Dolphin Entertainment : 2021 Q2 Earnings Call

Transcript of

Dolphin Entertainment, Inc.

Second Quarter 2021 Earnings Call

August 16, 2021

Participants

James Carbonara - Investor Relations, Dolphin Entertainment, Inc.

Bill O'Dowd - Chairman & CEO, Dolphin Entertainment, Inc.

Mirta Negrini - CFO & COO, Dolphin Entertainment, Inc.

Analysts

Allen Klee - Maxim Group

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Dolphin Entertainment Second Quarter 2021 Earnings Conference Call. All lines have been placed in a listen-only mode and the floor will be opened for your questions and comments following the presentation.

At this time, it is my pleasure to turn the floor over to Mr. James Carbonara with Investor Relations. Sir, the floor is yours.

James Carbonara - Investor Relations, Dolphin Entertainment, Inc.

Thank you, and once again, welcome to Dolphin Entertainment's second quarter 2021 earnings call. With me on the call are Bill O'Dowd, Chief Executive Officer and Mirta Negrini, Chief Financial Officer.

I would 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 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 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.

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For a discussion of such risk factors 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 would like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.

Bill O'Dowd - Chairman & CEO, Dolphin Entertainment, Inc.

Thanks, James and hi, everyone. Good afternoon. And thank you for joining us today. Now James has asked me to follow our traditional format where I start by discussing our financials at a high level and then speak about Dolphin 1.0 in the second quarter, and then move to our recent launch of Dolphin 2.0 and announcements regarding NFTs.

But James, hold on to your seat, brother, because I'm going to break from format. This, I realize, may be unconventional. But, I would like to first pay tribute to those who have been following Dolphin since before March 23rd of this year. I think everyone knows that date. The one when we made our first Dolphin 2.0 announcement in NFTs and the trading in our stock went nuclear.

No, I want to speak to those who have been with us even before January of this year when we made our last acquisition. Yes, I want to speak to the OG stakeholders and investors, some of whom have followed us since we first spoke of our dream of building an entertainment marketing Super Group at LD Micro in December 2016, when we were an OTC stock and had not even brought 42West into the family.

And I want to speak to those who I met the following year during our Roadshow prior to our uplisting on the NASDAQ in December 2017. Yes, those are the people I want to speak to right now -- to James Carbonara of Hayden IR, who was the first addition to the team after deciding to take Dolphin public in the summer of 2016, and who arranged for that first speaking engagement at LD Micro, I should add.

To John Shaw, Jason Sardo and Keith Goodman of Maxim, who helped us achieve the uplisting to NASDAQ, and have been with us every step of the way since, to Josh Scheinfeld and all of my friends at Lincoln Park, to Tim Johnson at Bard, to Marvin Shanken (Go Canes), to our directors, especially the original independent directors Mike Espensen, Nick Stanham, and Nelson Famadas, who have seen the entire journey, to Mirta Negrini, our CFO who has also been with us since before we were public.

And to all of our CEOs and former private company owners, Amanda, Lois, Charlie, Dave, Marilyn, Ali and Dean, who each share the belief that we are stronger together than any of us

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would be alone, and to their senior management teams who care so much about the work they do on behalf of our clients.

And to all of the over 160 Dolphins working with us today. I want to talk to them and all the others like them, those who believed and continue to believe in what we're building here at Dolphin. And so in speaking to all of you, I'm going to be inspired by many of our musician clients and dedicate this song, this earnings call, you know who you are and this earnings call is for you.

So here we go. From a financial perspective, we have reached several significant milestones this quarter. Looking at the P&L, we have set a new record with $8.6 million in revenues. Please note that this follows Q1, which set a then record of $7.2 million in revenues. That is 20% sequential growth from the previous record holding quarter. And as you might expect, it is significant growth from last year's Q2 revenues of $5.2 million, 66% growth to be exact.

Next, looking at our operating income, this is another huge milestone. Since we uplisted to NASDAQ in December of 2017, it's positive for the first time even when including the non-cash expenses, depreciation and amortization. Yes, positive operating income from a microcap entertainment company, even including the D&A expenses from our acquisitions.

From a P&L perspective, that is how we measure ourselves. And so this is a big moment for our company. Now sure, it's fun to report those numbers in the P&L. But for my money, the real story is the balance sheet. As we took on debt to assemble the Super Group, many saw this is our biggest weakness, as our Achilles heel. At first they doubted we could add other private companies into our group. When that started happening with the Door only six months after we joined NASDAQ, they then switch the story and said we wouldn't make it to the point where we could pay off those debts. Actually, they didn't just say it, they proclaimed it. Everyone's entitled to their opinion, of course. And we respect that. But many of those opinions were stated as conclusions, as facts. They were absolutely certain this day would never come.

Well …

Let's recap where we are then, shall we? In little more than three years since our uplisting, to pull our version of LeBron James maybe, we have acquired not one, not two, not three, not four, but five additional companies to join 42West.

I guess other market leading companies did want to join and create a Super Group after all, who knew? And even doing all of that, from a peak working capital deficit of just under $16 million, one and a half short years ago and even after bringing in six companies, we're now reporting the first working capital surplus in Dolphin history at $1.25 million. And since we're a cash positive micro-cap company, we expect this surplus will only continue to grow.

Why is that so important to us? Because that working capital surplus will give us strength on our balance sheet for the next set of acquisitions in 2.0 Investments? For acquisitions on the same terms of any of the six we've already done, for example, we would be able to pay the cash component for any of them from cash currently on our balance sheet.

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Obviously, we had not been in this position previously. So this is another huge milestone for us. And speaking of cash, we now have $9.3 million of unrestricted cash, which is more than all remaining debt.

Yes, all debt, including long-term debt, and including the remaining $2 million in PPP loans, which we expect to be fully forgiven and which of course will only improve our working capital surplus.

And last but not least, remember all those puts from any of the acquisitions dating back to 2017 totaling $11 million. Yes, those have been paid in full. Thank you very much, completely off our balance sheet. None left. Not $1, nada, Zippo. So our balance sheet, what was stated to be a weakness by those who couldn't see beyond it to what we were building. Yes, our balance sheet today, one and a half years later, can only be fairly described as possibly our biggest strength when compared to our micro-cap peers. And let me tell you, that feels so good, so, so, so very good.

All right. Now we can stop giving James a heart attack and I'll go back to his script instead of mine. Let me give you some updates on our Super Group, the companies that are making those great numbers happen.

During the second quarter, 42West was involved in various capacities with 13 films that earned a total of 32 Academy Award nominations and won six Oscars. This past Friday, as movies are slowly coming back to theaters, 42West handled Respect, MGM's biographical drama film based on the life of Aretha Franklin. And, looking ahead, upcoming promotional campaigns include some doozies, including Universal Pictures film adaptation of six times Tony Award winning musical Dear Evan Hansen, coming in September, MGM's highly anticipated latest installment in the James Bond franchise, coming in October, as well as Paramount's Top Gun 2 starring our very own client, Tom Cruise, coming in November. So we've got major releases coming out one after the other through the fall.

Turning to music. Shore Fire Media had a terrific second quarter, really, really great. Let's spend a little extra time on Shore Fire because Marilyn and the team are truly firing on all cylinders. I'll start with a special shout out to Shore Fire Media clients, Carole King and Todd Rundgren, who are being inducted into the Rock & Roll Hall of Fame. Awesome. And although the return of a full touring calendar is very much a moving target these days, Shore Fire worked with Day One client Bruce Springsteen for his return to Broadway with the summer run at the St. James Theatre, as well as long time clients, Hall & Oates and the Dave Matthews Band, to promote live performances.

But it's not just the artists. Shore Fire represents many businesses from all facets of the music industry, including OneOf, the digital company from Quincy Jones, and Lyte, the ticket reselling platform, among many others. Finally, it should be pointed out that Shore Fire's work with musicians and authors and influencers has attracted a lot of attention and allowed for the growth of a very nice roster of non-musician clients, including former athletes, Shawn Johnson East, excuse me, and Chris Bosh, Go Heat!!!

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Shifting to consumer and hospitality, The Door welcomed iconic ice cream brand, Häagen-Dazs and beloved European baby food brand, Holle, and led campaigns for the Dominic Hotel, Jefferson's Ocean Bourbon and Virgin Hotels in New Orleans. Also, Charlie and Lois of The Door have taken a leadership position for us in these early months of the NFT business, guiding our launches and developing processes to onboard more large scale campaigns, which we'll highlight soon. But I wanted to take a moment to thank them for all of their hard work in this space.

As for video production, Viewpoint, again also had an exceptional quarter producing a wide range of videos, everything from traditional network and entertainment clients, CNN, National Geographic, Viacom and HBO Max, to the rapidly growing consumer product and brand video work done for clients, including PayPal, Biogen and AAA.

And on a personal level, this is a company that cares deeply about charitable opportunities and making a positive impact in the world. So I'd like to highlight Viewpoint's work with The Door to develop strategy and digital content for Leary Firefighters Foundation's International Firefighters' Day broadcast event, which recognizes firefighters and launched the Foundation's virtual training video series with the largest fire training exercise in New York City.

And finally moving to influencer marketing, Be Social was another company that had a fantastic quarter, really executing across both the brand campaign side and the influencer talent management sides of the business. This is what can happen when you've got a young, exciting market leader in such a growing market.

And I honestly think some may be sleeping on this aspect of our company. It was on this earnings call last year that I tried my best to express our great enthusiasm for adding Be Social to our Super Group, explaining that influencer marketing and PR are the twin pillars of earned media, with influencer campaigns representing tremendous growth in our industry. Well, eMarketer and Business Insider recently inaugurated their forecast for this industry with an expectation of 33.6% year-over-year growth to $3.69 billion in influencer marketing spend in the U.S. in 2021, which is $1 billion more than 2020.

Furthermore, their forecast for both 2022 and 2023 also showed double-digit growth with total influencer marketing spend nearing $5 billion in the U.S. in 2023. We very much wanted to be in this space, and we have a gem of a company with Be Social. Their skill set is an advantage for our Super Group, and we'll be sure to leverage it to the fullest extent possible with our 2.0 initiatives.

Speaking of which, let's talk about Dolphin 2.0. As a recap for anyone new on the call or to the Dolphin story, we define the work of our Super Group under Dolphin 1.0 as the very best at marketing pop culture, and we define what we call Dolphin 2.0 as using pop culture to market, specifically marketing assets that we own. Simply put, we are looking to own assets for which our marketing companies have a particular expertise and therefore, which will give us the best chances for success. We want to own what we know we can market better than anybody else.

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