CA - Thunderbird Entertainment Group Inc. (THBRF) Q1 2024 Earnings Call Transcript

2023-11-29 16:22:06 ET

Thunderbird Entertainment Group Inc. (THBRF)

Q1 2024 Results Conference Call

November 29, 2023 02:00 PM ET

Company Participants

Frank Alfano - Bristol Capital

Jennifer Twiner-McCarron - CEO and Chair

Barb Harwood - CFO

Conference Call Participants

Aravinda Galappatthige - Canaccord Genuity

David McFadgen - Cormark Securities

Presentation

Operator

Hello, and thank you for joining Thunderbird Entertainment Group's Q1 2024 Earnings Call. Frank Alfano from Bristol Capital will read the forward-looking statement disclaimer.

Frank Alfano

Thank you everyone for joining us today. We are here to provide a corporate update and report on Thunderbird Entertainment Group's Q1 2024 results for the three months ended September 30, 2023.

On today's call are Ms. Jennifer Twiner-McCarron, CEO and Chair of Thunderbird Board 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 financial Q1 2024. Following the corporate update and financial review, the call will open for Q&A session [Operator Instructions]. Alternatively, if you have any questions you can call 1604-683-3555 or e-mail investors at thunderbird.tv and the company will follow-up directly after the call. At this time, all lines have been placed on mute to prevent any background noise.

I'd like to remind everyone that certain statements made on today's call constitute forward-looking statements or information under applicable securities laws. Forward-looking statements and information discussed on this conference call include, but are not limited to, becoming the next major global studio, volume of post direct content and new shows arriving on streaming services, content heading for different platforms, providing further details regarding the proposed normal course issuer bid, growth in adjusted EBITDA, strategic initiatives materializing the future and being well position to remain in industry leader.

In addition, statements made today related to the financial outlook or future oriented financial information have been approved by Management of Thunderbird. Such financial outlook or future oriented financial information is provided for the purpose of providing information about management's current expectations and plans relating to the future and may not be appropriate for other purposes. Forward-looking statements are based on estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties and other factors which are set out in the company's most recent MD&A and other public documents filed under the company's profile on SEDAR. Although, the company believes that the assumptions and factors used in preparing these forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this presentation and no assurance can be given that such events will occur in the disclosed timeframes or at all. Except where required by law, the company disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. This conference call is being webcast live and the archive will be available on the company's Web site at www.thunderbird.tv following today's call. Please note that Thunderbird reports in Canadian dollars unless otherwise stated.

And Ms. Twiner-McCarron will now provide the corporate update.

Jennifer Twiner-McCarron

Thank you, Frank. My name is Jennifer McCarron, and I'm the CEO and Chair of Thunderbird Entertainment Group. On behalf of our company, I'd like to thank you for joining today's call to discuss the first quarter of 2024. Thunderbird CFO, Barb Harwood, is with me, and we appreciate you taking the time to hear the company's earnings update. Once Barb and I are finished, we will answer your questions and provide clarity where needed. We are happy to have had several touchpoints with our shareholders this fall, including our year end 2023 call in October, an investor webinar we hosted through Bristol Capital in November and now our Q1 '24 call. These opportunities are important as they allow us to come together and engage in meaningful discussion about how we are strategically growing Thunderbird while also pursuing ways to maximize shareholder value. During each opportunity, we highlighted our company's current position and our perspective on Thunderbird's bright future. As we move further into '24, we remain dedicated to our ambitious goals for the year. We have clear insight into our deliveries and are poised for solid double digit EBITDA growth in '24. At the same time, we must recognize that it may take time for our business to adequately reflect the positive progress we are making following the headwinds of fiscal '23.

As expected, our Q1 was our smallest quarter and we will continue to ramp up with each fiscal quarter ahead, finishing on a strong result by the end of fiscal year '24. The majority of our shows deliver in the second half of the year, and this combined with our operational streamlining that we have done, is leading to great future results. Our company maintains a strong financial standing free of debt with a substantial cash reserve. This positions us exceptionally well to continue providing high caliber content to our buyers, and Q1 was full of exciting announcements that demonstrated this. For example, in Q1, renowned toymaker Jazwares signed on to be the global master toy licensee for Mermicorno: Starfall. This is the original animated series produced by Atomic Cartoons in partnership with Tokidoki with the licensing program being co-managed by Thunderbird Brands and Tokidoki. In Q1, we also announced a new Original Atomic produced TV special called Rocket Saves the Day. This IP special will debut on PBS Kids in December, and Thunderbird will manage and control its global media rights. In Q1, we also started production of our first owned IP adult animation series. We recently sold this series with Thunderbird handling global distribution with more details to be announced soon.

Additionally, Thunderbird Distribution announcements include the adorable animal centric preschool series, Mittens & Pants, launching in the US on several streaming platforms and Thunderbird acquiring global media and consumer products rights, excluding the UK, to new series called BooSnoo!, a Sky Kids original commission. Atomic produced shows CoComelon and My Little Pony are currently streaming number one and two on Netflix. We are proven to deliver premium quality and deliver on the promise of major global brands. And in Q1, NBCUniversal International Networks announced that it acquired Season 2 of Reginald the Vampire, introducing this series to new European markets. M6's 6th place streaming platform also bought the series. Plus Reginald the Vampire also made its Canadian broadcast premier on CTV Sci-Fi. These announcements are a sampling of some of the exciting things happening at Thunderbird, and there are many more on the horizon. I genuinely can't wait to share them all with you when we are allowed to speak about them at the right time. Similarly, I will provide updates on the work being done with our Strategic Advisory Committee and ACF Investment Bank, which is part of the cooperation agreement we entered into Voss following the proxy contest we had in fiscal '23. On November 10th, we amended and restated the cooperation agreement with Voss, replacing the existing agreement in its entirety. Under our new agreement, Taylor Henderson, a representative and employee of Voss, is now nominated for election to our Board of Directors at the upcoming AGM, which is scheduled for December 14th. The new agreement also includes the appointment of one additional independent director to be mutually agreed upon by the company and Voss following the AGM. Current directors, Linda Michaelson and Mark Trachuk, will not stand for reelection. And we sincerely thank them both for their valuable contributions.

In terms of the work being done by the company's strategic advisory committee, during the year end call, I shared that our current analysis showed that today's macro environment has resulted in a gap between Thunderbird's internal assessment of our company valuation versus the valuation that prospective buyers might be willing to offer. Because of this, we've determined that it was in the best interest of the company and the shareholders to wait until more of Thunderbird strategic initiatives start materializing to demonstrate the true worth. And our viewpoint on this matter is unchanged. When we officially go to market, which is on track for the first half of '24, we want the company to operate from a position of strength to ensure maximum value. We truly know that Thunderbird is a strong company with incredibly valuable assets. And ACF is recommending that further into 2024 when our deliveries are up, combined with our strong forecast for '25 and '26, this is the right timing. As further testament to this belief, the Board has approved the implementation of a normal course issuer bid pursuant to which the company may repurchase its own common shares for cancellation through the facilities of the TSXV in an amount that does not exceed 10% of its public float as may be permitted by the TSXC and applicable securities laws. We will be providing further details on concrete next steps regarding this proposed issuer bid in a press news release that will be distributed on December 1st.

Thunderbird’s journey is exciting and full of great potential. Our team knows how to produce and deliver amazing stories. While the transformations within the industry have tested our agility, we put our heads down and doubled down on the health of the business, creating great content, because there's still a major need for content now more than ever. And Disney has made its intentions clear that it will be strategically focusing on premium quality content moving forward, and has it made it clear that we are one of their number one partners, handling majority of their major global brands. So has Netflix's Scott Stuber, who recently shared in variety interview that the streaming giant will now be doubling down on quality. Apple TV has also built a reputation for its quality over quantity approach to content. Thunderbird as a studio is perfectly positioned to deliver on all of this. And in the same way that Apple TV Plus has strategically used premium content as a core differentiator, we have too. Our team's incredible talent and reputation for delivering premium content sets Thunderbird apart. We hear this from all of our partners. We've also embraced a proactive approach and enacted strategic cost savings initiatives, such as reduced travel, entertainment, in cases the elimination of specific roles to enhance our operational efficiency and better support sustainable growth. We have an unwavering belief in our company and remain committed to making critical business decisions that allow us to guide the future of Thunderbird.

With this, I will pass things over to Barb to go over the numbers. I'll then share specific updates from the teams before we move to the Q&A. Over to Barb.

Barb Harwood

Good morning, and good afternoon, everyone, wherever you are. I'm going to go over the Q1 2024 results. Revenue decreased from $43.7 million to $33.6 million for the three months ended September 30, 2023, a variance of $10.1 million or 23%, mainly due to the differences in the timing of IP deliveries as compared to the period ended September 30, 2022. Licensing and distribution revenue, which is IP, decreased due to the timing of IP recognition from $13.9 million to $3.1 million over the comparative quarter. In Q1 of 2024, the company delivered 20 half hours of unscripted versus 26 half hours of unscripted in Q1 of 2023. In the current quarter, revenue was recognized from the delivery of 10 episodes of Highway Thru Hell Season 12 versus 13 episodes of three unscripted series, Gut Job, Deadman’s Curse Season 1 and Highway Thru Hell Season 11, which were delivered in Q1 of 2023. Later in fiscal 2024, we expect to be recognizing the remaining episodes of Highway Thru Hell Season 12, Deadman’s Curse Season 2, Styled Season 2 and Timber Titans Season 1. In terms of scripted series, Reginald the Vampire Season 1 and Strays Season 2 were recognized in the comparative quarter versus no scripted series being recognized in Q1 of 2024. As you may be aware, Reginald Season 2 has completed production and is set to be recognized later in fiscal 2024. Production services revenue increased from $29.8 million to $30.5 million over the comparative quarter due to a slight increase in the number and scope of projects. Projects with significant revenues during the quarter include Princess Power, Marvel Spidey and His Amazing Friends, LEGO Jurassic Park, Zombie and CoComelon.

Adjusted EBITDA decreased from $4.1 million to $2.5 million for the three months ended September 30, 2023 as compared to the comparative quarter, a variance of $1.6 million. As I've just mentioned, this decrease is mainly attributable to the differences in timing of IP deliveries versus the comparative period. In fiscal 2023, the greenlighting of several animated IP projects set the stage for anticipated contributions to net income through fiscal 2025. Management is ambitious in their goals for fiscal 2024, targeting over 20% growth in adjusted EBITDA. Additionally, the company's modest expectations are for 5% revenue growth in fiscal 2024 over fiscal '23. These expectations are anchored in the completion of 43 additional hours of content delivery in the remaining months of fiscal '24. Looking ahead, the company aims for sustained growth with a compounded 20% increase in adjusted EBITDA forecasted through 2026. While navigating current industry challenges, Thunderbird remains proactive. As Jen has just mentioned, subsequent to the quarter, the company has streamlined operational processes, including reductions in travel entertainment as well as the elimination of certain roles. These measures were strategically implemented to address market uncertainties and create capacity for investment in growth opportunities. Thunderbird remains committed to maintaining a robust balance sheet and to exercise improved management decisions to stay nimble in evolving conditions while steadfastly pursuing sustained growth. And back to you, Jen.

Jennifer Twiner-McCarron

Thanks so much, Barb. During the quarter, the company had 30 programs in various stages of production and was working with 23 clients. Of the 30 programs in production, 10 were Thunderbird IP and 20 were service productions. In Q1 2024, the company was in various stages of production on 22 animated series, one of which is our first owned IP adult targeted animation series. Examples of these programs include Princess Power Season 2 for Netflix, CoComelon Lane for Moonbug at Netflix, Marvel's Spidey and His Amazing Friends Seasons 2, 3 and 4 for Disney Junior, My Little Pony: Make Your Mark for eOne/Hasbro, The Mindful Adventures of Unicorn Island for Headspace YouTube, Zombies: The Re-Animated Series for Disney TVA, and LEGO Jurassic Park: The Unofficial Retelling for Peacock among others. On the scripted side of the business, the company was in production of seven programs in Q1 '24, including Dead Man's Curse Season 2 and 3 for History Channel, Styled Season 2 for Hulu, Wild Rose Vets Season 3, formerly known as Dr. Savannah: Wild Rose Vet, for APTN, Timber Titans Season 1 for Discovery and Highway Thru Hell Season 12 for Discovery. GPM was also in production on Reginald the Vampire Season 2 and NBCUniversal International Networks announced that it has acquired this season and will be introducing the series to new European markets.

Speaking of scripted series, the company currently has 20 scripted projects in network development, two of which are active in network development, which means we are actively collaborating with a specific broadcaster or streamer to shape scripts on the visual development of a project. Having a footprint in animation, unscripted and scripted allows us to be nimble and participate in all areas of production and content needs depending on market preference. And post strike as content orders continue to see the light of day, we are ready to go. This concludes our corporate update and as we move forward in our next phase of growth, we remain optimistic, but are also pragmatic. The impact of the writers and actors strikes will continue for some time and will create more industry transformation, which ultimately will be positive. Navigating this will require nimbleness, resilience and talent. The incredible teams at Thunderbird possess all of these qualities in spades. We've built this company with a solid foundation and a reputation for delivering premium content and we are well positioned to remain a leader in an ever evolving Industry. We will now open things up for questions. Thank you all so much for joining.

Question-and-Answer Session

Operator

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

Aravinda Galappatthige

I just wanted to start with the changes to guidance. I know that obviously the revenue number is 5% now, but perhaps you're trying to be a little bit more conservative given the macro and then perhaps even more importantly, the adjusted EBITDA number seems like it changed by a few million, maybe close to $4 million. I know that you were targeting to get as close as possible to the pre-fiscal 2023 number, and now it looks like you're targeting sort of just above 15. Maybe just talk to that variance. Is it timing, were there projects that maybe got pushed out? What kind of drove that change following the previous call?

Jennifer Twiner-McCarron

I think, really, it's just the -- you know, we're getting new at giving guidance, and we've been given advice to just be ultra conservative. We're doing low, medium and high projections. So we're just catering to the low projections, that really is the bulk of it, Aravinda. We still are 95% booked for the year. It's sort of also EBITDA, we've been sort of signals is the main indicator of success in our business. And increasing revenues without increasing EBITDA hasn't boded well for us. So essentially, it's just, as we get better at giving guidance, trying to unlock the black box nature of our business, there's some stumbling blocks, but we're certainly, airing on ultra conservative. Barb, do you want to add to that?

Barb Harwood

I think we're just trying to be a little bit more modest in our approach. We're certainly shooting for our high set of projections and we're comfortable with our mid, but we just want to be careful with what we're putting out there.

Aravinda Galappatthige

And then with respect to the mix, I know that there was obviously a timing factor on the distribution revenues, the IP side of things. I know that Barb, you alluded to Reginald kind of coming in later in the year. Should we -- I mean, the ratio has sort of been in that middle 20s in terms of service and IP. Should we expect that going to be the case this year the way you see it or would that shift a little bit given Q1? I just wanted some indication around that, please.

Barb Harwood

Yes, in '24, the mix is going to be probably similar to '23. We've got a lot of new IP content shows in production right now that we’ll be delivering subsequent to '24 and that's when the mix will start to change quite a bit from the production services versus content.

Aravinda Galappatthige

And then lastly, on the lease cost, it's I guess more a free cash flow question, but I didn't note that the lease cost came down. I don't know if it was part of your cost reduction program or whether there was something anomalous there, perhaps for Barb. I was wondering if there's any clarity on that front?

I was wondering if there's any clarity on that front.

Jennifer Twiner-McCarron

That was on the [amort] of ROU assets there are you thinking of?

Aravinda Galappatthige

No, it's the [1.775 leasing] expenses…

Jennifer Twiner-McCarron

The lease obligation.

Aravinda Galappatthige

Yes, on the cash flow statement.

Jennifer Twiner-McCarron

There was a couple of things happening there. We didn't have to buy as many capital assets like rate of these assets this year as we did last year. There was a huge amount of investment in those kind of assets last year and we just didn't have to have as much this year. And some of them last year were very specific to a couple of the shows that are sort of the onetime only thing, so that's why it's come down.

Barb Harwood

And I think also, Aravinda, we are going to be, like we are actively subleasing a couple of our buildings, we will always have a home office. We need places to gather and be creative. But we're seeing some success, which could increase savings in those areas. Because back in 2019, we weren't greenlit security wise to do shows unless everyone was under one roof. Now with hybrid, we just don't need as much physical space. So that will be some gains that we should see.

Jennifer Twiner-McCarron

The decrease also is mainly due to the equipment nature of the animation division, because that's the main bulk of our lease obligations is all the equipment.

Barb Harwood

And we did our large investment last year, we're kind of over that.

Operator

Our next question comes from David McFadgen with Cormark Securities.

David McFadgen

So maybe I'll start with a question on the guidance. So given that you said that, I know, 90%, I guess, of your business is kind of locked in for fiscal ‘24 year. I think, that was the same situation when you had the last conference call. So I'm just wondering compared to the last conference call and compared to today, have things changed at all in your mind for fiscal '24?

Barb Harwood

Not dramatically. I think it's just as we get better at giving guidance, we're doing low, mid high. We're working closely with our bank, sort of following advice from ACF, and the Board, in terms of just being ultra conservative. Because what happens if they're -- like because the majority of our work does deliver in Q3 and Q4, what happens if there's an unplanned for push. We're trying to mitigate any surprises, but we're still on track for a really substantial year.

David McFadgen

And then I was wondering if you can give us an idea on what you think the investment and content spend will be this year as reflected in the cash flow statement?

Jennifer Twiner-McCarron

I think it will be pretty similar to last year. We've got a lot of -- our content shows, a lot of them got renewed in the past year. There will be some additions on the animation side. So it will probably increase by about 20% from over last year. And then -- and again, it depends on timing because once series like, Reginald are recognized, a lot of that will come off and flip to the income statement.

David McFadgen

So just to make sure we all understand things correctly, the baseline for last year when we're talking about [Indiscernible] content, it's $21.4 million, right? So you're thinking it's probably up about 20% from that?

Jennifer Twiner-McCarron

I'd say between 15% to 20%.

Operator

[Operator Instructions] At this time, we have no further questions. So I'll turn the call back to Jennifer and Barb for any closing remarks.

Jennifer Twiner-McCarron

I'll just say thank you for joining us. Again, the best is in front of us for this fiscal. And please reach out for any further clarification or one-on-ones, and look forward to speaking with people.

Operator

Thank you. This concludes our call today. If you have any questions, please call (+1)604-683-3555 or email investors@thunderbird.tv. Thank you everyone for your participation. You may now disconnect your lines.

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