Greetings, and welcome to the Dolphin Entertainment Fourth Quarter 2022 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, James Carbonara, Investor Relations. You may begin.

Thank you, operator, and once again, welcome to Dolphin Entertainment's Fourth Quarter and Full Year 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 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 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, the fourth quarter set a new record for us with revenue of $11.1 million, first time we passed $11 million in the quarter. Full year 2022 revenue exceeded our target, increasing 13% year-over-year to a record $40.5 million. Also, in 2022, our balance sheet continued to improve. As followers of our company know, our put obligations have all been finished, and we now have only one remaining earnout from our previous acquisitions left to go which will be paid this spring. Thus, our below the line items that need to be fairly valued will be cut in half from 4 such line items to just 2, which will dramatically simplify our financial reporting going forward. Furthermore, the two remaining items, one of them are outstanding warrants of which there are only 20,000. That's right, just 20,000 warrants, and the other is the last remaining convertible note, which needs to be fair valued, which only has a principal amount of $500,000. Thus, as we near the completion of the acquisition strategy that built our Super Group, the volatility in net earnings that resulted from needing the fair value, large amounts of puts and earn-out consideration is nearing its completion, which will allow us to more closely align our net income results with the metric we measure ourselves by, which is actual operating income less depreciation and amortization. To put it simply, what was a more complicated balance sheet over the past several years has been tremendously streamlined and simplified, and I think we're a stronger…

Thank you, Bill, and good afternoon, everyone. I will now discuss results for the year ended December 31, 2022. Revenue for the year ended December 31, 2022 was approximately $40.5 million, 13% above the revenues for the year ended December 31, 2021, of approximately $35.7 million. Overall, operating expenses for the year ended December 31, 2022 were approximately $45.1 million compared to approximately $41.2 million in the prior year. Operating expenses are composed of direct costs, payroll and benefits, selling general and administrative costs, SG&A, acquisition costs, impairment of goodwill, change in fair value of contingent consideration, depreciation and amortization and legal and professional fees. Direct costs for the year ended December 31, 2022 were $3.6 million compared to $3.9 million in the prior year. Payroll costs were approximately $29 million compared to $24 million in the prior year. SG&A expenses for the year ended December 31, 2022 were approximately $6.6 million compared to $5.8 million in the prior year. Legal and professional fees for the year ended December 31, 2022 were approximately $2.9 million compared to $2 million in the prior year. Operating loss for the year ended December 31, 2022 of approximately $4.6 million include the noncash items from depreciation and amortization of $1.8 million, impairment of goodwill of approximately $900,000, a gain in the fair value of contingent consideration of approximately $47,000 and nonrecurring costs consisting of acquisition costs in the amount of approximately $500,000 and legal and professional fees in the amount of approximately $600,000 related to the restatement of our 2021 third quarter financial statements, the change in the audit firm, a financing arrangement and the filing of our Form S-1. This compares to an operating loss for the year ended December 31, 2021 of $5.5 million, which includes noncash items from depreciation and amortization…

[Operator Instructions] The first question is coming from Allen Klee from Maxim Group.

Congrats on so many things. I'm trying to understand like the momentum and if I want to try to strip out like NFTs to think of -- it's reasonable to say that $433,000 that won't repeat. Is there anything else like extra money you were making on Dolphin 1.0 of marketing that was material that we should think cuts back in '23?

No, actually, and thank you for the kind words at the start, Allen. If anything, 2022 removing NFTs as a net positive for us in 2023, not because we weren't successful in selling that collection and Charlie Dougiello and the whole team did a great job. But we invested over the course of maybe 15 months, over $1 million in building out our NFT capabilities, over 800,000 of that, I believe, hit in 2022, that were all expensed with the expectation that we would launch multiple NFT collections over the coming years and make a nice return on investment. Certainly, $400,000 on the first collection is a good start, right, to recoup $1 million. But as you can see, since we paused the NFT business, just by not doing NFTs, 2023 should be a net of $600,000 or so, $400,000 to $600,000 better just because we don't have to reexpense the build of the platform. With that said, if we ever restart NFTs, then we don't expect nearly the type of expense to put up another collection of them because we don't have to do so many actions more than once. So it's a shame where NFT is headed after we spent so much time and energy building an expertise in that, but we'll see if they come back.

Okay. Great. And then if I have to guesstimate a little bit of 2.0 revenues in '23, the big picture way to think about it of stuff that is that you might get something from Midnight Theater and Hidden Leaf, maybe more in the second half if you have the full launch of Midnight Theater in the second quarter. And then IMAX movie could be more like a third quarter event. Is there anything else I should be thinking about besides those two things?

Well, those two are pretty big. And with Midnight Theater getting to fully programmed sometime this summer -- late summer, early fall being 7 days a week of programming in theater and private events in the restaurant, then that will be meaningful. The IMAX movie could be very meaningful based on what we've seen so far. And that will be -- our expectation is that will be in theaters late Q3. So that's nice. So yes, those are certainly two things we wanted to highlight. We have some more 2.0 opportunities we expect to generate some revenue in the second half of this year that we'll be announcing in the coming weeks certainly that we're excited by, but nothing we want to announce right now.

Okay. And then so Socialyte, it's -- I think you had published somewhere that -- I think, that they did like $4.5 million in 9 months of '22. So that's going to be a big benefit for your '23 numbers. Is there a way to think about if it's going to happen of synergies between them and Be Social that we could see in '23?

Yes. Thank you for that question, Allen. I mean we were blessed to bring Socialyte in to complement Be Social. And then obviously, we'll look at opportunities to have those companies come even closer together, if you will. But there's highly strategic benefit and complement each other. The scale that on -- each company has two main divisions. They have a talent management division, and by combining the two, we have scale to compete with -- and we think we have established a leading, if not the leading, influencer management firm. On the brand side, the other division, it gives us highly complementary skills. Socialyte does paid campaigns. So when a brand tick one, Airbnb comes and says, we want to do a fall campaign, we have a $1 million budget. Will you help us identify that right influencers based on the demographics we want to hit, go contract with them, organize the campaign, make sure the influencers do what they're supposed to do on the time they're supposed to do it, report back to us, the metrics, et cetera. That's paid. And typically, Socialyte takes a percentage of the overall campaign. So 20%, 30% of $1 million. The Be Social does organic campaigns where the brands may come to them and say, hey, we don't have money to spend on the influencers, but we'll give out sample products, free products. If you can get them to try it and post about it, and we'll pay you a fee of $20,000, $30,000, $40,000, $50,000 for each of those campaigns and do more volume of them. The reason why it's highly complementary besides now owning a leading agency -- if not the leading agency for each type of influencer campaign, is that not just can you offer both services now in-house,…

When I look at the other PR and marketing firms that you have in your portfolio, what are the drivers for organic growth in '23?

Well, a couple of things. And we're starting to see it. One, the cross-selling just keeps going, right? So that's what's driving our organic growth. When we -- even before Socialyte in '21, many of you remember, how fast we are growing just organically from -- I think it was $7.2 million in Q1 to $8.6 million in Q2, to $9.4 million in Q3 and $10.5 million in Q4, and that's all organic. There was no acquisition in there. With that -- that happens because we're getting better at creating synergies between our companies. But then secondly, you can go after different types of clients. So PayPal has been one for a while, but we've signed other clients now that are, let's call it, traditional Fortune 500s or large companies that don't have a direct tie to entertainment, but they want to use pop culture to get the word out about their product. And quite frankly, if you have any consumer-facing product, you could probably use pop culture to create consumer awareness, right, because we're all human beings and we have multiple interests. And so I might want to buy this makeup line today, but I'm a huge fan of White Lotus, right, which is a TV show that 42West represents. So are there organic ways to have conversations or reach out about different things and to the consumer or let them know about different opportunities that way. So where a lot of our organic growth among the PR firms can come from, and there are many different sources, but one such source is just going from 0 to 50 in terms of the number of classic non-entertainment companies that use our services to reach the general consumer. I'm thinking of -- we mentioned Haagen-Dazs on this call. There's a…

That's great. Last quarter, you mentioned a business you were going to be starting up a celebrity chef business in New Orleans with Nina Compton. Any update on where that stands?

Sure. Yes, ShaSha Lounge. We're very excited for that one, too. And quite frankly, that should be one of those things I was mentioning that it should happen in the second half of this year. Memberships will go on sale in the next few weeks. And -- thank you again, Charlie. It's the Charlie Dougiello show on Westwood One/Dolphin fourth quarter earnings call. The Door again, has done a great job bringing that -- ideating that with Nina and her husband and bringing that to life. And so it's about to out to kick off. And we couldn't be more excited for that because in -- with success in New Orleans, many people that listened on previous earnings call, I know that we have a very scalable model there since Nina and Charlie and the team have brought in other celebrity chefs to do guest appearances for lack of a better word, at the lounge and restaurant in New Orleans that could become the home for the same concept in other cities. So whether it's Michelle Bernstein in Miami or Rodney Scott in Charleston or Stephanie Izard in Chicago, we're hopeful for that. And I don't know if many of you listening saw the profile just was last week in the New York Times about just the proliferation of membership-only restaurants in Palm Beach in Florida where I'm from. Interesting profile in The Times. We see that just burgeoning. And by the way, if you're not familiar with this concept, I mean, the initiation fees to join a restaurant-only club in Palm Beach start at $10,000 in many places, routinely $20,000 and there are some that go as high as $250,000. That's quite an initiation fee for a restaurant that you then go pay to have a meal at. So this type of idea of private membership clubs, which -- and the hybrid, that's what Nina will do, open to the public, but also private membership club is something we're very interested in and that we feel we're uniquely positioned to promote. And that could be a massive growth driver. I'm not just talking about ShaSha but just the general category of those type establishments over the next 3 to 5 years and because the economics are extremely appealing, if you can market them and get the membership. So it seems like we're well positioned to help people that want to do that.

My last two questions are financial related. First, how do you think about operating expense growth in '23 relative to revenue?

Well, you'll see the jump in SG&A in '21 or '22 to '23. It will also be a little bit of a jump in '23 -- sorry, '21, '22. It will be a little bit of jump in '23 as we have Socialyte for a full year. But we don't expect operating expense increases beyond typical payroll increases. We -- like where we are in terms of operating expenses. Some of it will go down because, again, we're not expensing the building of an NFT business. But I don't expect any surprises. Obviously, we highlighted too the change in audit firms was an expense that we didn't anticipate prior to the year. It's a onetime expense of $600,000. We don't anticipate having that again this year. So -- and other related expenses to the change in audit firms. So yes, we feel pretty good about not having some of the recurring. Some of those onetime costs just won't recur. So we don't anticipate anything on the horizon that would cause our operating expenses to jump up.

Okay. Great. I don't know if you can answer this. Maybe I could ask this offline, but I just was trying to get a sense of your operating income for the quarter was around minus $3 million. But then, if I add back the various onetime items you mentioned, of impairment of goodwill, changes fair value of contingent, nonrecurrings, I think, I get to around [$880,000] of -- kind of -- this is back of the envelope, adjusted EBITDA. I don't know if you can tell me if a sanity check on that makes sense or we could take it off-line.

Well, we can go through each of those numbers offline, I'd be happy to do it, yes. I mean we have relatively significant noncash expenses and then there's onetime charges. So it's kind of why we highlight it. So people can see that we're -- we hit $40 million of revenue, but we expect to do double-digit growth on that this year. It wouldn't surprise us if we're [$50 million plus]. And we expect to be EBITDA positive. We measure ourselves by operating income and taking away the noncash charges like depreciation and amortization. That's how we know if we feel like we're doing well. So we're transitioning Dolphin into that stage where we're -- we want to be and expect to be cash positive on an annual basis. And then we have these 2.0 opportunities such as provide that really great upside. If you have something that could pay off 7-figure profits to you from a successful 2.0 venture when you've got a $40 million, $50 million revenue company and single-digit millions of profit in cash, that could double your profit, triple your profit. It's meaningful to a company our size. So that's the mouse trap we've built. And I know, Allen, you've been with us from the beginning. You've seen it from when we acquired 42West and wanted to uplist to NASDAQ and hopefully, build the group. For those on the call that have known us for a while to see where we are now, 7 acquisitions later, 1 more to go to complete the original vision of building a super group that would be unique in the market, that would be cash positive and then have the upside of these 2.0 opportunities. We're pretty far along in that story now. So very lucky. I feel very blessed about that.

Thank you. There were no other questions from the lines. I will now hand the call back to Bill O'Dowd for closing remarks.

Okay. Well, thank you. And I did get an e-mail from someone wondering if we're going to represent James Carbonara for his singing career through Shore Fire. We have not successfully signed James. But those who know James, maybe you want to push him in our direction. Maybe he'll sing the safe harbor statement on the Q1 earnings call. That would be very exciting for all of us and for Wall Street, I'm sure. Thank you, everybody. I know many of you heard our -- many of you on this call who were on our Q3, you're seeing the progress, hopefully, quarter-over-quarter of our company and what we think we're building. And as you heard me say, to the last of Allen's questions, we certainly like where we are. And 2023 is an exciting year for us because we collect revenue from our -- we expect to collect revenue from our 2.0 investments. So -- and we expect to significantly increase the number of opportunities we have in our slate with the hiring of Ellie and the management team we're putting in place to be able to handle that. That should be very exciting for our company and gives us a lot of upside in the future. So thanks, everybody, for both listening to this call and joining us on this journey. Look forward to the one in just about 6 weeks. Thank you, everybody.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.