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Edited Transcript of DLPN.OQ earnings conference call or presentation 13-Aug-19 8:30pm GMT

Q2 2019 Dolphin Entertainment Inc Earnings Call

MIAMI Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Dolphin Entertainment Inc earnings conference call or presentation Tuesday, August 13, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mirta A. Negrini

Dolphin Entertainment, Inc. - CFO, COO & Director

* William O'Dowd

Dolphin Entertainment, Inc. - Chairman, President & CEO

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Conference Call Participants

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* Austin William Moldow

Canaccord Genuity Corp., Research Division - Associate

* Jack Vander Aarde

Maxim Group LLC, Research Division - Equity Research Associate

* James Carbonara

Hayden IR, LLC - Partner of IR Strategy & Operations

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Dolphin Entertainment's Second Quarter 2019 Earnings Call. (Operator Instructions) At this time, it is my pleasure to turn the floor over to James Carbonara. Sir, the floor is yours.

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James Carbonara, Hayden IR, LLC - Partner of IR Strategy & Operations [2]

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Thank you. Good day. Once again, welcome to Dolphin Entertainment's Second Quarter 2019 Earnings Call. With me on the call are Bill O'Dowd, Chief Executive Officer; and Mirta Negrini, Chief Financial Officer.

I'd like to begin the call by reading the safe harbor statement. This statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the company believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurances that such expectations or assumptions will prove to have been correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties.

For a discussion of such risks and uncertainties which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in the company's annual report on Form 10-K, those contained in subsequently filed quarterly forms -- reports on forms 10-Q as well as in other reports that the company files from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statement to reflect subsequent knowledge, events or circumstances.

Now I would like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [3]

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Thanks, James, and thanks, everyone, for joining today. As usual, I'll arrange my comments as follows. First, I'll highlight our financial results; second, I'll spend some time providing operational updates; and third, I'll turn it over to Mirta to dive deeper into our financial results before having our Q&A.

Okay, so first off, the financial results. I'm happy to report that total revenue increased 20% year-over-year to $6.3 million and that this revenue is derived entirely from our core segment of Entertainment Publicity and Marketing. As such, it represents a year-over-year increase of 23% for that segment as well as a new record for that segment obviously.

As you might imagine, we are very pleased with our revenue growth, which was higher than we had anticipated, which I can explain. As we mentioned in our earnings release, there is seasonality in our movie marketing business, with Q2 representing the low point in any given year as it is the only quarter without any awards business. In other words, there are no Emmy campaigns or any for the Golden Globes or Oscars. Thus for Q2 revenue to be better than Q1 and to improve by 23% from the prior year for the EPM segment shows the power we believe of the revenue diversification we are achieving with the creation of our Entertainment Marketing Super Group.

And as stated in our Q1 earnings release and on our Q1 earnings call, we are managing toward revenue growth in 2019. We are very happy with 23% year-over-year growth. On the bottom line, our Q2 operating loss, excluding depreciation and amortization expenses, was entirely the result of the seasonality I just mentioned of revenues in our movie marketing division. With the return of awards season in Q3, we expect continued revenue growth and a much stronger bottom line for the rest of the year, even as we invest in additional personnel such as the consumer products PR team at The Door.

And speaking of 42West movie division, I'll start my operational updates there. Our awards season is lining up very nicely. We have a lot of projects that are awards contenders, including a Tom Hanks biopic on Mr. Rogers entitled A Beautiful Day in the Neighborhood and a Meryl Streep movie about the Panama Papers called The Laundromat. Both of those movies will have red carpet screenings at the Toronto film festival. And we have several other projects there, which along with the overlapping Telluride and Venice film festivals, represent a kickoff of the awards business on either side of the Labor Day weekend.

Also, we have started the conversations with multiple new streaming platforms scheduled to launch either later this year or next year. Without naming them for obvious reasons, I can say that we've had several meetings for sets of individual projects from those platforms, which should create organic revenue growth for the movie and television division in 2020 and beyond, even excluding the growth in our awards business.

In the second quarter, we also added another senior talent publicist who brought a good client list of Broadway film and television stars, including Stephanie J. Block who won the Best Actress Tony award this June for her role as Cher in Cher the Musical; as well as highly regarded actor Ben Platt, the lead of the new Netflix series, The Politician, from acclaimed show runner Ryan Murphy. Ben may be most well known for winning the Tony award himself for his leading role in Dear Evan Hansen.

Turning to The Door, we saw continued organic growth in the quarter. While we are speaking directionally and do not break out specific numbers, I can say that revenue growth is extremely strong. And that is without the consumer products division that we've invested in during the first half of this year kicking in yet. We expect the first consumer clients to sign in the second half of this year, which will only accelerate revenue growth in 2020 as well. And with the investment already having been made, those revenues will fall straight to the bottom line relative to Qs 1 and 2 of this year.

Moving to Viewpoint, they also a good second quarter with an increase in revenues and operating margin. Our work for that company over the next 12 months will be to adjust from a roughly 75-25 revenue mix between entertainment clients and corporate clients to closer to 50-50 next year. We will do that in part by cross-selling business from the consumer products division at The Door, which is a great example of sales synergies between the companies.

Additionally, Viewpoint signed a very large multibillion-dollar biotech company in Q2 as a client for various videos and internal podcasts, and we feel that industry holds a lot of potential for corporate video work. In the biotech space, both sales and investment presentations are significantly aided by strong explainer videos as we call them, which can use a combination of graphics and animation to actually show what the technology or medicine is doing. Those are tough concepts to get across in just text. And since Viewpoint is based in Boston, which is home to almost 1,000 biotech companies ranging from small startups to billion-dollar pharmaceutical companies, we feel there is a large addressable market right in Viewpoint's backyard.

Okay. So moving on to the M&A front, we are confident we'll have another acquisition done before the end of the year. Our goal is to have all 6 core competency companies of the Super Group acquired within 2020. And sitting here today, we believe we are on schedule with first choice companies identified and engaged in 2 of the 3 remaining fields. Completing the Super Group is our top priority. We believe reaching that goal will accelerate revenue growth even further as the cross-selling of services will amplify exponentially as the number of sister companies increase.

Instead of having 3 companies each cross-selling with 2 other companies as we have now, we will have 6 companies each cross-selling with 5 other companies. Thus, we believe that completing the Super Group is more than just doubling the number of companies we have. It is a huge revenue and operating margin accelerator. And secondly, of course, having the complete Super Group will allow us to expand confidently in 2020 into more direct ownership of assets, which we can market, such as live events and film and television production.

Well, thank you again for your time and attention. It's definitely fun to announce record revenues for 2 straight quarters. And fingers crossed, we'll be able to make it 3 straight in November. At Dolphin, we feel that momentum and hope to accelerate it even further with another acquisition before year's end.

At this point, I'll turn it over to Mirta for a more in-depth review of the financials.

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Mirta A. Negrini, Dolphin Entertainment, Inc. - CFO, COO & Director [4]

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Thank you, Bill, and good afternoon. As Bill stated earlier, total revenue increased 20% to $6,273,983 for Q2 as compared to the same period in prior year. We derive the majority of our revenues from our Entertainment Publicity and Marketing segment. And in Q2, that was 100% of our revenue. Our Entertainment Publicity and Marketing revenue increased by 23% for Q2 of 2019 to the same $6,273,983 as compared to the same period in prior year. The increase was due to the revenues of The Door and Viewpoint, which more than offset the seasonality decrease in our 42West division.

Revenues from our content production segment were 0 as compared to $97,961 for the same period in the prior year. The decrease is primarily due to the normal revenue cycle of our motion picture Max Steel.

Overall expenses increased by approximately $2.3 million. Within the $2.3 million increase, direct costs increased by approximately $1 million for the 3 months ended June 30, 2019, as compared to 3 months ended June 30, 2018. The increase is primarily due to the direct costs associated with the operations of Viewpoint. Also within the $2.3 million increase in expenses, payroll expenses increased by approximately $0.6 million for the 3 months ended June 30, 2019, as compared to the 3 months ended June 30, 2018. The increase is due to the addition of payroll from The Door and Viewpoint.

Our operating loss for the quarter of $1.2 million included direct costs of $1.3 million and noncash items from depreciation and amortization of $478,560 compared to operating income of $69,267, which included direct costs of $295,765 and noncash items from depreciation and amortization of $375,163 in the prior year.

Net loss for the quarter ended June 30, 2019, was approximately $0.9 million or $0.06 of basic loss per share based on 15,969,926 weighted average shares and $0.06 diluted loss per share based on 19,172,087 weighted average shares. This compares to net income for the quarter ended June 30, 2018, of $170,474 or $0.01 basic share earnings based on 12,349,014 weighted average shares and $0.01 diluted loss per share based on 14,032,001 weighted average shares fully diluted.

That concludes my financial remarks. I will now ask the operator to open the phone line for Q&A. Operator, can you please poll for questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Austin Moldow from Canaccord.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [2]

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Congrats on the quarter. If possible, could you provide the Viewpoint revenue contribution? And maybe talk about the kind of attach rate you're getting from your clients in 42West and The Door that you've been able to do Viewpoint projects for?

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [3]

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Yes, to utilize Viewpoint's services on, yes, sure. Hi, Austin. Well, the -- we don't break out the revenue by company. But the Viewpoint has successfully integrated into the sales pitches of The Door almost fully at this point and still a little bit more work to do on the 42West side. With that said, I think it's easy to say it's more than a weekly occurrence of joint pitches that utilize Viewpoint services. The consumer products team -- at The Door -- the consumer products team at The Door, led by Nicole Lowe, utilizes the ability to have corporate video on a regular basis in the pitches for the new business. It's almost assumed as I may have mentioned on the last earnings call. So I'd say the integration's pretty complete. And we're starting to see a little bit of it going the other way where even Viewpoint as they get called for some their video services, could lead into clients for The Door on the consumer products side. But it's mostly The Door attaching Viewpoint at this point.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [4]

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Great. That's really helpful. I know last quarter, you kind of gave a little bit of context on how Oscar -- the Oscar business year-over-year had impacted your quarter. Maybe that was Q4. Can you talk about how maybe the Emmys awards season is shaping up on a year-over-year basis?

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [5]

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Sure, yes. And to that point, I mean, we're quite excited over here because Q1 was a very strong quarter. It set a record at the time and there's -- in the extra push on that was the phenomenal year that 42West had on the awards business for the Oscars or films in general, right, from Golden Globes through the Oscars. So it was a very tough comparison for Q2 where we don't have any awards business on the motion pictures side and the lifeblood of the independent film business is slowest, right? April, May and June, I mean, you're -- you've got Avengers coming out, right? And the summer tentpole season, remember when it started on Memorial Day? Well, that's long gone. Forget May 1. It's starting the last week of April.

So to have the same 3 companies beat the first quarter without that movie business in its lull for the year is remarkable to us. And it really is showing the cross-selling and the synergies are working as we believed they would, as we knew they would and how it's happening. And again, this is just 3 companies cross-selling. Imagine when it's 6 cross-selling each other.

But with that said, the Emmy business is lining up nicely. Also to answer your question directly on that, we do have a strong presence at the Emmys.

But really as much as the Emmys are important in September, the biggest factor of September are the launch of the film campaigns. Because awards -- the films that come out of Telluride, Venice film festival and Toronto, those are the launching pads, right? I think some crazy number of 9 of the past 10 best pictures wins -- winners launched at on one of those festivals, if I'm not mistaken. It might even be 10 out of 10. So signing those films, the campaigns start right away, carry through the fall and into Oscars in February. So the dual combination of the film business and the Emmys in September will help the third quarter for sure.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [6]

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Got you. And as it relates to your EBITDA loss, I know the commentary was about sort of it being directly linked to revenue. But wondering if there is any bit of that that's due to hiring in The Door, 42West talent and Viewpoint sales that you commented on last quarter. And if that is the case, can you talk about how far through that initiative you are, if you'll be adding more, if you're kind of at the right size for those teams?

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [7]

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Sure, happy to. Yes, it's a -- it's that combination of -- we knew the second quarter has a dip on the movies side. Mind you, we're still up 23% year-over-year and up from Q1. But we wanted to make those investments in personnel. And as we manage towards our revenue growth for this year and keep the bottom line as close to 0 as we can, the second quarter will be the dip. But just like we had in the first quarter a much better bottom line, right, we'll have that back here in the third and fourth.

With that said, the -- the real reason is that we're investing in personnel like consumers products team we mentioned in the first quarter at The Door, right? You still pay those people in the second quarter. So that's the -- and the third and the fourth. So those investments in personnel, we hired new publicists at 42West in the second quarter, we're going to continue to do that. We have hired already in the third quarter. So it will carry through this year. We have a lot of opportunities to bring in really great senior publicists that many of you may have seen often.

I believe you commented that the 2 largest competitors to 42West just merged under Interpublic Group, Rogers & Cowan and PMK. There has been a displacement or an opportunity with several senior publicists. We'll take that opportunity and for the right people. And that's an investment this year that would only accelerate revenue growth and profits next year.

So we like 23% year-over-year. We'll see how close we can continue to get to that number and then consolidate for operating margin for next year.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [8]

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Got it. And my final question, just a quick one, if you could update on your outlook for your content productions suite. What's the timing on that, do you think?

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [9]

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Sure, and I will answer that. And I completely forgot to mention because you had led into it, too. Yes, the additional costs in the second quarter around direct production costs -- that's what made me think of it when you said that -- related to Viewpoint, right? So you can see the spike in the expense side of the direct production costs year-over-year. That's because we have the Viewpoint business and it's going well. So you expense towards that in the second quarter. So those investments are paying off with the revenue growth and will pay off in margin when we stop making those investments or at the same speed we're doing it now.

On the production side, well, Toronto's kind of a kickoff for us. We have the scripts ready. We have the marriage -- when we spoke last, I was at the Cannes film festival, we had continued conversations at Toronto to find the matching finance money on the individual projects. We're excited for it. And if all goes well, we'll stick to the timing that we've outlined before of late this year, early first quarter next year for that.

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Operator [10]

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And our next question comes from Allen Klee from Maxim Group.

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Jack Vander Aarde, Maxim Group LLC, Research Division - Equity Research Associate [11]

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This is Jack Vander Aarde on for Allen Klee, just a couple of questions for me. I'll start by saying congrats on the strong quarter. Revenue growth was very strong. I was wondering if you can provide, I think someone was trying to probe for it, but what percentage of the revenue 42West represented during the quarter?

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [12]

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Yes, I wish we broke it out for you guys, but they are growing and we're excited for that. We're replacing brick by brick on the talent side. And obviously, the movie division is growing year-over-year. But it's a dip in the second quarter just relative to first, third and fourth, right?

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Jack Vander Aarde, Maxim Group LLC, Research Division - Equity Research Associate [13]

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Yup. Yup. Okay. And then -- so between The Door and Viewpoint, which I suppose had the strength in those 2 businesses offset 42West or any softness from that business. So can you maybe share which of those 2 businesses positively surprised you the most in terms of the revenue contributed, relative to what your expectations were for each of those businesses heading into the quarter?

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [14]

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Sure. And I'll be happy to. And just to clarify, the movie division of 42West is very strong. It's just seasonality of that business was the normal result.

The talent division of 42West is growing quarter-over-quarter ever since last summer. So we like the progress of that rebuild. And Leslee Dart and her team have done a phenomenal job there.

You love all your children equally, Jack. I'm not a father, but I hope to be one day. With that said, you give them a strong pat on the back when they're doing well. And I think special kudos need to go out to Charlie and Lois at The Door. The Door is just a phenomenally well-run company. The culture there is phenomenal. I think that contributes to their success. Every single month this year is up substantially from the same month last year. And by the way, last year set a record for them. So the momentum at The Door is very strong. And that's the revenue and bottom line, and that is without the consumer products really kicking in yet. So the investments we're making this year in that team and the personnel and -- is going to just further accelerate that company. So The Door's been phenomenal.

And also, their integration with Viewpoint being complete, they were very -- that went ahead of schedule. And I think that's going to help both those companies even further. So yes, I would say that.

And I know I made this point in the prepared remarks. But when you think about the company's growing and 23%, when we only had -- in the second quarter last year, when the second quarter ended on June 30 last year, we only had 42West. And you can't cross-sell with yourself, right? So it's been less than 12 months from June 30 that we've able to bring in The Door at the start of the third quarter, bring in Viewpoint somewhere middle of fourth quarter. And it takes time to integrate, to bring these companies and learn how to cross-sell with each other. And we're only -- it's the tip of the iceberg. It's the start of the process of this type of revenue growth when you can cross-sell. And 3 companies that can cross-sell with 2 sisters is great. But when you have 6 companies that can cross-sell with 5 sisters each, by definition, you should be in a stronger place for even further accelerated revenue growth.

So we're very -- what we feel, we feel that the second quarter and the first quarter proved the thesis. When we [listed] on that, [Jack] only 18 months ago or so, we said we believe that with 42West, we could acquire other companies in the entertainment market space, that they would want to join a group that they could cross-sell with 42West. And we felt on our K call that we proved that by being able to bring in The Door, which is a phenomenal company, and Viewpoint. And I think here at the midway point of this year, certainly another strong quarter like this, I think people will understand or see how you can accelerate revenue growth when you can cross-sell. And if we achieve our goal of having a fourth company before the end of the year, having companies 5 and 6 locked in next year, if not sooner, then it's going to be a phenomenal accelerator for us.

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Jack Vander Aarde, Maxim Group LLC, Research Division - Equity Research Associate [15]

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That's great. Okay, thanks for that color, too. And then just lastly, I think you guys mentioned that there's -- you guys hired another talent publicist during the quarter. How many -- is there any -- can you share how many publicists are currently employed? And then how many you expect to add, I guess, for the remainder of the year or the next 12 months or so?

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [16]

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Well, the -- it's becoming a distant memory and we like it that way, but the departure of the talent, several talent publicists from 42West last summer into the early fall is behind us. I think I'd had said that both on the K call and the Q call, first quarter, which is great. We added 4 publicists last fall. We added another one this spring, another one now. So I imagine the combination of us being aggressive and looking for the right people, combined with the dislocation that's occurring in the market, I imagine we'll be adding another handful in the next -- I don't know if by the end of the year, but certainly in the next few months. Yes, we'll continue to invest in the -- with the opportunity in front of us for good publicists, good senior publicists, while we continue to invest in the consumer products team at The Door.

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Operator [17]

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(Operator Instructions) And there appear to be no further questions at this time. I'd now like to turn it back to the management. Thank you.

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William O'Dowd, Dolphin Entertainment, Inc. - Chairman, President & CEO [18]

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Okay. Well, thank you. And I appreciate everyone joining us. Obviously, like I said in the prepared remarks, it's fun to do calls with this type of -- these types of results. I'm appreciative to all the stakeholders in the company. As we're building this we feel that momentum, as I mentioned, very much. A lot of excitement around some of the big clients we're going after and some of the new opportunities because we have the capabilities to do that. And I think you'll see more of that. And as you look for milestones out of us, please look for those announcements of the next acquisition and hopefully another great quarter. So thank you all very much for your time, and we'll talk again after quarter 3. Bye, everyone.

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Operator [19]

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Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.