Greetings, and welcome to Dolphin Entertainment's Second Quarter 2023 Earnings Call. [Operator Instructions]. Please note that 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 Second Quarter 2023 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 risks 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 statement 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. Bill O’Dowd: Thanks, James, and hi, everyone, and good afternoon, and thank you for joining us today. As always, we'll start with a review of some…

Thank you, Bill, and good afternoon, everyone. I will now discuss results for the quarter ended June 30, 2023. Total revenue for the second quarter ended June 30, 2023, increased 11% to $11 million compared to the first quarter ended March 31, 2023. Overall, operating expenses for the 3 months ended June 30, 2023 were approximately $18.5 million compared to approximately $12.5 million for the 3 months ended March 31, 2023. As Bill mentioned, included in that $18.5 million is a $6.5 million noncash nonrecurring impairment of goodwill. During the second quarter, we performed a quantitative assessment driven by triggering events related to declines in our market capitalization, combined with the lack of positive response from the market to positive information related to future projects that resulted in the impairment of goodwill. Operating expenses are composed of direct costs, payroll and benefits, selling, general and administrative expenses, changes in the fair value of contingent consideration, depreciation and amortization, impairment of goodwill and legal and professional fees. Direct costs for the quarter ended June 30, 2023, were $217,000 compared to $219,000 for the quarter ended March 31, 2023. Payroll costs were approximately $8.7 million in Q2 compared to $9.1 million in Q1 2023. SG&A expenses were $2 million in Q2 compared to $1.9 million in Q1. Legal and professional fees were $496,000 compared to $763,000 in Q1 2023. Operating loss for the quarter ended June 30, 2023, of $7.4 million and net loss for the quarter of $8 million include noncash items of over $7.1 million related to the nonrecurring $6.5 million impairment of goodwill and $543,939 of depreciation and amortization. This compares to an operating loss for the quarter ended March 31, 2023 of $2.6 million and a net loss of $3 million which include noncash items for depreciation and amortization of $533,096 and a loss from the change in the fair value of contingent consideration of $15,485, along with onetime and nonrecurring audit fees of $300,000. Loss per share was $0.60 per share based on 13,212,311 weighted average shares outstanding for both basic loss per share and fully diluted loss per share for the 3 months ended June 30, 2023. Loss per share of $0.23 per share based on 12,640,285 weighted average shares outstanding for both basic and fully diluted loss per share for the 3 months ended March 31, 2023. Cash and cash equivalents were $7 million as of June 30, 2023 as compared to $7.9 million as of March 31, 2023. That concludes my financial remarks. I will now ask the operator to open the phone lines for Q&A. Operator, can you please poll for questions?

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

Congratulations on strong revenue growth. My first question is, can you give us a sense based on how long the writer and actor strike goes on, what the relative impact that might have on your business in the future? Bill O’Dowd: Sure. Thank you, Allen. We're very proud of our revenue as well, especially for Q2. The writer strike, it doesn't have too big an impact on us. I remember a brief conversation on this with Q1 earnings call because, obviously, writers write projects that will be made in the future. And the projects that we're promoting now and for the next even year have already been produced. So that will have minimal impact on Dolphin. It would take a writer strike in well into next year to have an impact. The actor strike does have an impact. We're blessed to be in a position that our talent division is a small piece of our overall revenue, talent division of 42West. 42West has 4 divisions. And then we've got 6 operating subsidiaries. There will be some dip in talent revenue at 42West, but as a whole, that represents a very small single-digit fraction of Dolphin's overall revenue. And then, of course, we're all hopeful that actor strike and the writer strike will settle by the end of the quarter, let's hope or early in the fourth quarter.

And thank you for the more detailed information about your social influencing businesses. You talked about expanding to other verticals. How do you see the -- how are you thinking about the kind of which you have -- how much you have to do, to do that and maybe the timing of being able to pull that off? Bill O’Dowd: Yes. And that was why we chose to really focus a good section of our prepared remarks on our influencer marketing agencies because we would like -- and you can probably guess that we would like to sell their services in combination with each other once we come back from labor day weekend. As we roll from September into the heavy, heavy selling seasons of late September through early December, we have these 2 companies that we'd like to be in the market as one. So I imagine everyone is looking forward to what that announcement could be in September, right? And then as we -- to go forward from there, to build what we think will be that dominant bicoastal influencer marketing agency, I think we would like to add divisions to it and become almost a rapid fire leader in each of those divisions on a regular cadence afterwards. And that's a cadence of measured in weeks between -- so I think you'll see at least a couple of those divisions announced before the end of the year and most likely before we talk again November 15 in partnership, and I might add, with leading partners in that pipeline in those areas. So it's really going to be something we're focused on and, quite frankly, why we wanted to raise it on this call because people hopefully will be looking for those announcements, and we'll be delivering on our expectations rather than say it all after the fact on November 15, right?

Got it. Your investment in Netcom and the restaurant that people sign up for the memberships in New Orleans, you had news that you're selling -- you sold memberships. Can you give us some update on how that went and how that works in terms of -- just if you can say anything about the monthly key or the economics that we could think about? Bill O’Dowd: Yes. ShaSha Lounge, we're very proud of that for a couple of different reasons. First, I should say, this is a form of Dolphin Ventures that I know many listeners out there strongly or feel good about because this is a partnership where we get a monthly fee to promote the ShaSha Lounge in New Orleans, and we also get an ownership stake in the venture itself. So we get paid cash every month, and we get an ownership stake in the success of the venture. That's very exciting for us, and it's a perfect representation of the types of things that we're looking to do. And quite frankly, we feel we're uniquely qualified to do. Second reason why it's we're very proud of it, I should say, is because this was a concept ideated with our team at The Door. Obviously, our culinary celebrity chef and hospitality PR from The Door is the very best of what they do. And the concept of putting this membership lounge, public and private in New Orleans came out of conversations they had with Nina and her husband. And so how it works is for ShaSha, it's open -- it will be open to the public. We plan to open it in early 2024, and you can go in and have a drink but there will be sections of the lounge that are open only to…

That's great. Thank you. In terms of Blue Angels, I'm not sure if I heard you right, did you say that you expected to get released in the first quarter of '24 or the first half? And then the $3.5 million payment, that's related to Amazon streaming. Is there a way you could help us understand how that gets spread out of when you get the payments for that? Bill O’Dowd: Sure. Yes, absolutely. It's quick. So yes, we anticipate being in theaters in Q1 of 2024. It's in theory, still possible in Q4 the original plan. But as we and J.J. take the time and post to do this as best as possible, we're very excited with the cuts we're seeing, and it looks to be a special film. Then we're trying to juggle as well the best release date for it with the least amount of competition. So we're looking at different dates in both quarters. So I'm going to be conservative and say that we're aiming more towards Q1. But we get paid by Amazon typically, well, the revenue, they have the right to put it on their service within 30 days after we release in theaters. So -- and then they pay us effectively in full at that time. So it's revenue that we should recognize in the first half of next year, if not realistically in the first quarter of next year. So -- and there are -- there's even an installment we'll receive in this calendar year as well. So it's -- all of that revenue will be coming in, in fairly short order.

And any -- I know that the thoughts are with IMAX that this partnership can kind of result in additional documentary. Any comments on -- are there any issues with the strikes that are slowing down the potential next one? Or do you still feel good about being able to get them out? Bill O’Dowd: We feel good about them. That's a very savvy question, Allen, as you often ask it. Yes, this is -- it's more than even just a hope or a dream. It's a -- we've entered into a multiyear, multi-project 50-50 deal with IMAX, which is back when Dolphin was a private company is how I built often, co-financing and coproducing with Nickelodeon and with Warner Bros. and many others, right, in 50-50 deals. So the -- we're very proud of our partnership with IMAX. They've been tremendous partners and we have a hit right out of the gate, right? So that's also great to be able to report. We will do more documentaries with them. And we're -- as I mentioned on Q1 earnings call, too, we're looking at other forms of entertainment, some of which would come out of Midnight Theatre that we could go 50-50 on as well. And I don't want to jinx it, and I don't want to promise something with a hard deadline, but I do believe we'll have a pretty big announcement on that front before we speak again in November. So yes, we'll be doing more. We just have to -- just had to find that right follow-up. It's tough when you've got a hit, right? I can understand how certain creative mines get a little frozen at times once you have a big hit on your first outing, what are you followed up with, right? But we just have to get over that and feel good about whatever we pick second and make sure it's worthy of an IMAX screens like the Blue Angels will be, and we'll make another great film. So yes, we're excited for that partnership.

Okay. On previous calls, you've expressed some interest in live events. Is that -- and is that an area you feel the same about? Bill O’Dowd: 100%. One of the reasons we are excited to -- for the second half of this year, twofold, to answer your question within context, too. We always -- our -- many of our businesses are seasonal. So the second half of the year is always stronger for us than the first half. That's been true since in 2017, right? And it's only going to be more pronounced this year because we have 2 influencer marketing agencies instead of 1, and they're highly seasonal for the second half of the year. But the other reason we're so excited for the second half of the year, and this is coming on the heels of a record second quarter, right? So I'm not trying to minimize what we just accomplished. I'm just saying, we very much are excited for the second half of the year because we have multiple catalysts coming, we believe. And a couple of those relate to Midnight Theatre. A couple of those relate to the influencer marketing agencies, which is why I spent so much time on this call and we still believe we will complete the Super Group this year. As I mentioned on the [K] call on the first quarter call and the missing piece is that celebrity live event production company. That will allow us to go into the third leg of the 3-legged stool of Dolphin Ventures, we could get into the right types of live events that we already promote and I'm very excited for that as well. And we'll see what the timing is around our Q3 call, but expect -- yes, I expect you'll hear more about that from us as well. And so you can see we have maybe up to half a dozen different catalysts coming in the next few months, which is another reason why it was good to put the noncash onetime impairment behind us because we feel we have such a bright future in the next quarter.

I had 3 just housekeeping questions. But one, since you just mentioned the noncash impairment, I was a little confused because I usually think of an impairment when people think that the outlook of a business has changed, and what I heard you guys say was you did an impairment but your stock price was lower, which I'm not familiar with why that would cause an impairment versus is there a particular business that you have that the outlook changed? Or maybe you could just educate me on how this works.

Sure. I'll take that one. The stock price doesn't necessarily cause the impairment, but it is a cause for taking a closer look at your assets, especially when the book value of the company is higher than the market cap. So that was the case in Q -- in the last quarter of '22, and it has been through 2023. So we consider that to be a triggering event to test our goodwill which we did based on this kind of cash flows and we determine that, that impairment was necessary. Bill O’Dowd: Yes. The market capitalization is 1 of the 4 triggering categories, Allen, if that's helpful. That required the review.

Two other housekeeping. One, we use EBITDA in our valuation and in our model, but we don't get depreciation expense until your Q comes out. So could you give us an estimate of what depreciation expense was for the quarter? And then the second question is often when the Q comes out on the front page, you have the shares outstanding as of today. And I was wondering if that number is going to be meaningfully different from the average diluted share count that you had in your press release?

So the depreciation and amortization is one number. Depreciation is a very small part of that. And as of right now, if there are no other changes in our company structure, it's going to be about $550,000 a quarter. Bill O’Dowd: And the bulk of that is the amortization of the intangible assets from the companies we've acquired over the years.

I meant depreciation and amortization, I didn't say it.

And then on the stock count, we had used $13.2 million for the earnings per share or loss per share. Bill O’Dowd: 13.2 million shares.

Shares, sorry. Bill O’Dowd: Yes. And it will be up about 1 million from that, Allen.

Do you mean the number today is around 1 million higher than 13.2 million. Bill O’Dowd: That's right. We had a convertible note convert. That was a good chunk of that.

I think those are my main questions. I was going over the history and looking at your company from going back to like in 2018, and it's pretty impressive at where it is today. So congratulations. Bill O’Dowd: Thank you, Allen. I appreciate it. We're very proud of what we've built and are still building.

Your next question is coming from [Chris Leahy] with [LD] Micro.

Bill, I just want to start out by saying that these are 2 very good-looking questions. Just want to preface that. Are we going to make any money from Barbie and Oppenheimer either directly or indirectly because it seems like both of them have turned out to be, I guess, a lot bigger than anticipated? Bill O’Dowd: Well, sadly, and for many reasons, Chris, for you, I know we do not represent Margot Robbie. But we -- so we do not have a direct stake in Barbie through our partners at IMAX, of course. I mean, look how well they're doing with Oppenheimer in theaters globally. Just to give them a shout out. I know that through the first 4 weeks of release, $1 in $4 earned by Oppenheimer in the U.S. have been at IMAX theaters and that may even be globally, too. So congrats to them. But yes, those are 2 great films, no doubt about it.

The second good-looking question. It has been nearly 3 years since you guys have acquired Be Social I know it probably went by a lot faster than anticipated. What was the biggest surprise for you guys in terms of what you learned about the influencer market. And thank you again for taking my questions. Bill O’Dowd: No, of course, Chris. Well, I guess we bought Be Social 3 years ago this month on this call, we announced it. So yes, it's a nice anniversary and been very, very happy with Be Social. Ali Grant, Kirsten Weinberg, Belinda Sztrom, they're extremely strong young executives, and we feel very fortunate that we have Be Social in the Dolphin family. A couple of 3 years later on look back, influencer marketing has only grown, as I said in the prepared remarks. The opportunity to pair them with a New York-based agency was because of the strength of Be Social. We knew if we could -- as they were growing significantly year-over-year, and if we compare them with an equal agency in New York, we can immediately have the entertainment industry's largest influence marketing agency. So it's a testament to the growth of Be Social that validated the thought process and validated the investment thesis. I think what we did not know 3 years ago was that 1 year later, the Supreme Court was going to allow for college athletes to be paid through brand campaigns. And I don't know that this would have helped me in my college basketball playing days, it might have helped some of my teammates who are probably better basketball players. But the -- but that opens up an entire new world. When you think of NIL, name and image likeness, right, that the Supreme Court upheld, those college…

It was. But technically, when you're usually designating athletes, a lot of people don't consider tennis players as part of that equation. Sadly, sadly. Bill O’Dowd: Looks like pickleball, Chris. Something --

Listen, in many circles, in many social circles, pickleball has more cachet than tennis. It’s always a pleasure when you guys update your calls. Thank you again, Bill, and looking forward to being on the next one.

There are no additional questions in queue at this time. I would now like to turn the floor back over to Bill O’Dowd for any closing remarks. Bill O’Dowd: Well, thank you, everyone, for listening, as always. We’re very, very proud of our Q2 and our balance sheet. As you heard, it’s nice to finish with all the contingent considerations and paying out all the earnouts, very proud that our subsidiaries earned the earnouts. Speaking of Be Social, the very last one, timing-wise for us and happy – we’re very happy to pay out that full earnout this spring. So with that, off the balance sheet, we just feel like we have rocket fuel behind us as we go into the typically much stronger second half of the year. And with some of the catalysts we’ve been discussing on this call in the near future. So thank you, everybody. And please, if you’re not on our mailing list for our press releases, please reach out to James Carbonara. I think when you come back from Labor Day, if not even before, you’ll hopefully – we’ll have some nice press releases to be able to share with everyone. So thanks, everybody, for the time today, and I’ll look forward to the next call.

Thank you. This does conclude today's conference, and you may disconnect your phone lines at this time. Thank you again for your participation.