Dolphin Entertainment, Inc. (NASDAQ:DLPN) Q1 2023 Earnings Call Transcript May 15, 2023

Dolphin Entertainment, Inc. misses on earnings expectations. Reported EPS is $-0.23 EPS, expectations were $-0.09.

Operator: Good day, everyone, and welcome to today’s Dolphin Entertainment First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. James Carbonara. Please go ahead.

James Carbonara: Thank you, operator, and once again, welcome to Dolphin Entertainment’s first quarter 2023 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 statement 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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurances that such expectations will prove to have been correct.

Actual results may differ materially from those expressed or implied in the 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 contained in subsequent filed reports on Form 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 statements to reflect subsequent knowledge, events or circumstances.

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

Bill O’Dowd: Thanks, James, and hi, everyone, and good afternoon, and thank you for joining us today. As always, we’ll start with a review of some financial and operating highlights, followed by a full financial review and then open it up for Q&A. So from a financial highlights perspective, we’re happy to report that our first quarter revenue grew by 8% year-over-year to $9.9 million. Since Q1 is always our lowest revenue quarter because of the seasonality in our business and especially with our influencer marketing companies, we expect Q2 revenue to be meaningfully higher and believe that we will hit our expected year-over-year revenue growth target of 20% to 25% for full year 2023, basically saying we’re on track. We are also pleased that our operating loss per share for Q1 stayed the same as last year despite adding a second influencer firm into our Q1 results.

And as noted just a second ago, we expect our influencer marketing firms to be down in Q1 due to seasonality, but also expect them to more than make up the ground in the rest of the year to deliver annual profits to Dolphin. Moving to operational updates. A clear highlight occurred after the quarter ended with the announcement that Amazon Studios acquired the worldwide rights to The Blue Angels. I know we spoke just six weeks ago, and this has occurred since. If you recall, this time last year, we announced a multiyear agreement with IMAX to jointly finance the development and production of a slate of feature length documentaries for the global market. The first project greenlit was The Blue Angels, developed and coproduced by J.J. Abrams, Bad Robot Productions and Zipper Bros Films.

The Blue Angels started filming last summer and has finished production. We expect the film to hit IMAX theaters in the second half of this year. In terms of financial implications, we expect to generate approximately $3.5 million of revenue to Dolphin from the acquisition agreement, which would result in a 75% ROI before the inclusion of any revenues to Dolphin from the ticket sales from IMAX institutional theaters. This fantastic return on The Blue Angels provides a formidable proof of concept for our Dolphin Ventures model, formerly known as Dolphin 2.0, of taking equity in projects that we market. Dolphin Ventures also saw a boost in Q1 with the announcement that veteran Fortune 500 Executive Ellie Doty has joined as Chief Marketing Officer.

The rationale is that we expect to source, evaluate and engage in multiple ventures opportunities over the next 12 to 24 months, opportunities wherein we get paid a cash fee to secure the services of the various Dolphin agencies working on the account but also where we receive equity in the product or services we are marketing. Additionally, as Chief Marketing Officer, part of Ellie’s role will be to communicate what we have built and giving an additional platform to both the work we are doing and to the incredible leaders within our Dolphin family. Ellie is one of those leaders herself. Leaders like Shore Fire Media, Dolphin’s industry-leading music PR firm, whose client, Rhiannon Giddens, was just awarded the Pulitzer Prize in Music, which followed Shore Fire clients receiving a collective 14 Grammy Awards in Q1, including Song of the Year and Best New Artist.

That many Grammys is a reflection of the breadth and depth of Shore Fire’s roster, which is what allowed it to place clients across a wide variety of major promotional vehicles in Q1, including Good Morning America, the TODAY Show, the Kelly Clarkson Show and Rolling Stone, just to name a few. We have leaders like 42West, our film and television PR Powerhouse who has helped clients and worked on projects resulting in four nominations for the 76th Tony Awards, four awards at the Sundance Film Festival and five awards at the South by Southwest Film Festival this year already. Additionally, 42West work on the Top Gun: Maverick campaign resulted in an Academy Award for Best Sound and six Oscar nominations, which follows a worldwide box office total of $1.49 billion in 2022.

The biggest of client Tom Cruise’s career to date, I realized I should have just rounded up to $1.50 billion, instead of $1.49 billion. But, yes, all right, unsurprisingly 42West and Shore Fire Media were once again honored by the Observer’s PR Power List. We have leaders like The Door, our leading culinary hospitality and lifestyle PR firm who just welcomed Carbone Fine Food to their ever-growing roster of clients in a consumer packaged good space. While client Gigi Hadid paid tribute to Karl Lagerfeld in a stunning custom made DaVinci dress on the steps of the 2023 Met Gala and client Viceroy Hotels may travel in Leisure’s 2023 top 500 best hotels list. Leaders like Be Social and Socialyte our top influencer marketing agencies that represent over 200 leading creator talent with hundreds of millions of followers on social media.

Our creators were recently asked to join campaigns for Sachs, Hyundai, Jose Cuervo Tequila, Revlon and Pinterest among dozens of others in Q1. Be Social and Socialyte were named top talent managers for creators by Business Insider. And lastly, leaders like Viewpoint Creative, Dolphin’s respected creative relations agency and video production boutique – creative agency, excuse me. The Viewpoint’s work in Q1 and year to date included a brand image campaign for CBS News New York, Big Red’s Hot Sauce, and PayPal, of course. Now I’ll turn to providing updates on some of our projects where Dolphin and its shareholders have equity and participate in the upside that are best-in-class marketing companies regularly enable for our clients. Starting with Midnight Theatre, as a reminder, Dolphin manages all aspects of publicity and marketing for Midnight Theatre and its restaurant Hidden Leaf, while also facilitating talent and commercial relationships within the entertainment and culinary industries.

Dolphin also holds a meaningful ownership stake in the venture. As we ramp up the program at Midnight Theatre throughout the summer, aiming to have a full seven day a week schedule shortly after Labor Day. We have played hosts to an array of talent, including Gloria Steinem, New York Cabaret, The Moth, The Daily Show’s Roy Wood Jr., who incidentally just hosted the White House Correspondents Dinner. The Amy Schumer Shows, Rachel Feinstein, Broadway’s Andrew Barth Feldman, who co-stars with Jennifer Lawrence in an upcoming comedy film from Sony that by all accounts looks like it could be a summer hit, as well as screenings of Academy Award-winning Everything Everywhere All at Once and NCAA Basketball’s March Madness in 4K-high definition just to name a few.

Go Blue Jays. We also anticipate putting out our first original production called A Brief History of Magic in Midnight Theatre in July. We’re very excited for that as it should allow us to double the number of shows per month this summer versus what we did this winter and spring. And so the theater is kicking into gear. Turning back to our multi-year agreement with IMAX to jointly finance the development and production of a slate of feature length documentaries. You heard at the top of the call that with the sale of Amazon Studios of our first project together, The Blue Angels that this partnership could not have gotten off to a better start. We’re now looking for and evaluating opportunities for our second documentary together. We also anticipate doing more work with IMAX, we’re actively sourcing and developing live shows with them that we can broadcast from Midnight Theatre into IMAX theatres nationwide.

We expect to have a lot more to talk about on this topic between now and our Q2 earnings call. In summary, it’s been a great start to the year with the record Q1 revenues. And as in previous years, we are confident that Q2 will be even significantly higher in revenues than Q1 and Dolphin Ventures previously known as Dolphin 2.0 will enjoy a fantastic return on its investment in The Blue Angels with revenues from IMAX institutional theaters still to come. Thank you for joining us. And to that end, I’ll now turn it over to Mirta.

Mirta Negrini: Thank you, Bill, and good afternoon, everyone. I will now discuss results for the quarter ended March 31, 2023. Revenue for the quarter ended March 31, 2023 was approximately $9.9 million, 8% above the revenue for the quarter ended March 31, 2022. Overall, operating expenses for the three months ended March 31, 2023 were approximately $12.5 million, compared to approximately $11.1 million in the same period in the prior year. Operating expenses are composed of direct cost, payroll and benefits, selling, general and administrative expenses, SG&A, changes in the fair value of contingent consideration, depreciation and amortization and legal and professional fees. Direct cost for the quarter ended March 31, 2023 were $219,000, compared to $1.1 million in the same period in prior year.

Payroll costs were approximately $9.1 million, compared to $7 million in the same period in the prior year. SG&A expenses of $1.9 million, compared to $1.5 million for the same period in the prior year. Legal and professional fees were $763,000, compared to $938,000 in the same period in prior year. Operating loss for the quarter ended March 31, 2023 of $2,566,000 includes non-cash items from depreciation and amortization of $533,096 and a loss from the change in the fair value of contingent consideration of $15,485, along with one time a non-recurring audit fees of $300,000. This compares to an operating loss for the quarter ended March 31, 2022 of $1,889,060, which includes non-cash items from depreciation and amortization of $407,238, and a loss from the change in the fair value of contingent consideration of $161,451, along with one time and non-recurring professional fee expenses of approximately $300,000, primarily related to the 2021 audit.

Net loss for the quarter ended March 31, 2023 of $2,969,320 included non-cash items from depreciation and amortization of $533,096 and a loss from the change in the fair value of contingent consideration of $15,485, along with one time a non-recurring audit fees of $300,000. This compares to a net loss for the quarter ended March 31, 2022 of $1,717,832, which includes non-cash items from depreciation and amortization of $407,238, and a loss from the change in the fair value of contingent consideration of $161,451, along with one time and non-recurring professional fee expenses of approximately $300,000, primarily related to the 2021 audit. Basic and fully diluted loss per share was $0.23 per share based on 12,640,285 weighted average shares outstanding.

This compares to $0.20 of basic loss per share and 8,713,700 weighted average shares and $0.23 fully diluted loss per share based on 8,846,567 weighted average shares outstanding in the same period in the prior year. Unrestricted cash and cash equivalents of $7.9 million as of March 31, 2023 as compared to $6.1 million as of March 31, 2022. That concludes my financial remarks. I will now ask the operator to open the phone lines for Q&A. Operator, can you please poll for question?

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question will come from Allen Klee with Maxim Group.

Operator: Thank you. At this time there are no additional questioners. I’d like to turn it back to Mr. O’Dowd for closing remarks.

Bill O’Dowd: Oh gosh. Okay. Well, first of all, I teach at the University of Miami, shout out to all hurricanes who just graduated and those past graduates that are on this call. And there are a few of those as well. And I know, the Q1 call, I always feel a little guilty, because I get to talk to everybody twice in six weeks. And usually not a lot has changed. Obviously The Blue Angels has pride of place on this earnings call. I’m very happy that we are able to together get off to such a great start with our ventures. It’s exciting times. And of course, having been in this business a long time, 27 years and having formed multi-year partnerships with studios and networks in the past, I think having a success like that right out of the gate just cements the relationship we believe we’ve built with IMAX.

And I think there’s – when two good companies with all of our reach together, whiteboard additional ways to work together, good things come out of it. So I’m excited for that and sharing some of those ideas that we’ll be executing on over the summer and into the Q2 earnings call. Obviously, I’ve been asked more than once. What’s the next documentary? Well, we’re going to bask in the glow, this one for a month or two and really make sure that we pick the right next project together. We have some great exciting submissions. But thank you all for listening. Thank you for giving us the opportunity to tell you our good news and I’ll look forward to the next earning call in about three months. So thank you everybody.

Operator: Thank you. Ladies and gentlemen, this concludes today’s presentation. You may now disconnect.