Dolphin Entertainment Inc (DLPN) 2022 Q3 法說會逐字稿

Good day, everyone, and welcome to today's Dolphin Entertainment Third Quarter 2022 Earnings Call. (Operator Instructions) Please note, this call will be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. James Carbonara, Investor Relations. Please go ahead, sir.

Thank you, operator. And once again, welcome to Dolphin's Third Quarter 2022 Earnings Call. 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. 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 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.

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'd like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.

Thanks, James, and hi, everyone. Good afternoon, and thank you for joining us today. As you might expect, I'll start off the call by spending some time with the breaking news of today's bringing of Socialyte into the Dolphin family followed by an update on various Dolphin initiatives and a full financial review, and then we'll open it up for Q&A. So here we go. I'll begin by giving a brief description of Socialyte.

The company was founded in 2011, the early days of social media marketing to say the least. Socialyte is an influencer marketing powerhouse with teams in New York, Los Angeles, Miami and Nashville, representing some of the most sought-after creators from digital only to celebrity level of talent. Socialyte has a client roster of more than 125 market-leading influencers, including Jana Kramer, Lauren Bushnell Lane, Catt Sadler and Mary Fitzgerald, for this high-end roster of talent, Socialyte secures thousands of campaigns each year with such leading brands as Amazon, American Express, Bose, Cartier, Target and more.

So Socialyte has the talent roster and manages the talent's careers and secures campaigns for the talent. Socialyte has a sister agency, Lytehouse, which also came into the Dolphin family, which represents some of the world's most iconic brands, providing the full suite of services for influencer campaigns, from strategy and casting through execution and delivery with in-depth analytics and reporting. So Lytehouse comes at it from the brand side and the company delivers hundreds of campaigns annually with current and recent clients, including Airbnb, Amazon, American Express, Dan Taylor, Armani Beauty, Audi, Conde Nast, Etsy, (inaudible), Dr. Pepper, Michael Kors, Perrier, Prada, Ralph Lauren and W Hotels.

Okay. So now that you know a little bit about Socialyte, let me describe why this is a highly strategic acquisition for us. I'll give you 3 reasons. First, this gives us scale in influencer marketing. With Be Social and Socialyte under one roof, we now have what we consider to be the leading influencer marketing agency in the entertainment industry to go along with our 3 market-leading PR firms in each of the verticals. 200 influencers on roster with hundreds of millions of collective social media followers. And now we have an unmatched presence in the 2 U.S. capitals for influencer marketing with New York-based Socialyte and Los Angeles-based Be Social.

Secondly, that scale allows us to take full advantage of the very strong brand spend growth across influencer marketing. It's not just that in today's day and age influencer marketing represents the "other half" of earned media, along with PR. It's which verticals we are uniquely positioned to cross-sell for the benefit of the scale we just achieved.

We share some relevant stats. The influencer marketing industry has experienced strong double-digit CAGR over the past 5 years, increasing from global brand spend of less than $2 billion in 2016 to over $10 billion in 2021, with estimates of more than $14 billion in 2022 according to Grand View Research. So it's less than $2 billion in 2016 over -- expected to be over $14 billion this year. So the industry is only growing as any brand marketer can tell you.

But which categories use influencer marketing the most? Now you will see why it is so strategic for Dolphin. Again, citing Grand View Research here, in 2021, fashion and lifestyle was the largest segment with 29% of total spend, which is the exact specialty of Socialyte, Lytehouse and Be Social. Great. We've now built scale and leadership in the largest segment of the extremely fast-growing influencer marketing industry. But what about additional growth? While the second largest segment in 2021 with 23% of total spend was food and entertainment, the exact specialty at Dolphin's 3 market-leading PR firms, which any food and entertainment marketer can tell you.

So over 50% of total brand spend and influencer marketing last year went into fashion, beauty, lifestyle, food and entertainment, the exact verticals represented by our super group. That would be over $7 billion this year out of the $14 billion. Collectively, the Dolphin companies represent approximately 1,000 clients, including global celebrities, feature films, television series, streaming services, musicians, venues, festivals, video game publishers, eSports teams and leagues, culinary celebrities, hotels, toy companies, consumer product brands and Web3 and NFT projects as well as awards campaigns for nominees in over 100 Oscar, Emmy and Grammy categories in 2022 alone.

Speaking plainly, when an influencer is considering where to call home or a brand is considering how an influencer campaign can get them noticed by the general consumer through the broad lens of pop culture and entertainment, we believe we have a unique proposition in the marketplace. And for our PR firms, the door cannot open a restaurant or a hotel in today's environment without an influencer or marketing campaign. Our PR firm, Shore Fire, would find a strong influencer marketing campaign extremely beneficial in launching a single and album or concert tour. And if you don't think social media is important to launching music these days, you are respectfully living under a rock. You get the idea.

Now the third reason why this acquisition was so strategic for Dolphin, after giving us scale and because -- and access to take advantage of the fast-growing influencer marketing industry generally and in our verticals specifically, the third reason why this acquisition was so strategic for Dolphin, is because at the elite levels of Socialyte and Be Social, the influencers on rosters themselves have amassed large enough followings to where they are celebrities in their own right and many have ambitions to be positioned to "crossover" into traditional media, and many more have launched a wide array of consumer products and business ventures.

Our group is uniquely positioned to take advantage of this market opportunity. As influencers and celebrities seek to further spread their interest and monetize their platforms and followings, the rate at which they have been launching brands and products continues to rise. The categories of beauty, lifestyle and fashion are particularly well suited to influence our product launches as demonstrated by the countless examples in recent years. Perhaps the highest upside growth opportunity for Dolphin scale with Socialyte and Be Social is to focus on pitching, facilitating and sharing in the revenues created by influencer brands and content, which will generate further recurring revenue and value for Dolphin and its shareholders.

Okay. So now that you know about Socialyte and our strategic rationale for bringing them into the Dolphin family, let me state that this transaction is immediately accretive. Socialyte has strong revenues and profits. They are growing and like with Be Social, we believe we can grow them even faster by cross-selling their services to clients across RPR firms. With Socialyte and Be Social, we now expect that influencer marketing will represent 25% or more of our revenues in 2023. And for more than that, I don't want to get ahead of our 10-Q and 8-K filings. So more on those topics will wait until after we have released that information.

For final details, Socialyte and its 40 employee team will continue to operate under its own name out of Dolphin's New York and L.A. offices with, if I say so, the very impressive CEO [Sera] and its entire staff welcomed into the Dolphin family of agencies. Furthermore, Socialyte Chairman, Evan Luzzatto, will continue as an adviser to Dolphin.

All right. Let's shift gears to turn to providing updates on projects where Dolphin and its shareholders have equity and participate in the upside that our best-in-class marketing companies regularly enable for our clients. And by the way, for which going forward, Socialyte will provide another asset to use for the benefit of these ownership stakes.

Since we last spoke in August, we held a soft opening on September 21 for Midnight Theater, a new restaurant in Variety Theater in New York's Manhattan West, Brookfield Properties latest neighborhood development between 9th and 10th Avenues and West 31st and 33rd Streets. The night before our soft opening, we prepped a theater with Peacock's premiere of new romantic comedy, Meet Cute, in night theaters red carpet was stacked with national media covering the arrival of film stars, Pete Davidson and Kaley Cuoco.

We had a sold out show last Monday with the British singer [Raye]. And while we seek to continue to ramp up the original programming in the theater through the holiday season and into the winter by which time we expect to be open every day of the week. The private events business in the theater is already off to a terrific start. In the short time since the soft opening, we have held well over a dozen private events, some of which were full buyouts, I mean both the theater and the restaurant. And the clients are top tier, including our programming sponsor, Mastercard as well as Accenture, Ernst & Young, both of them happen to be neighbors and (inaudible) inside Manhattan West and share a tower. And L'Oreal, Paramount, Riot Games for a really cool League of Legends event with Mastercard; and Showtime.

Now turning to NFTs. On October 3, just after the quarter ended, we were pleased to report that our flagship NFT collection Creature Chronicles, and intergalactic immersive storytelling experience from former Marvel Studios artist Anthony Francisco, sold out in about 90 minutes on the afternoon of Sunday, October 2. The first Creature Chronicles collection developed and marketed by Dolphin's Web3 division (inaudible) in piece, was minted on the Solana blockchain, and feature 7,777 custom crafted avatars generating more than 13,175 SOL in primary sales at mid-time equaling about $435,000. We credit the success of the project to the stunning visuals from Anthony, the commitment of our team and the dedication of our community.

We are very proud of this success. With that said, though, we are very aware of the recent developments in the crypto space and we'll continue to monitor the space as we decide on prudent path forward with our NFT business. I would like to point out that Dolphin has no exposure in the pending FTX bankruptcy proceedings and we have no assets inside FTX wallets.

Our most recent announcement in late October was about a partnership with Nina Compton, with James Beard award-winning chef and the owner of Compere Lapin and Bywater American Bistro in New Orleans, to open together, ShaSha Lounge, a membership cocktail club and lounge in the Crescent City. Dolphin will be providing marketing services for fees and receiving a meaningful ownership stake in the venture as well. The announcement was made as part of the first annual Fresh Mint Festival, New Orleans Web3 conference and Festival where Dolphin executives moderated a panel on how Web3 and NFTs are impacting the face of the food and beverage and hospitality industries.

What I really like about this initiative is its inclusion of a variety of other celebrity chefs and its clear line of sight for national expansion and success. From the get-go, five major celebrity chefs have joined the ownership group. Mark Forgione from New York; [Stephanie Eser] from Chicago; Michelle Bernstein from Miami; Rodney Scott from Charleston; and Tiffany (inaudible) for Boston. Right about now, James Carbonara is salivating. Each of these chefs will visit New Orleans every year and offer custom menu items and cocktails for the general public and also provide unique experiences for those who become members.

That alone immediately distinguishes this concept. And if you're a foody, you know all 5 of those names to go along with Nina Compton, 6 of the 12 chefs. But it also allows for the national expansion I mentioned. Upon success in New Orleans, ShaSha can be brought to each of the other celebrity chefs hometowns where they would have control of the concept in the menu and also take the largest share of profits, supported by all of the other chefs within that work for a visit each year. In all, there will be a total of 12 celebrity chefs in the initial rollout of ShaSha so you can see the scalability of the project.

ShaSha Lounge is a truly brilliant concept developed by (inaudible) in partnership with Nina Compton and her management team, and it's in alignment with (inaudible) professional expertise and marketing culinary destinations and the Dolphin family's passion for charitable giving, mean as pledged that a portion of membership and [mileage] sales will go to support future disaster relief in New Orleans is a gracious and forward-thinking win-win. And honestly, to get Nina her due, that was the starting point for the creative development of what became ShaSha. And being a native Miamian, I know what it's like to get hit hard by hurricanes. So a special shout out to Nina Compton on this earnings call.

Thank you for joining us on this ride and to walk through the financials. I'll now turn it over to Mirta Negrini, our CFO.

Thank you, Bill, and good afternoon, everyone. I will now discuss results for the quarter ended September 30, 2022. Revenues for the quarter were approximately $9.9 million as compared to approximately $9.4 million for the quarter ended September 30, 2021. Overall operating expenses for the quarter ended September 30, 2022, were approximately $11 million compared to approximately $10.5 million in the same period of the prior year. Operating expenses are composed of direct costs, payroll and benefits, selling, general and administrative costs, SG&A, acquisition costs, depreciation and amortization, legal and professional fees and changes in the fair value of contingent consideration.

Direct costs decreased by approximately $200,000 to approximately $837,000. The decrease is primarily attributable to the decrease in Viewpoint's revenue in comparison with the same period in the prior year as Viewpoint encouraged third-party costs related to the production of marketing materials, which are included in direct cost. Payroll and benefit expenses increased by approximately $1.2 million to approximately $7 million, primarily due to additional head count in 2022 to support the growth of our business and stock compensation issued to our employees under the 2017 plan.

SG&A costs were approximately the same during the 3 months ended September 30, 2022, as compared to the same period in the prior year. Acquisition costs of approximately $300,000 were primarily legal and professional fees related to the Socialyte deal. There were no acquisition costs during the same period in the prior year. Legal and professional fees increased by approximately $300,000 to approximately $800,000. The increase is primarily due to legal and auditor fees, associated with the Lincoln Park agreement and the filing of the S-1 and consulting fees for the implementation of a new enterprise resource planning system. These are all onetime costs.

Operating loss for the quarter ended September 30, 2022, of $1.1 million includes noncash items from depreciation and amortization of $415,836, a gain in the change of fair value of contingent consideration of $5,000 as compared to an operating loss of $1.1 million for the quarter ended September 30, 2021, which included noncash items from depreciation and amortization of $475,207 and a loss in the change of fair value of contingent consideration of $1.1 million.

Net loss of approximately $1.3 million or $0.14 per share based on 9,664,681 weighted average shares outstanding for basic loss per share and $0.14 per share based on 9,793,715 weighted average shares on a fully diluted loss per share basis for the 3 months ended September 30, 2022. The net loss of $1.3 million includes noncash items from depreciation and amortization of $415,836, a gain in the change of fair value of contingent consideration of $5,000, a gain in the change of fair value of warrants and convertible notes of $55,642, and a loss from the equity investments of unconsolidated affiliates of approximately $100,000.

Net income was $141,651 or $0.02 per share based on 7,740,085 weighted average shares outstanding for both basic and diluted earnings per share for the 3 months ended September 30, 2021. Net income for the quarter ended September 30, 2021, of $141,651 includes noncash items from depreciation and amortization of $475,207, a loss in the change in fair value of contingent consideration of $1.1 million, a loss on the change in fair value of warrants and convertible notes of $278,923 and a net gain of $1.7 million from the extinguishment of debt.

That concludes my financial remarks. I will now ask the operator to open the phone line for Q&A. Operator, would you please pull for questions?

(Operator Instructions) First, we'll go to James Carbonara with our Investor Relations.

Thank you, operator. And hi, Bill. Alan Klee of Maxim Group e-mailed in 4 questions. The first one is, what is your plan on NFTs given all that's happening with FTX, current prices and volumes?

Sure. This is unusual. I'll pretend you're Alan, James. I would say -- so what's our plan? Yes. We need to evaluate it, to be quite honest. I mean, the crypto space is obviously quite a bit of turmoil right now. We've weathered and pushed the launch of Creature Chronicles to out past what was supposed to be the crypto winter in the spring and summer. We had a very successful launch. I don't know where crypto is going to go from here, and we need to just take it day by day without making any hard promises one way or the other.

As I mentioned, Alan may not have for it because if he was e-mailing questions. But as I mentioned in my prepared remarks, we don't have any exposure on the FTX side. And we'll see what it all means as we go forward and kind of live it day by day. We do believe we have an expertise in being able to market in that space and it's driven by Creature Chronicles. It's proven by the hard work the team does for a variety of clients every day. But I don't know that we can commit today to knowing what the future is going to hold.

Great. And then his next one, which I think you may have already addressed was please provide an update on Midnight Theater and Hidden Leaf.

Yes. I mean -- and just to put a little color on those prepared remarks, for those who haven't seen it, I mean the space is gorgeous. The theater's gorgeous. The restaurants gorgeous. Theater is unique, those walls that are interactive and high-fidelity projection mapping allow for some really cool experiences. And we knew -- I was educated on the process -- during the process about how popular space would be for private events. The team believed in that -- they knew it from the beginning.

Brookfield was very complementary of the concept for private events during the construction phase, and it seems to be proven true. In these first few weeks, as I mentioned, some of the names, I mean the not only they may book the theater for private events without even being fully open. I think to a sponsor of those private events, they all want to come back for more. So it's a really nice environment and brand-new space.

So it gives us -- private events are a lifeblood for any venue and by definition, you only do a private event if it's going to bring you in more revenue and profit than if you just held your own program. So or else you keep your own programming in there, right? So it's an encouraging sign ahead of getting our programming right and getting it up 7 days a week.

Great. And then his third of his 4 questions is any other changes in 2.0 initiatives?

Well, he probably would have liked the comments about ShaSha. I mean, I know there are some of our folks probably listening to this call that really like the ShaSha model. And so do we. It's not just the ShaSha itself model, as I was talking about in the prepared remarks, but we do feel like having access to the super group only bolstered by Socialyte right now, gives us an opportunity to participate in the revenues or profits of clients or an equity of clients and so -- or initiatives. And so it's -- we've done a couple of those deals in the past. ShaSha is one that combines that concept of being a client and we can market ShaSha and get paid to market ShaSha. But also have a meaningful ownership percentage and it invest us to help make ShaSha in New Orleans be more of a success and help expand it nationally.

So that's a very good deal for both sides, and we feel very good about that. So those types of deals where we get a little bit of the best of both worlds are very appealing. And to Charlie (inaudible) and (inaudible), they were there from the ground floor ideating what that could be. So there's an example, quite frankly, the vision of putting a super group together. That they could -- each of our senior leaders and quite frankly, all the staff can have ideas that can lead to ideas to outcomes like ShaSha, and which are -- we're talking about a James Beard award-winning shot, right? I mean, Nina Compton is pretty darn big and a group of 12 celebrity chefs is a pretty big deal.

And so I think to just open up a lounge that's open to the public, but also has a membership program component. So there's a good example of, I think, something that we're excited about 2.0 since we last spoke.

Great. And then Alan's last question, any commentary related to outlook?

Yes, sure. Let's see. Well, I mean, obviously, whatever I would have said before Socialyte would change with Socialyte, right. And by the way, just for fun commentary, when I was thinking about just how to convey in brief comments, the growth of the influencer marketing industry to those who may not be as familiar with it. I went back and I remember when Dolphin was producing shows on Nickelodeon, we were starting to dabble with online content. This is before Netflix streaming with House of Cards or even for that with the Norwegian series, Lilyhammer. Back about 2008, we had Zoey 101 that was classified on the air.

And I remember having the first conversations with digital groups at CAA and others. And brands didn't have social media budgets let alone departments. And Facebook, I think Facebook somebody correct me if I'm wrong, went public in '06. Is about right. And I looked up from '08 when we were playing the beginning late stage, we made the original series for AOL and Facebook by the way called (inaudible).

Do you -- this is a great turn to your question. What was the average time an American spent on social media in 2008? 2 years after Facebook went public. It was 8 minutes, 8 minutes a day. And last year, it was 2 hours and 24 minutes a day, average. So it's not a surprise that brands followed eyeballs. And the eyeballs of the average American as you get younger and even more so, 2 hours and 24 minutes a day is what I read online yesterday. I just get that stat. And I was like, wow.

So Socialyte will change things, but obviously on both revenue and profit. But as I look back at Q3, I'm happy with our revenue growth. I think that had Creature Chronicles gone in Q3 instead of Q4, we would have had a double-digit revenue growth story again year-over-year. We're still on pace for the $40 million of revenue this year without Socialyte. And I do think that Q3 will look vastly different if we didn't have the noncash charges and the nonrecurring expenses and the acquisition costs and the professional legal fees.

I mean, our run rate for professional legal fees should be in the [$350] range, maybe between there and $400. It was elevated last year's Q3 because we had filed a (inaudible), which obviously, whenever you do with registration, sitting like that, it's expensive, was again this year for the reasons we weren't to mention. So if you took away those onetime expenses of the professional legal fee at or above normal in the transaction costs and the noncash depreciation.

And then we wouldn't miss probably a small profit, would have been a bigger profit, $0.5 million or so, which we have been happier Creature Chronicles launched 2 days earlier. But it's -- I think our outlook stays the saying we're happy with where Q4 is shaping up, what our revenue is going to be and then obviously next year. our profits will increase. Our revenues will significantly increase. Both will actually, and we're excited about that. So I think that's a fair summary. And as I mentioned in the prepared remarks, we now have an influencer marketing combination that is equivalent to any one of our PR firm's verticals. The combinations of (inaudible) will represent about 25% of our company's revenue. And that's very meaningful, and that's on par with each of our 3 PR verticals, right, obviously.

So it's a strong-legged up stool and I think that PR and earned media -- excuse me, as I said, PR and middle (inaudible) marketing as the 2 legs of earned media. They're going to complement each other like peanut butter and jelly and the back and forth of it is going to be a tremendous creates a tremendous flywheel for us as it has with Be Social. Be Social has grown very well within our family, and I expect the same with Socialyte.

Thank you, Bill. That concludes the questions received from Alan Klee with Group. I'll hand it back to the operator. Operator?

Thank you. And at this time, this will conclude our Q&A session. I'll turn it back to management for any additional or closing remarks.

Man. I missed both Alan's voice and another question. The -- well, thank you. Thank you for listening. And obviously, a very exciting day. I don't want to bury the lead, as I say, in the PR business. I could not be more thrilled to add Socialyte to the Dolphin family. The management team, as I quickly alluded to in the prepared remarks, are outstanding. Their CEO, Sarah Boyd, is a (inaudible) and very, very impressive and great leader, same with (inaudible) brand side, only [Peters] out of Los Angeles. I just -- I really enjoyed getting to know them. I have a lot of respect for the Lazada family, Mark and Evan, very kind people.

And I know that they're going to be allies of Dolphin for years to come and significant shareholders in Dolphin. So it's an exciting time for Dolphin and I really am very, very happy about this transaction heading into the holiday season, which as anyone knows, is the prime chief and the firm influencer marketing. It's not out of the ordinary that half of your profits or more can come in the fourth quarter. So I hope we all have a holiday season, if I don't want everyone on the call before then. Our best to you and yours, and look forward to next time we get an opportunity to speak. Thank you, everybody.

Thank you. This concludes today's call. Thank you for your participation. You may disconnect at any time.