Yahoo Finance Dolphin Entertainment, Inc. (NASDAQ:DLPN) Q4 2023 Earnings Call Transcript
Dolphin Entertainment, Inc. (NASDAQ:DLPN) Q4 2023 Earnings Call Transcript March 28, 2024
Dolphin Entertainment, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the Dolphin Entertainment Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, James Carbonara of Hayden IR. You may begin.
James Carbonara: Thank you, operator. 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. Please note that statements made on this call are not historical facts -- that are not historical facts may be forward-looking statements. significant risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements are detailed in the company's annual report on Form 10-K and supplemented by subsequently filed quarterly reports on Form 10-Q, as well as in other reports that the company has filed with the SEC. Any forward-looking statements made on this call are made only as of today's date, and the company does not undertake any obligation to update or supplement any such statements to reflect subsequent developments.
Now I would like to turn the call over to Bill O'Dowd, CEO of Dolphin Entertainment. Bill, please proceed.
Bill O'Dowd : Thanks, James. That was the shortest Safe Harbor statement you have ever read in your career. I know people are hoping you'll come back at the end of the call. Hi, everyone. Good afternoon. 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, revenue for Q4 was a record $12 million quarterly revenue record for Dolphin Entertainment, an increase of 8% year-over-year. I'm immensely proud of the Dolphin team. We managed to achieve its best revenue quarter ever despite enduring two prolonged industry-wide strikes. Even more impressively on the bottom line, the team delivered positive adjusted operating income of $300,000 in the face of such headwinds.
This is very important to note. So I'm going to pause here and add that adjusted operating income is the primary metric by which we measure our business. It's what I look at first in any P&L I received from here. We define adjusted operating income, as our operating income or loss after removing any non-cash, or non-recurring income or expenses. In other words, if you go to our reported operating income or loss and back out all non-cash and nonrecurring items, how did we do? Reporting positive adjusted operating income is extremely gratifying, obviously. And now that we have our Super Group complete with the acquisition of Special Projects and with our expectation of continued synergies and organic growth, combined with the launch of our ventures in earnest, we believe that we will continue to have and expand positive adjusted operating income on a continuous annual basis.
Very exciting. And it's good to share with everyone how we look at our business and the metric if it's a non-GAAP metric that we use. So, speaking of special projects. I know we discussed the acquisition at length on our Q3 call, but the transaction did happen in Q4. So, just a couple of more bullets on them. As a brief refresher, I'll just point out the Special Projects founded by the amazing industry leaders, Nicole Vecchiarelli and Andrea Oliveri, is a leading agency in talent bookings and celebrity curated event production with offices in Los Angeles and New York. Their impressive client roster includes top brands like Apple, Chanel, Condé Nast, Wall Street Journal, among many, many others. With this strategic addition, Dolphin aims to launch or partner on our own live events as well as capitalize on cross-selling opportunities and synergies across our various companies.
And speaking of our other companies, I'll now turn to some operating highlights. 42West helped clients secure four wins at the 96th Academy Awards and received two dozen nominations, while boosting global interest for The Boy and the Heron and Godzilla Minus One. I'm going to go off-script for a second, because I just got to give a public round of applause to the 42West movie promotion team. The Boy and the Heron was a tremendous achievement to win an Oscar for in the animated motion picture category. I don't know if that's the first time that or must be one of the first times that a movie that was at American won that category to beat out Spider-Man animated movie was a real achievement. Congratulations that 42West teams and a separate team were promoting Godzilla Minus One, Best Visual Effects Oscars which they won for that entire movie at a budget of $15 million.
And I think every movie they are competing against had a Visual Effects budget bigger than $15 million, tremendous job, getting the academy to see the movie and promoting the highlights of the Visual Effects -- excuse me, so, great job 42West. Moving to Shore Fire, Shore Fire which also continuously does great lead PR work, representing clients who collectively received nine Grammy Awards, in over two dozen nominations across various categories, showcasing its rosters diversity in multiple genres and major industry events that recognized both Film and Music. Each of 42West and Shore Fire Media, regularly represent their clients. This was evident in Q4 and year-to-date with both agencies orchestrating over half a dozen PR campaigns for clients at the 2024 South by Southwest Film Festival, a couple of weeks ago and they also achieved notable success at 81st Golden Globe's, contributing to clients securing multiple awards and receiving over 1,000 nominations.
Love it, when our agencies work together and have success at award shows like that. The Door, switching to them, celebrated Eight Consecutive Years Representing the Food Network New York City Wine & Food Festival presented by Capital One. Additionally, they added new client GSC from Jada [ph] to Lawrence's for an Emmy award-winning our Television Personality and New York Times best-selling cookbook author. What does she do restaurant tour entrepreneur? They added GSC and Jada to its growing roster of elite culinary clients in lifestyle brands special shout out to Charlie most will come up on this call. Okay. Now let's talk about the digital department. I pointed out in our letter to shareholders in January that this will be the subsidiary of focus for expansion during the next few quarters.
At least we believe that there is such an opportunity in the marketplace to establish the first fully scaled influencer management company with the ability to service brands and creators of all age groups on all major social media platforms and in a variety of specialties. To that end, we had two major announcements in Q1. First, the digital department brought in the influencer roster of GlowLab to introduce a specialized Talent Management division catering to skin care experts and dermatologists led by GlowLab's Founder Susan Yara. Susan is an extremely successful skincare influencer herself, with our own YouTube channel and she is also founder, of NATURIUM, a skincare product line which was sold for the low, low price of $355 million to Healthy Beauty in September 2023.
I point that out, because part of the strategy of inviting Susan and her roster to join the digital department, to help us conceive and develop partnerships to launch skincare products in which we have an ownership stake. Obviously Susan had a very successful exit herself in just over three years. In other words in NATURIUM launched in June of 2020 -- June of 2020 and was sold in September of 2023 for $355 million. Now it's also worth mentioning that NATURIUM's marketing during those three years was almost exclusively influencer marketing and PR, both of which are obviously strengths at Dolphin. I'll dispel any myth. We did not enter into the agreement with Susan to put James Carbonara as the face of a new skincare product line, but we are excited to launch skincare products.
In addition to bringing in GlowLab, the digital department also established a Young Adult Division a YAD Division as we call it, in partnership with the Osbrink Agency. This was also a highly strategic move for us. You probably saw the announcement in February. GlowLab was back in January and immediately enhances our reach across TikTok and YouTube to complement our current strength on Instagram. And it launches an entirely new age group of influencers for us, teens and young adults. We did so in partnership with the Osbrink Agency which is Hollywood's premier talent agency for that age group. Cindy Osbrink, someone I'm proud to call a friend, the founder of the Osbrink Agency is nothing short of a legend, having launched a careers of hundreds of young actors over the past 25 plus years, including Dakota and Elle Fanning and literally dozens of lead actors across Nickelodeon, Disney Channel and feature film.
Unlike 25 years ago or even more recently when we were producing movies and series for Nickelodeon, there is now a thing called Social Media. I'm joking of course, I'm sure you've heard of it. And so many of those same talented teenagers and young adults of today have TikTok feeds and YouTube channels of their own. Simply put, we want to represent them, and we want to introduce them to brands. And by partnering with the Osbrink Agency, we just saved years of development time for that division and went from 0 to 60 maybe even to hundreds in the snap of our fingers. We announced the partnership, as I said last month, and we already have more than three dozen of these young talented social media stars on our roster, and we can't wait to introduce them to our existing brand partners and to new brand partners we will meet who will want to reach this important demographic.
Viewpoint Creative announced an extensive partnership with the Massachusetts State Lottery, specializing in digital graphic design and animation services. And they also received congrats Dave and the team for us awards for extraordinary craft that shapes compelling narratives and leaves a lasting impact on audiences. And finally, special projects hit the ground running at Dolphin, partnering with the Academy Museum of Motion Pictures for its third annual Gala and continued collaborations with the Wall Street Journal Magazines. Innovator Awards, great job booking Travis Kelsey again and is talent booking partner and entertainment consultant for Town & Country's Annual Philanthropy Summit, which I attended by the way, going off script again and a special shout out to Charles Darren and the great work she's doing in her native South Africa.
It was very impressive. They also collaborated with Chanel, Gucci and Valentina on their respective boutique openings in events during New York Fashion Week in February as well as an entire slate other events during Oscar's Week, which we'll highlight on our Q1 earnings call in six weeks. We got to say something right. Shifting gears, I'll now provide updates on some of our ventures and which Dolphin and its shareholders participate. So I'm going to turn first to Blue Angels because what a week for that, right? As some may recall, Dolphin entered into a multiyear agreement 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 we announced it a couple of years ago at the Comtel Festival, developed and coproduced by JJ Abrams and his company bad robot productions; and Glenn Zipperis company, Zipper Brothers films.
We then announced that Amazon Studios had acquired worldwide rights to the Blue Angels wherein we expect it to generate approximately $3.75 million 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, providing powerful validation for our model of also taking equity in projects we market. We're very excited for this film. It has turned out great. And so our partners, Amazon has secured an exclusive trailer debut and promotion on The Today Show last Wednesday. Thank you, our partners in Amazon, very well reviewed clip that is extremely that type of promotion, by the way for those curious, that is extremely rare for documentary.
I just ask any of you. When was the last time you saw a trailer drop for a documentary on a morning show. When you remember, please let me know. And let me tell you the trailer has been a hit. Over 1.7 million views occurred in the first 24 hours. And as of today, a week later, we're over 9 million views. I believe this has to be one of the highest totals if not the highest total for documentary feature in the 28 years I've been in this business. And of course, it does not count the number of times the trailer has been viewed ahead of movies in theaters. IMAX has placed a trailer ahead of dose busters in many locations this past week, and it will be ahead of the Godzilla King Kong movie that premieres tonight in many locations across the country as well.
This precedes the beginning of an exclusive run in IMAX theaters starting May 17. What do you do on May 17? I hope you're going to the movie theater see in Blue Angels. It's a Friday, you'll love it with availability for streaming on Prime video beginning May 23, right ahead of Memorial Day weekend. Our success with Blue Angels is the result of a deliberate strategy to create event documentaries on subject matters you want to see in IMAX theaters. Putting an IMAX camera in a fighter jet cockpit and literally seeing the neighboring jet only 12 inches away, I cannot describe it. Fingers crossed, we think we have something special. And the importance of a theatrical release in enhancing the film's value for streaming platforms cannot be overstated, given the pre-established audience awareness as theatrical release provides.
Our deal with IMAX is significant for two main reasons. Firstly, it laid the groundwork for the robust streaming sale which has been extraordinary. Secondly, there's an annuity benefit due to IMAX's ownership of theaters and museums and generally institutional theaters as we call it. We are eligible to showcase our film in IMAX institutional theaters six months after it premieres on Amazon. This means that as of November 23rd, the film can be presented at the Smithsonian Aviation Museum and an additional 150 theaters across America. This arrangement creates a steady income stream, an annuity which is quite remarkable. I wanted to make sure everyone understands the significance of it. So in terms of financials, we retain a high percentage of ticket sales, roughly 25%, since there's no distributor involved.
For instance in a theater with 200 seats, of each ticket sold at $10 that's $2000 in revenue from which we would earn $500. That's just from one showing in one theater and there are 150 theaters in the country, 365 days in a year. So considering the film's potential to run for part of or the entire year in various museums, this is expected to continue for the next decade or two to come, given the scarcity of this type of content in institutional venues. Furthermore, with the version of the film being shown in institutional theaters being only 44 minutes long, versus the normal 90 minutes, that will have on May 17th and traditional theaters. We can put in more showings per day. These details are crucial for stakeholders to understand the financial implications.
You may -- you might ask what's the value of the movie institutional theaters and whilst challenging to specify an exact figure, we anticipate this could generate hundreds of thousands of dollars annually, if not more contributing directly to the bottom line since the film has already recouped its investments. So in addition to the 75% ROI from the streaming sale and our participation in ticket sales from the initial theatrical run beginning May 17, we also gain this annuity post streaming around beginning in November. Very excited for Blue Angels. And if you haven't seen the trailer yet I hope you get a chance to check it out online right now. Switching gig excuse me to MasterCard midnight theater, for those unfamiliar, MasterCard Midnight Theater is the state-of-the-art contemporary variety theater and restaurant experience in the heart of Manhattan neighborhood dubbed Manhattan West.
So often as the managing member and the venue and is responsible for the marketing of both the theater and the accompanying restaurant. We have a meaningful ownership stake in MasterCard midnight theater as well. And it's been very gratifying to see the venue attracting high-profile events and partnerships with major brands like MasterCard. The star-studded premieres with Jessica Chastain, Pete Davidson, Kaley Cuoco and Kevin Grant showcased the theaters ability to draw top talent and create exciting synergies with our PR firm. However, since our grand opening last September and especially in the typically slower first quarter period, operations across the restaurant cafe downstairs on the theater have not met our expectations and is well understood that without a profitable restaurant is challenging to make the venue successful.
So we have prioritized our search for a new operator with a new restaurant concept that can best attempt to revitalize the space going into the key summer and fall seasons. While there's no assurance that any deal will close, we have identified the group that we would like to bring in and we are working hard to close a deal in the next few weeks. Acknowledging the challenges of past six months and facing the uncertainty brought about by this potential change or whether we can make a change at all we decided to impair the asset value we had on our books viewing it as an opportunity to reset and potentially avoid future financial overhang. Turning to our newest venture, we are proud to share that Dolphin Entertainment has partnered with renowned culinary personality and client, Rachael Ray and the esteemed Do Good Spirits distillery to launch Staple Gin.
This collaboration brings together Rachel's culinary expertise, Do Good Spirits craftsmanship and Dolphin's marketing prowess to create a unique and promising addition to the spirits market. Staple Gin as a result of Rachael Ray for creating flavorful experiences and our decades of culinary knowledge. The botanical recipe developed by Rachael herself promises a balanced and intriguing flavor profile that reflects Rachael Signature Style. Our subsidiary the door which has represented Rachael Ray since 2008 and Charlie and Lowe's have worked with her since 2005 have been instrumental in bringing this project to life, the doors team has leveraged their extensive experience in marketing wine, spirits and consumer packaged goods, as well as their long-standing relationships with culinary personalities and restaurants to contribute to all stages of Staple Gins developed.
From branding to marketing, PR and trade relations the door has played a crucial role in positioning Stable Gin for success. To generate buzz and anticipation for the launch Staple Gin made its first public debut at two prestigious events, the New York City Wine and Food Festival and the South Beach Wine and Food Festival. Rachael Ray herself was present at these events 0.6 for attendees, while Do Good Spirits mixed up a Staple Gin cocktails, the response from those who had the opportunity to taste Staple Gin has been overwhelmingly positive, further validating our confidence in this new venture. Staple Gin has set to come to market here in Q2, initially in New York State, at bars, restaurants and retail destinations, with plans to expand to additional markets in the future.
We are thrilled to be part of this collaboration and to utilize the full range of marketing and PR capabilities that Dolphin Entertainment offers. We believe that Staple Gin has the potential to become a Staple, no pun intended. That was too easy, right and in home bars and a go-to choice for classic cocktails like the gin and tonic or perfect martini. We are incredibly excited about the potential of Staple Gin and our partnership with Rachael Ray, she is just absolutely lovely. As you may know, celebrity back spirits brands have seen tremendous success in recent years. Just look at the example of Ryan Reynolds’s Aviation Gin exit of more than $0.5 billion and George Clooney tequila brand which sold for $1 billion. Moreover, it was reported last month at the potential value of touring The Rock Johnson’s Teremana Tequila maybe significantly higher, since it is moving over 170000 cases per month which is a staggering number, good for him.
So as you can see in success big numbers are possible with celebrity-backed liquors may we be as lucky. While we can't promise the same results of course, we believe we are playing in the same space and have the marketing expertise to give Staple Gin the best possible chance for success. And I just want to add that our fantastic team at the door and again, Charlie, really spearheading this has its own share of experience and success stories in this space, working with liquor brands from creation through successful exit, including recent examples of Jefferson's Bourbon, which was sold to Pernod Ricard in 2019 and 21Seeds tequila was sold the Diageo in 2022. So we're not exactly foreign to the journey. And as many of you know, our company is always looking for innovative ways to leverage our marketing experience and expertise and create value for our shareholders.
The Staple Gin partnership is a perfect example of this strategy in action and I want to emphasize that this venture like many of our other Ventures does not require any capital expenditure from Dolphin. We anticipate this will be the first of many Ventures in the alcoholic – alcoholic beverage space for Dolphin and we expect to pursue similar deal structures in the future, where we provide – where we provide our marketing services in exchange for a share of the upside without capital investment. As we continue to pursue these types of Ventures. We believe the economic benefits of Dolphin will be substantial. We look forward to sharing more details on the Staple Gin partnership and our other upcoming Ventures in the spirits space. We believe this is an exciting new area of growth for Dolphin and we are well positioned to create significant value for our shareholders through our marketing expertise and innovative deal structure.
There will be much more to come on Staple Gin on our Q1 earnings call. Okay. Those are some highlights about our Ventures division and circling back then in summary, in Q4, Dolphin Entertainment achieved record quarterly revenue of $12 million and positive adjusted operating income of $300,000, despite the impact of twin industry strikes for the first time in over 60 years. All of our subsidiaries secured high-profile clients and partnerships and we also acquired special projects. That's the highlight of the quarter for me, which completes the original vision of what we now call the Super Group. And lastly, with special projects added to the fold, we have positioned the Company and our shareholders for upside from all three categories of Dolphin Ventures; content, consumer products and live events.
The first piece of content the Blue Angels documentary hits theaters in six weeks, and is already profitable from our sale of streaming rights to Amazon Prime, where debuts on May 23, as I mentioned. For the consumer product category, we have Staple Gin, hitting the market here in Q2 and we couldn't be more excited. And for the live events category, we are actively ideating with special projects, Nicole and Andrea and expect to be able to announce the idea for our first owned event by the end of this year or in early 2025. All of these Ventures will leverage our marketing expertise and we expect the majority of them like Staple Gin will not require capital investment from us. So for all of these reasons, Dolphin Entertainment is well positioned for growth and success we believe, focusing on creating shareholder value through innovative partnerships and deal structures while running a sustainable operating company, focused on generating increasing adjusted operating income.
Thank you for your continued support, and I'll now turn it over to Mirta.
Mirta Negrini: Thank you, Bill and good afternoon, everyone. I will now discuss financial results. Total revenue for the fourth quarter ended December 31, 2023 was $12 million, an increase of 8% over the same period in prior year. Adjusted operating income as defined in our earnings release for the three months ended December 31, 2023 was approximately $300,000 as compared to adjusted operating income of approximately $100,000 for the three months ended December 31, 2022. Operating expenses for the three months ended December 31, 2023 were approximately $20 million including, approximately $8.3 million of non-cash or nonrecurring expenses compared to $14.1 million of operating expenses for the three months ended December 31, 2022 including, approximately $3.1 million of noncash nonrecurring expenses.
Operating expenses for the quarter ended December 31, 2023 are composed of direct costs, payroll and benefits, selling general and administrative expenses, acquisition costs, goodwill impairment costs, depreciation and amortization, write-off of notes receivable and legal and professional fees. Direct costs for the quarter ended December 31, 2023 were approximately $300,000 compared to approximately $600,000 for the quarter ended December 31 2022. Payroll costs were approximately $8.9 million in the fourth quarter of 2023 compared to approximately $8 million in the fourth quarter of 2022. SG&A expenses were approximately $2.4 million in the fourth quarter of 2023 compared to $1.9 million in the fourth quarter of 2022. Acquisition costs were approximately $100,000 in the fourth quarter of 2023 compared to $200,000 in the fourth quarter of 2022.
During the fourth quarter of 2023, we impaired goodwill by approximately $3 million as compared to $900,000 impaired in the fourth quarter of 2022. Legal and professional fees were approximately $500,000 in the fourth quarter of 2023 compared to $600,000 in the fourth quarter of 2022. Operating loss and net loss for the quarter ended December 31, 2023 of approximately $8 million and $9.6 million respectively include, non-cash and or nonrecurring items of approximately $8.3 million and $9 million, respectively. These include a $3 million impairment of goodwill approximately $600,000 of depreciation and amortization, $400,000 of bad debt write-off, $100,000 of acquisition costs and write-off of our notes receivable and Midnight Theater in the amount of approximately -- $4.1 million.
The net loss also includes losses from equity investments of approximately $700,000. This compares to an operating loss and net loss for the quarter ended December 31, 2022 of $3 million and $3.3 million respectively, which included noncash and nonrecurring items from depreciation and amortization of $500,000, $900,000 of goodwill impairment, $200,000 of acquisition costs and $1.4 million of changes in the fair value of contingent consideration. Net loss also included approximately $100,000 in losses from equity investments in affiliates. Loss per share was $0.54 per share based on 17,632,822 weighted average shares outstanding for both basic loss per share and fully diluted loss per share for the three months ended December 31, 2023. Loss per share was $0.29 per share based on 11,256,578 weighted average shares outstanding for basic and fully diluted loss per share for the three months ended December 31, 2022.
Cash and cash equivalents of $6.4 million as of December 31, 2023 as compared to $6.1 million as of December 31, 2022. That concludes my financial remarks. I will now ask the operator, to open the phone lines for questions. Operator, would you please -- would you please poll for questions?
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