Thunderbird Entertainment Group Inc

XTSX:TBRD

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for joining Thunderbird Entertainment Group's Q2 2024 Earnings Call. Frank Alfano from Bristol Capital will read the forward-looking statement disclaimer.

[Frank Alfano]

Thank you for joining us. We are here to provide a corporate update and report on Thunderbird Entertainment Group's Q2 2024 results for the 3 months ended December 31, 2023. Speaking on today's call are Ms. Jennifer Twiner McCarron, CEO and Chair of the 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 Q2 2024. [Operator Instructions] Alternatively, if you have any questions, you could call 1 [phone] or e-mail [e-mail], and the company will follow-up directly after the call. [Operator Instructions] 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-strike content and new shows arriving on streaming services, content heading to different platforms, providing further details regarding the proposed normal course issuer bid, growth in adjusted EBITDA, strategic initiatives materializing in the future and being well positioned to remain an industry leader.

In addition, statements made today related to 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 time frames 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 website at www.thunderbird.tv following today's call. Please note that Thunderbird reports in Canadian dollars unless otherwise stated.

Ms. Twiner McCarron will now provide the corporate update.

[Jennifer McCarron, executive]

Thank you so much. My name is Jennifer Twiner McCarron, and I am the CEO and Chair of Thunderbird Entertainment Group. On behalf of the company, I'd like to thank you all for joining today's call to discuss Q2 2024. Thunderbird's 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. Our incoming CFO, Simon Bodymore, will also join us at this time. Coming out of a period of many media industry headwinds, both Disney and Netflix recently reported higher-than-expected earnings as both companies have taken bold steps to shift their business models in pursuit of profitability. Business Insider declared that Bob Iger is back on top. And just like the NFL, the Disney's CEO even got a boost from Taylor Swift, helping the company get one step closer to achieving streaming profitability.

At Netflix, the company achieved a Q4 2023 net income of $938 million, 17-fold increase over the same period in '22, adding an impressive 13.1 million subscribers over the quarter. While the industry continues to reset, we have seen renewed focus on high-quality content and content that offers a return on investment with licensing and consumer product opportunity. Thunderbird's strategy of keeping quality of the North Star and monetizing the content we make is perfectly set up to execute on it. Content remains king as people continue to need and want a happy escape and buyers return to the marketplace. As a content creation and production company, to succeed in business today, being excellent is the best strategy and our strategy. The teams at Thunderbird embraced this in spades. There's a huge demand for great content and storytelling, and those of us who make great content will continue to be recognized for doing so and leaned on as a go-to resource for more great content. For example, in Q2, CoComelon Lane and My Little Pony: Make Your Mark Chapter 6, both hit #1 and #2, respectively, on Netflix Kids in the U.S. And Great Pacific Media's Heavy Rescue: 401 recently ended its seventh season run on Discovery Canada as the #3 most watched series across all Canadian English specialty TV, what a way to send off this incredible series. And the old adage rings true, good begets good, great begets great. At Thunderbird, the teams are renowned for being great, as partners, content creators, storytellers and more, having the in-house capabilities to go from initial concept through the screen and to retail is a unique advantage that only adds to this.

Being based in Canada allows us to focus on the production of high quality, offer more competitive budgets and put more on the screen. Thunderbird remains placed for a robust and rewarding future. We adjusted our business operations in the fall of 2023 to take into account the slowdown making more than $3 million in reductions for fiscal year '24. And we remain thoughtful and measured in our investments going forward. We've returned to profitability and are on track to meet our guidance, with Q4 very much on track to be our largest in this fiscal.

With a series of incoming greenlit productions and great visibility into '25 and '26, Thunderbird continues to be extremely well positioned. Recently, we shared several exciting announcements that truly showcase the. Great Pacific Media unveiled 3 new docuseries, that are sure to capture the attention of viewers. Timber Titans, which premiered on February 5 on Discovery Canada and February 18 on The Weather Channel in the U.S., Rocky Mountain Wreckers, which has been commissioned by The Weather Channel in the U.S. with Bell Media serving as a Canadian production partner. And then there's Prizefighter. This is the working title, which is being developed in partnership with the World Boxing Council and its President, Mauricio Sulaiman. This heavy hitting series will give viewers a behind-the-scenes look at the world of boxing. Preliminary filming is currently underway in Las Vegas.

The teams at Atomic have also been working diligently to deliver quality content. Recently, we announced the studio's first adult animated original series of Super Team Canada, produced alongside Will Arnett’s Electric Avenue and co-created by Canadian comedy writers, Robert Cohen and Joel H. Cohen from the Simpsons fame, we anticipate Super Team Canada to attract many U.S. viewers. Super Team Canada is also Crave's first commission of an original animated series. This series is centered around the exploits of 6 little known Canadian superheroes, who try to save the world from evil giant robots and unemployed octopus and needy hardware store clerks. With premier date of 2025, Super Team Canada is everything you could want in a tongue-in-cheek Canadian [ B Team ] Superhero Series, complete with quick-witted Canadianism. We're really proud of this exciting Thunderbird IP, which furthers the strategic growth of our brand and continues to build the long-term value of our company. Atomic produced productions also received the following nods during subsequent to Q2. Molly of Denali received 2 nominations for the second Annual Children's & Family Emmy Awards: Writing for a Preschool Animated Program and Short Form Program for the Big Gathering. Young Love received a nomination for best animated series at the Critics Choice Awards. Princess Power and Pinecone & Pony both received nominations for the 35th Annual GLAAD Media Awards in the category of Outstanding Children's Programming. And Marvel's Spidey and His Amazing Friends and Young Love, both received nominations in the Outstanding Animated Series category for the NAACP Image Awards. Young Love also received 2 nominations in the outstanding character voiceover performance for television category by Issa Rae and Scott Mescudi.

Shortly, we will be beginning exploring our strategic alternatives with our bank ACF. We are starting this process imminently, and we'll keep you posted with any salient updates. However, our focus maintains doubling down on the inherent health of our business. Our company has a strong foundation centered around a diversified business offering from animation, factual, scripted producing both IP and service work, which has enabled our teams to be both strategic and nimble in driving Thunderbird forward to create value for our shareholders. We believe organizational health is the foundation for our ability to create value, maintain and grow profitability, build resilience and ultimately thrive in this environment.

Now more than ever, Thunderbird's creative chops are hugely in demand, and we're also making strides in our content licensing business, both our IP and third-party IP through Thunderbird distribution and brands, as the demand for licensed titles grow. A recent study from research from Ampere analysis on the future of children's content noted that while U.S. commissions have softened, these same platforms are licensing content like never behold for to hold subscribers. In fact, the study showed that licensing of kids content among U.S. platforms shot up by 48% from 2022 to '23.

Our first third-party acquisition, Mittens & Pants, has been sold into more than 34 territories in just under a year, including significant deals with U.S. streamers like Peacock, Kidoodle.TV and HappyKids. With more sales and new acquisitions underway, we are very well situated to capitalize on the shift in the industry. Our production, IP development and distribution strategies are integral to building the long-term value of our company. Critical to this is having the right people on our team, which we've done in spades. Recently, we welcomed Dave Lazzarato, to the Thunderbird Board of Directors and also appointed him as Chair of the Strategic Advisory Committee. David brings with him a wealth of director experience with both public and private company boards with a focus on strategy, governance, leadership, finance, risk and compensation, and we look forward to benefiting from his financial and operational expertise.

In addition, we are welcoming Simon Bodymore to the leadership team as our new Chief Financial Officer. Simon has more than 25 years of experience leading financial teams for public and private companies in North America, the U.K. and Europe. Over the last 15 years, Simon has focused on working with fast-growing Canadian companies that operate internationally, bringing a level of expertise that will greatly benefit Thunderbird at this stage in our journey. Simon will be joining Barb and I for Q&A today. With these announcements and with the strength of our current leadership team, I am confident in our ability to position Thunderbird well into our next chapter. I will now pass things over to Barb to go over the numbers. I will then share specific updates from teams before we move to the Q&A.

Over to you, Barb.

[Barb Harwood, executive]

Thanks, Jen, and thanks to everybody for joining today. I'll now give the financial highlights for the fiscal second quarter ended December 31, 2023. Revenue decreased from $47.9 million to $44.5 million and from $91.7 million to $78.1 million for the 3 and 6 months ended December 31, 2023, as compared to the comparative periods in the prior year, variances of $3.4 million and $13.6 million, respectively. Production services revenue for the 3 and 6 months ended December 31, 2023, decreased by $1.4 million and $0.7 million over the comparative period due to a slight decrease in the volume of work during the period. This revenue consists primarily of animation production services. Projects with significant revenues during the quarter include Marvel's Spidey and His Amazing Friends, LEGO Jurassic Park: The Unofficial Retelling, Zombies: The Re-Animated Series and CoComelon Lane.

Licensing and distribution revenue from IP projects decreased by $2 million and $12.8 million for the 3 and 6 months ended December 31, 2023, due mainly to the reduction of IP deliveries as compared to the comparative period. In the current quarter, revenue was recognized from the delivery of 10 episodes of the scripted series Reginald the Vampire Season 2 to SyFy, 8 episodes of the unscripted series Highway Thru Hell Season 12, and the animated special Rocket Saves the Day. In the comparative quarter, 3 episodes of the scripted series Strays and 24 episodes of 3 unscripted series After the Storm, Mud Mountain Haulers and Highway Thru Hell were delivered as well as the recognition of the distribution contract for Reginald The Vampire Season 1.

Thunderbird has returned to profitability in Q2 2024 with net income for the 3 months ended December 31 being $0.6 million as compared to a loss of $0.3 million for the comparative period in the previous year, an improvement of $0.9 million. Net loss for the 6 months ended December 31, 2023, was $0.1 million compared to a loss of $0.2 million for the comparative period in the previous year, an improvement of $0.1 million. Free cash flow decreased from $7.8 million to $0.4 million and $12.2 million to negative $2 million for the 3 and 6 months ended December 31, variances of $7.4 million and $14.2 million. The decrease for the current quarter is primarily due to repayment of interim production financing, share repurchases and associated costs under the NCIB, severance payments, nonrecurring legal costs related to the amended and restated cooperation agreement and investments into animation content creation.

Adjusted EBITDA decreased from $4.3 million to $3.9 million and from $8.4 million to $6.4 million for the 3 and 6 months ended December 31, 2023, as compared to the comparative period, variances of $0.4 million and $2 million. The decrease is attributable to the reduction in IP deliveries during the quarter, as I described when discussing revenue.

In terms of the company's expectations for the remainder of fiscal '24, as Jen has already mentioned, Thunderbird continues to expect over 20% growth in adjusted EBITDA for fiscal 2024, and the company expects the last half of fiscal 2024 to be the strongest weighted to the fourth quarter. Management has adjusted their revenue expectations for the remainder of the fiscal year due to the slower-than-expected recovery in the content creation market.

Revenue is now expected to remain flat year-over-year as compared to the Q1 2024 guidance of a 5% increase, with service revenue moderately increasing over the prior year offset by a marginal reduction in revenue related to IP. These projections are based on the expectation of an additional 29 hours of IP being delivered in the second half of the fiscal year, bringing the total expected IT delivery for the year to 53 hours. In comparison, IP deliveries in fiscal 2023 were significantly weighted to the first half of the year.

During the quarter, several cost reduction activities were implemented with the goal of addressing industry uncertainty. As Jen mentioned, the company expects to realize more than $3 million in overall cost reductions for fiscal 2024. Thunderbird continues to remain proactive on streamlining operational processes and looking for additional efficiencies and cost reductions. The company is committed to maintaining a robust balance sheet and exercising prudent management decisions to remain adaptable in evolving conditions while steadfastly pursuing sustainable growth.

And I'd like to pass it back to Jen.

[Jennifer McCarron, executive]

Thanks so much, Barb. During the quarter, the company had 24 programs in various stages of production and was working with 20 clients. Of the 24 programs in production, 8 were Thunderbird IP and 16 were service production. Thunderbird Kids & Family, producing under Atomic Cartoons, was in production on 18 programs and working for 14 clients, including CoComelon Lane for Moonbug and Netflix, Marvel's Spidey and His Amazing Friends, Season 3 and Season 4 for Disney Jr., My Little Pony: Make Your Mark Chapter 6 for eOne and Hasbro, The Mindful Adventures of Unicorn Island for Headspace, Zombies: The Re-Animated Series for Disney TVA and Atomic originals Rocket Saves the Day for PBS KIDS and Mermicorno: Starfall for Warner Bros. Discovery. Additional Atomic series that premiered during the quarter included LEGO Marvel Avengers: Code Red for Disney+, LEGO Jurassic Park: The Unofficial Retelling for Peacock and Princess Power Season 2 for Netflix. Atomic also became a Certified B Corporation and joined a global community of businesses that meet the high standards of social and environmental impact.

A special thank you to Marsha Newbery, Thunderbird's Vice President of Sustainability and Business Affairs for her work in spearheading this process. Thunderbird unscripted producing under Great Pacific Media, was in production on 6 programs and 1 podcast and was working for 6 clients. Productions include Deadman's Curse Season 3 for History Channel; Wild Rose Vet Season 1, a spin-off of Dr. Savannah: Wild Rose that's for APTN; Timber Titans Season 1 for Discovery; Rocky Mountain Wreckers Season 1 for Discovery and The Weather Channel USA; and Highway Thru Hell Seasons 12 and 13 for Discovery. The Season 13 renewal of Highway Thru Hell will see the series hit a historic 204 episodes. Additional, Great Pacific Media News includes Deadman's Curse: Slumach's Gold, companion podcast, being named one of the Best Podcasts of the Year for 2023 by Amazon Music and Blue Fox Entertainment, acquiring international distribution rights outside Canada and the U.S. for the GPM and Wattpad Studios film Boot Camp, plus a GPM's Styled Season 2 premiered on Hulu in the U.S. and Reginald the Vampire celebrated its Canadian broadcast premiere on CTV, SyFy.

The company currently has 14 scripted projects in development, 3 of which are in active network development. Again, all of this burgeoning IP feeds into our strategy of increasing ownership and continuing to build long-term value while monetizing this IP through all forms of cross-media exploitation in our consumer products and distribution division. This concludes our corporate update.

While there is still some uncertainty across the industry, we have so many reasons to be confident in the future of Thunderbird. Brick by brick, we are building on top of the solid foundation we have created and are being guided by the right team to take us to the next level. We're laser-focused on our strategy but also nimble and agile enough that we can navigate the challenges that may come our way. This is what leads to innovation and what Thunderbird does best.

Before signing off, I really want to thank Barb Harwood for her expertise and her guidance and for the 19 years plus that she has dedicated to Thunderbird. This company has grown and evolved so much during that time, and it was truly an honor to work alongside Barb. We also appreciate the support that Barb has provided in overseeing the seamless transition with our incoming CFO, Simon Bodymore, whom we are looking forward to having on the team. Thank you so much, Barb, and welcome to Simon.

With that concludes our call today, and we'll move to the Q&A.

[Operator]

[Operator Instructions] First question comes from David McFadgen with Cormark Securities.

[David McFadgen, analyst]

Okay. Great. Yes, a couple of questions. So just on the outlook, when you mentioned your Q1 results, you had a target for 20% compound and increase in EBITDA forecasted through 2026. When I read your Q2 release, you just talked about 2024. You don't mention that same outlook to 2026. Has anything changed? Or are you still looking for that outlook to 2026?

[Jennifer McCarron, executive]

Barb, do you want to jump...

[Barb Harwood, executive]

I'm just -- I just jump in here. Yes, we just wanted to focus on fiscal '24 for this quarter, but we -- our expectations have not changed for fiscal '25 and '26.

[David McFadgen, analyst]

Okay. Okay. Perfect. Now you talked about affecting some cost cutting. You're talking about savings of $3 million. Do you expect the full $3 million to be realized in fiscal '24? Or some of that would actually roll into '25?

[Barb Harwood, executive]

We expect that full to hit by the end of the '24 fiscal.

[David McFadgen, analyst]

Okay. Okay. And then lastly, you talked about the environment, how everybody is still taking some time, I guess, to get back to normal now that these 2 strikes have been resolved. Maybe can you give us an update on where you stand there in terms of normalization? How long you think it might take to get -- take it back to the -- to a normal greenlighting process?

[Jennifer McCarron, executive]

Yes. We're starting to see good visibility right now. All of the -- the buyers, again, the focus is on high-quality content over quantity, which high quality is what Thunderbird does and does best. And so we are starting to see a return to the regular rhythm pre-strike, especially as all of the buyers do need to look at their slate and realize, okay, we need to get new high-quality shows up here to continue to grew subscribers. So within the calendar year of '24, we're really catching that with them again.

[Operator]

We now turn to Sebastian van Berkom with [ JSP ] Investments.

[Unknown Analyst]

Yes. And I guess I have 2 comments. One is a question and the other one is just to congratulate you that you are taking advantage of the -- of the low share price to buy back stock. So that certainly gives investors some confidence that you're using some of company money to actually buy back shares. So that's good. The big surprise to me was there is a very substantial correction that's taking place in free cash flow. I mean a year ago, the 6 months was a $12 million positive, and now we're almost $2 million negative. So there's about a $14 million change. Can you just tell us how the outlook for free cash flow generation looks for the balance of the year? And are we going to go back into much higher positive numbers going forward?

[Jennifer McCarron, executive]

Thank you, Sebastian. Great to hear from you. I'll toss this one over to Barb and Simon.

[Barb Harwood, executive]

Yes, the free cash flow, it often goes up and down per quarter depending on what we're doing, whether we're investing in our own content and what's been happening. There was some significant changes from last year with different things like putting more money into a couple of our animated content shows, Mermicorno and Super Team Canada, and so we expect by the end of the fiscal year to be a much more positive place on that free cash flow as the results come in for those 2 shows.

[Unknown Analyst]

So you'd expect a substantial return back to positive territory by the end of the year?

[Barb Harwood, executive]

That's correct.

[Operator]

[Operator Instructions] Now turn to [ John Chung ] with [indiscernible] Asset Management.

[Unknown Analyst]

You've spent some company money on buying back shares. I wonder if your management team and your Board of Directors are making personal commitments to buy back shares at this time and increase what is in my opinion, a pretty low commitment to the equity in the company.

[Jennifer McCarron, executive]

Yes, that is a -- that is a great question. And certainly, members of our management team and Board have bought shares. So yes, we agree. We think our share price is undervalued at this point, and we expect that to change.

[Unknown Analyst]

So you're seeing your management team and your Board of Directors are making personal commitments to buy shares?

[Jennifer McCarron, executive]

I can't speak to who has, but certainly, yes, members of management and some members of the Board have done that.

[Unknown Analyst]

Okay. So that should be reported publicly, right?

[Jennifer McCarron, executive]

I'm not exactly sure.

[Unknown Analyst]

Yes, I'm not seeing that. That's my -- reason for my question is when I look at your published reports from the last annual, your Board and management have very small commitment to the equity of your company. And besides options, I'd like to see your company management and board committing personal capital if they have confidence that you're going to actually get the share price back to a reasonable level. As I said, case for us if we've owned the shares for a couple of years.

[Jennifer McCarron, executive]

Right. No. Well, thank you for that. And certainly, it's a very valid comment. I think some of it might have been more recent purchases, which maybe hasn't been published. But I think everyone takes into account where our share price is at, and we really do believe in the future of the company. So there's more -- a lot more good happening than that.

[Unknown Analyst]

Well, I hope I'll see something from your management and your Board in the future in terms of personal commitment, and I hope it shows up so that we have confidence as well.

[Jennifer McCarron, executive]

Yes, thank you for that. I completely hear you and really appreciate you expressing that.

[Operator]

This concludes our Q&A. I'll now hand back to Jennifer Twiner McCarron, CEO, for final remarks.

[Jennifer McCarron, executive]

Thank you all so much for joining us. Again, the future is bright for the second half of '24 and great visibility into '25 and '26. Looking forward to having individual follow-up calls with many shareholders listening in. If you don't have anything set with us and you like more clarity around what was discussed today, please reach out, and we are happy to set a call. Thank you. Huge thanks again to Barb. And Simon and I will be handling the calls going forward. Thank you all so much.

[Operator]

This concludes our call today. If you have any questions, please call ([phone] or e-mail [e-mail]. Thank you.