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 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 plus 1 (604) 683-3555 or e-mail investors@thunderbird.tv and the company will follow-up directly after the call. [Operator Instructions] I would 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 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 considered reasonable, are subject to known and unknown risks, uncertainties and other factors, which may cause actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, general business, economic and social uncertainties, litigation, legislative, environmental or other judicial, regulatory, political and competitive developments. Those additional risks set out in the company's filing statements and other public documents filed on SEDAR at www.sedar.com and other matters discussed in the 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 timeframes or at all. Except where required by law, the company disclaims any intention or obligation 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 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 following today's call. Please note that Thunderbird reports in Canadian dollars unless otherwise stated. Ms. Twiner McCarron will now provide the corporate update.

Thank you so much. My name is Jennifer Twiner McCarron, and I am 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 the 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, 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, the [ hunt liner ], 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 flower and baked and watched TV. There's always a need for content. And while change is inevitable as streamers and broadcasters adapt and shift their business model to remain competitive the one constant is the need for A+ 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 at global streamers and broadcast networks like Disney, Hulu, NBC Universal, Warner Media, 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 1 on Netflix Kids Top 10. It was also the number 6 TV series globally. Adult content included for the week of October 10 to 16, and it's holding steady at the top. In fact, it had 11.9 million viewing hours during this week alone, which didn't include the first 3 days from its premiere. We own a nice piece of the back end for all cross-media exploitation and it's really exciting to see where this goes. The factor means that content spending collectively continues to increase. Disney+ has increased their content spend to almost CAD 33 billion and Netflix is projected to spend CAD 17 billion again this year and recently signaled it has started to come back with the company posting better-than-expected Q3 results on the top and bottom line, 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 CAD 132 billion. Included in this forecast is that 6 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 22, 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 NI ], a Media Insights Business magazine, Kids profiles on Netflix, watch 3.6x more content in Netflix at the start of '22 compared with 2018, outpacing the growth in adult viewing. And Netflix subscribed 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 strategy 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 a long-term goal of becoming the next major global studio. We are selective about the projects we take on, and this is the 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 is 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 opportunities 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 system 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're already delivering. We have a strategic and mindful approach when it comes to M&A and can be -- and we will be selective and patient. Similarly, investing in content production and animation industry means investing in growth over longer term horizon. This is because developing high-quality, compelling and creative projects is time-intensive and we want to get it right. As content producers, we typically can't discuss production until they have been completed and delivered to our distribution partner. For example, our team has been working on Oddballs for over 2.5 years. By its Netflix debut, it will be close to 3 years. Our Emmy award-winning owned IP The Last Kids on Earth, took well over 2 years with the initial conception to its Netflix premiere. For IP productions like Last Kids on Earth, revenues are only actualized when the production is delivered. Development of the brand new original series Deadman's Curse, which airs on the History Channel, Canada was over 2.5 years in the making. Lifestyle series like Style came together in 21 months with development starting in July 2020 and the show premiering in May 22. And we originally announced our partnership to develop Princess Power as a 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 back end. 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're working hard to maximize the value of our storytelling while capitalizing on the massive opportunity ahead. This fall alone we produced and were proudly connected to production 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 2-part documentary After the Storm produced by GPM, which will also debut on Discovery Channel. Also, our content turns head. For example, New York Times TV critic, Mike Hall recently wrote an article describing Dogs in Space as a [ lovable ] animation series with humor that is consistently smart and deft, just snarky enough, just [ willy ] enough and just sentimental enough. This article also gives a shout-out to Atomic for throwback 2D animation that is both crisp and enduring. You can't put a price on feedback like this, and the teams observe this type of praise the talent at our studios through the roof. Long-standing unscripted series Highway Thru Hell is another example of our premium content. Now in its 11th season, this fall's episodes feature never seen footage and stories from communities impacted by the unprecedented weather disaster of the 2021 [ B.C. floods ]. With every production we work to raise the bar, and we are growing to meet the ongoing demand. We are now at 1,400 and more employees across North America, and we've added many new faces 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.

Hello, everyone, and thank you for joining Jen and I today. Thunderbird's revenue increased from CAD 26.1 million to CAD 44 million in the 3 months ended June 30, a 69% increase, while revenue for the year increased from CAD 111.5 million to CAD 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 CAD 32.5 million from CAD 24 million and to CAD 120 million from CAD 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 CAD 2.1 million to CAD 11.6 million in the quarter, mainly due to the delivery and recognition of 4 episodes of Reginald the Vampire to SYFY. The remaining episodes and recognition of revenue of this title will continue into fiscal 2023. During the quarter, the company also recognized 19 episodes of the 2 factual series Gut Job and Style. 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 CAD 29 million from CAD 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 mentioned 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 CAD 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 markets 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 CAD 2.4 million for the quarter and CAD 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 updates throughout the company.

Thank you so much, Barb. I just want to confirm that we're still online. I received a couple of messages that they can hear the operator over Barb and then the whole call hung up. Is the operator there? Are we still connected?

We are still connected.

Okay. Okay. So that was -- a couple of people might have lost connection. Okay. Can you -- we can get into questions. Yes, we can still hear you. Yes. Okay. Okay. So I'll assume we're still connected and away we go. I will now provide the corporate update. 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, 8 were Thunderbird IP and 20 were service productions. 2 of those service productions are 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 profit from merchandise and licensing. At the end of fiscal '22, 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 from 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 7 factual series and one documentary. These would include Mud Mountain Haulers, Season 2 for Discovery; Deadman's Curse Season 1 for History; Style Season 1 for HGTV; Gut Job Season 1; Heavy Rescue 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 the 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 U.K. on Sky Kids in the late fall of 2022. Thunderbird's recognitions in during and subsequent to the quarter included Kim's Convenience with 3 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 8 LEO awards. Atomic Cartoons in partnership with GBH was also awarded a 2022 B.C. Reconciliation Award by the Canadian Government and the B.C. 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're 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 a.m. Pacific, 2:00 p.m. 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.

[Operator Instructions] Our first question comes from Aravinda Galappatthige with Canaccord Genuity.

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

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

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

I know, yes. I realize that as well. So I'll just -- I 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 15.5%, 16% margin, or 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 I 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.

Yes, we're definitely -- yes, I'm here. Yes, we're definitely aiming to keep that margin or 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're 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.

Absolutely. And then just with respect to the investment in content. I mean obviously, you're doing more work. So we've seen that number kind of huddle in fiscal '22 over '21 from CAD 15 million to CAD 30 million. How should we be thinking of that going into '23, please?

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 in the financial statements, you'll see about CAD 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 4 episodes and just to SYFY not to our other partners in '22. So a lot of that will be released to the income statement in fiscal '23.

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 '23? And I suspect there won't be a Season 2 that hits '23.But maybe any commentary around the episodic count as well as what -- if there is a different margin profile here at all, that's worthwhile knowing as well?