ownership and our ability to leverage and exploit and turn on more top-tier IP. We're increasing presence in territories around the world like Southeast Asia or Europe, where Netflix and Disney have announced they're focusing on new subscriptions. By us having ownership of studios in this area, we can recognize the content, turn it on and run it through our burgeoning consumer products and distribution division. And M&A is always on our minds where many conversations, discussing how can we complement our existing business with something accretive and strategic. Great Pacific and Atomic have really hit their stride in growth, and we're on the look out for the next synergistic addition to Thunderbird. Investment highlights. In summary, we're rapidly growing, highly profitable with greater than $19 million of adjusted EBITDA in fiscal year '21 with 40% revenue increase over 26% EBITDA increase, a 68% year-over-year increase to free cash flow and zero corporate debt. Increasing ownership in major global brands is incredibly lucrative. The reason that Hasbro bought eOne for $5 billion was because of Peppa the Pig and PJ Masks. The reason Blackstone just bought Moonbug for $3 billion was CoComelon. The value of these global brands is and can be massive. Never has there been a better time to be in the content-creation business. And I believe never has there been a better company than Thunderbird to capitalize on this amazing time and become the next major global studio. Thank you so much for joining us today, and thank you, Glen, and Bristol for hosting us.

Perfect. Thanks, Jennifer. And I guess we're ready for questions now also to our audience. [Operator Instructions] We do have a few question in the queue, Jennifer. So I'll just get going. First question, with the reopening of the post-COVID economy, what changes in content demand and type are you seeing going into 2022?

The demand remains extremely high for high-quality content. People are still going to be at home watching content. That's not going to change. And the tension in the marketplace is real. The Apple, Disney, they're not going away -- industry-wide discussion all in is that the boom is here for at least 7 to 9 years. And all of these streamers constantly after refreshed content, high-quality content, particularly subscribers. So we're really uniquely positioned to benefit from this.

Next question. Can you please speak towards pricing trends on the services side. Understand that high-quality IP has seen good pricing, but it's unclear whether this flows through to services, given the number of content houses competing for business. As an example, could you please comment on the example project with the large OTT player like a Netflix or Disney and how pricing worked for the project and whether there was an RFP or if it was proprietary?

Yes. Every shows its own negotiation. We're able to command a high salary, sort of profit margin for the service work we do. We're servicing global brands, My little Pony, Spider-Man, right now, CoComelon. And well, of course, we don't get ownership in those shows, we are paid handsomely to do them. Our company is thought after to handle that sort of top brand work. So from us -- from our point of view, things continue to boom. Strategically, when we handle large shows like CoComelon, and do a great job. When we go to out to send our own Calder hit, which we will do, that we've developed, we have that much more gravitas today. We're a studio that handles all of CoComelon for Netflix and Moonbug. Here's our mix for into it, and then we really get a lot of attention. So a lot of time work just comes to us directly. We don't have to bid on it. And then sometimes companies like Disney or depends on the show. We'll have triple bidding policies. So you'll go out, you'll put in a set of assumptions, a budget, schedule, you'll do a pitch on how they'll handle the quality, what your vision is and then the show is awarded based on different studios handing in those metrics.

As you think through your M&A strategy, what specific gaps of growth areas would you be looking to fill?

Well, as our quest to become a major global studio, we want to have an international presence. We feel that's key. The streamers need to get out of North America to continue to expand their subscription base, which is what they're focusing on. They would love us to have ownership in areas where they need to go to stream to increase their subscription base, and we're strategically looking at companies or countries that the government supports the industry. Do they have tax credit? Are they saying to the streamers, "Hey, if you want to stream here, that's amazing, but you can't just feed us North American content, you're required to buy a standard percentage of content that's native to those regions. By us having ownership in countries like that, there are some amazing studios out there doing magnificent work. We can help them turn on their IP with our L.A sales base. We can also fill the capacity, we still say no to a lot of work that we just can't handle. So we can grow a, through increased capacity, good talent; and b, through turning on more content -- international content around the world and then running that owned content to our burgeoning consumer products and distribution division.

Okay. And I guess as a follow-up question on this theme. Do you still view M&A as a strong possibility given current valuations, particularly given your comments around kids content driving premiums. And do you have a view on what leverage you would feel comfortable with going into a transaction?

Yes. We are heavily involved in due diligence conversations with several companies. And we do still see it as a viable option. We really don't want to do M&A for the sake of it. We can look to some of our following peers and realize the roll-up strategy is not a good one. So looking for really strategic accretive M&A that we're looking in 2 buckets, 1 that would be more tuck-in, that we could just outright do; or two, that would be more transformative. And maybe we take a transformative M&A as an opportunity to uplift with the U.S. listing and really make a splash that way. So those conversations are streaming. We're making sure they're strategic, accretive forwarding our goal to becoming a major global studio. And there's still very much on the table for us.

Are you experiencing any cost pressures in hiring and retaining talent?

Definitely. We're all seeing that. The good news about our business is that every show is its own negotiation. So we're able to push those cost pressures on to the buyer. Salaries go up, we're anticipating and we're always trying to stay ahead of the curve. We know in every fiber of our being our most important asset is our people. So we put those -- we transfer those costs directly into budget.

You mentioned you're fully booked through the '22, '23 season. How are you growing your capacity?

Yes. So '22, you'll see is more of a build year. It's still a growth year, and then things start to pop again in '23. We're seeing the results of having opened in Ottawa and Los Angeles. We also have some overseas footprint now on several shows. And we'll start to see the results of our consumer products and distribution recurring revenue really start to kick in, which is another growth catalyst.

Have you considered partnering with any of the online gaming fan-based communities as they turn your eyes towards content creation, such as enthusiast gaming?

Not specifically that. We aren't focusing on creating games. It's not our core competency. But the content we create, such as -- Last Kids on Earth or Princesses Wear Pants or Tokidoki, all of those will have video game associated with them. So we partner up at that point to help lift and monetize the content. Always looking for ways, how are people consuming content? What -- where people's eyeballs going? How can we participate in that? And certainly, interactive content is there. So there's lots of conversations underway of how we can meaningfully participate. But right now, no, we're not partnering up directly. We're focusing on what we continue to do well.

What do you expect consumer products to begin to contribute to top line? And how significant could this part of your business be?

Well, we expect to really see that in late '23, '24, increasingly '25 and beyond. And we obviously do ultimate low, mid, high level ultimates, what happens if the show does move, what we think and what happens if we have a hit in there. We never plan on it. We try to -- every time we get up to plate, create a giant hit. We certainly think love averages will allow that to happen for us. We can't make that happen. So it's a really great steady increase with solid double-digit growth. And should we have something that does better than low or mid-level ultimates, then that would be overnight transformative for our company. But again, we just can't make that happen, but we're certainly trying to line up everything so that it does.

Next question is related to financial transparency. Are there any plans to better disclose revenue contribution by franchise or other metrics that could improve that transparency?

I'm going to pass that one over to Barb. Barb, are you there?

Yes, Can you hear me? Yes. Yes, we don't have any future plans of disclosing on sort of franchise-by-franchise basis, unless we do get like a massive hit that is material on its own that we would disclose. Currently, we disclose production services versus licensing and distribution, which is basically our IP versus our production services, which gets to give a pretty good insight into kind of gross margins in those businesses and volume and all that kind of stuff. Disclosing on a franchise basis is -- it would go against our competitive advantage.

Can you explain more about the Canadian government support of the industry?

Yes. Barb, do you want to keep going with the tax credits and what that's meant for well over 30 years?

Yes. I mean it's amazing. It's definitely an advantage to being a production company in Canada. We have -- we have a couple of different things. If a show is fully Canadian content, we get grants from the Canada Media fund that are triggered by license fees with Canadian broadcasters. And then, of course, we have the tax credits. And there's 2 different kinds of tax credits. We get service -- we can get a service credit on our service shows and then a content credit on the shows that we own. And they can contribute depending on the type of show, whether it's animation or shot in a distant location, it can go anywhere from 25% to 45% of the financing of any particular budget. So it's a massive advantage in Canada to be able to finance these shows on those kind of things. And they're not going away anytime soon. They've been in place for 3 years, there's federal tax credits, provincial tax credits, sometimes they jockey around an amount in terms of provinces, but we're in a lot of those provinces. And so we will go wherever the advantage is.

How does the Canadian versus the U.S. currency exchange rate effect or impact your results?

Barb, do you want to be going with that?

Yes, sure. Well, on the shows where we have U.S. clients, we budget at exchange rates in effect at the time. And then wherever possible, we lock in those rates, we hedge those rates. And so we don't -- we won't have a lot of volatility. There are some places where we can't hedge those rates due to uncertainty of payment terms and things like that. And so then we do get a little gain or loss on our financial statements in the revenue line. But it is fairly minimal. When we also we contract in U.S., we often borrow in U.S. dollar. So it's a natural hedge. We've got a lot of different techniques for dealing with the exchange.

Thanks, Barb. And I've got a bunch of other financial-related questions, so I'll just keep going on to speak for now, and then we'll go back to the other questions. So important in terms of revenue for each line, for example, IP services and partnerships in your business model and profitability of each, maybe you could just speak at a higher level to these.

Yes. The partner managed line actually gets flowed into the services line. So in terms of financial reporting, it gets reported similar to services, but we have the advantage of having ownership in the back end and things like that. Again, as I mentioned before, we disclosed our MD&A, we disclosed production services revenue separate from the IP revenue. We also disclosed the direct costs related to production services and the amortization of content, separately. So you can kind of look at those items in the MD&A and kind of sort of figure out our gross margin profile. For our IP, how it gets built up is when we're producing a project, all the costs go into the balance sheet and the investment in content line. Once the show is completed and delivered to the client, then we amortize a portion of that off the balance sheet. And the amortization rate is really depends on the show. So every show is its own business model. If it's a show that we know will travel well internationally and we'll also have a longevity of time, the amortization rate is less. If it's more of a here and now show like a lifestyle show where in 10 years, those kind of home rental things will not be as relevant anymore, it will have a higher amortization rate. So in our amortization of content line, we sort of a blended gross margin that is reflective of all the different kind of shows we're doing.