Thunderbird Entertainment Group Inc. (THBRF) Q2 2024 Earnings Call Transcript

Thunderbird Entertainment Group Inc. (OTCQX:THBRF) Q2 2024 Results Conference Call February 29, 2024 2:00 PM ET

Company Participants

Frank Alfano – Bristol Capital

Jennifer Twiner-McCarron – CEO and Chair

Barb Harwood – CFO

Conference Call Participants

David McFadgen – Cormark Securities

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 three 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 CFO. Ms. Twiner-McCarron will provide a strategic overview of Thunderbird Entertainment Group and Ms. Harwood will review the company’s financial Q2 2024. Following the corporate update and financial review, the call will open for a Q&A session [Operator Instructions]. Alternatively, if you have any questions you can call 1-604- 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 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 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.

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

Jennifer Twiner-McCarron

Thank you so much. My name is Jennifer Twiner-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 Q2 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. 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 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 as our North Star and monetizing the content we make is perfectly set up to execute on us. 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 embrace 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 number one and number two, respectively, on Netflix Kids in the US. And Great Pacific Media’s Heavy Rescue: 401 recently ended its seven season run on Discovery Canada as the number two 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 into 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 poised 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 this. Great Pacific Media unveiled three new docuseries that are shared to capture the attention of viewers. Timber Titans, which premiered on February 5th on Discovery, Canada and February 18th on the Weather Channel in the US. Rocky Mountain Wreckers, which is being commissioned by the Weather Channel in the US 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, 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 US viewers. Super Team Canada is also praised first commission of an original animated series. This series is centered around the exploit of six little known Canadian superheroes who try to save the world from evil giant robots and unemployed octopus and needy hardware stir cooks. With premiere 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 Produce Productions also received the following nods during subsequent to Q2. Molly of Denali received two nominations for the 2nd Annual Children’s and 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 and Pony both received nominations for the 35th annual GLAAD Media Award 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 two nominations in the outstanding character voice over performance for television category by Issa Rae and Scott Muscuti. 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 grows. A recent study from research from AMFIRE Analysis on the future of children’s content noted that while US commissions have softened, these same platforms are licensing content like never before to hold subscribers. In fact, the study showed that licensing of kids content among US platforms shot up by 48% from 2022 to ’23. Our first third party acquisition, Mittens and Pants, has been sold into more than 34 territories in just under a year, including significant deals with US streamers like Peacock, Kadoodle TV and Happy Kids. With more sales and new acquisitions on the way, 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 board 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’re 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 UK and Europe. Over the last 15 years, Simon’s 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 the Q&A today. With these announcements and with the strengths 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

Thanks, Jen. And thanks for 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 three and six 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 three and six 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 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 three and six months ended December 31, 2023 due mainly to the reduction of IP deliveries as compared comparative periods. In the current quarter, revenue was recognized from the delivery of 10 episodes of the scripted series Reginald the Vampire Season 2 to SyFy, eight episodes of the unscripted series Highway Through Hell Season 12 and the animated special Rocket Saves the Day. In the comparative quarter, three episodes of the scripted series Strays and 24 episodes of three unscripted series, After the Storm, Mud Mountain Haulers and Highway Through Hell, were delivered, as well as the recognition of a distribution contract for Reginald the Vampire Season 1.

Thunderbird has returned to profitability in Q2 2024 with net income for the three months ended December 31st 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 six 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 three and six months ended December 31st, 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, non-recurring 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 three and six 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 IP 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 Twiner-McCarron

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, eight were Thunderbird IP and 16 were service productions. Thunderbird Kids and 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, Seasons 3 and Seasons 4 for Disney Junior; 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 include LEGO Marvel Avengers, Code Red for Disney Plus, 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 Newberry, 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 six programs and one podcast and was working for six clients. Productions include, Dead Man’s Curse Season 3 for History Channel; Wild Rose Vet Season 1, a spinoff of Dr. Savannah: Wild Rose Vet, 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 [Believe] Fox Entertainment, acquiring international distribution rights outside Canada and the US for the GPM and Wattpad Studios film, Boot Camp. Plus at GPM, Styled Season 2 premiered on Hulu in the US and Reginald the Vampire celebrated its Canadian broadcast premiere on CTV Sci-Fi. The company currently has 14 scripted projects in development, three 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.

Question-and-Answer Session

Operator

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

David McFadgen

Yes a couple of questions. So just on the outlook, when you issued your Q1 results, you had a target for 20% compounded increase in EBITDA forecasted through 2026. When I read your Q2 release, you just talk 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 Twiner-McCarron

Barb, did you want to jump?

Barb Harwood

We just wanted to focus on fiscal ’24 for this quarter, but our expectations have not changed for fiscal ’25 and ’26.

David McFadgen

Now you talked about affecting some cost cuttings, 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

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

David McFadgen

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

Barb Harwood

We’re starting to see good visibility right now. All of 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-strikes, 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 glue subscribers. So within the calendar year of ’24, we’re really catching that rhythm again.

Operator

We now turn to Sebastian [indiscernible] with [JSCPF] Investments.

Unidentified Analyst

And I guess I have two comments. One is a question and the other one is just to congratulate you that you are taking advantage of the lower share price to buyback stock. So that certainly gives investors some confidence that you’re using some of company money to actually buback shares. So that’s good. The big surprise to me was there is a very substantial correction that’s taken place in free cash flow. I mean, a year ago the six months was at $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 Twiner-McCarron

I’ll toss this one over to Barb and Simon.

Barb Harwood

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, Marcom 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 two shows.

Unidentified Analyst

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

Barb Harwood

That’s correct.

Operator

[Operator Instructions] We’ll now turn to [Jon Chong with Trailhead] Asset Management.

Unidentified 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 buyback shares at this time and increase what is, in my opinion, a pretty low commitment to the equity in the company?

Jennifer Twiner-McCarron

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

Unidentified Analyst

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

Jennifer Twiner-McCarron

I can’t speak to who has. But certainly, yes, members of management and some members of board have done that.

Unidentified Analyst

So that should be reported publicly, right? I’m not seeing that, that’s my reason for my question is when I look at your published reports from last annual, your Board and management have a 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. It’s been a sad case for us if we’ve owned the shares for a couple of years.

Jennifer Twiner-McCarron

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 not.

Unidentified 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 Twiner-McCarron

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 Twiner-McCarron

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 +1-604-734-2866 or email investors at thunderbird.tv. Thank you.