Greetings and welcome to the Dolphin Entertainment Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this call is being recorded. I will now turn the conference over to your host, Mr. James Carbonara with Hayden IR. Sir, the floor is yours.

Thank you, operator. Good afternoon and thank you for joining us today for Dolphin Entertainment’s second quarter 2024 earnings call. Before we begin, I’d like to remind everyone that during the course of this conference call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release published earlier today as well as the most recent SEC filings and reports. During the call today, management will also discuss non-GAAP financial measures, including adjusted operating income or loss. The company believes these will provide helpful information for investors. Reconciliations to the most comparable GAAP measures are provided in the earnings release. Now, I would like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please go ahead.

Thanks James and welcome everyone. I’ll start by reviewing some of the key financial and operating highlights from our record setting second quarter of 2024 and then Mirta will provide a more detailed financial overview before we open it up for Q&A. Starting with the headlines, well, as you may have seen in our earnings release of a few minutes ago, total revenue for Q2 was $11.4 million, bringing first half revenue to $26.6 million. We expect the second half of the year to be even stronger than the first half, positioning Dolphin well for fiscal year 2024 revenue to exceed our goal of $50 million, as we aim for more than 20% year-over-year growth. On the bottom-line, in Q2, adjusted -- our Q2 adjusted operating loss was $100,000. And in first half 2024, we generated a positive adjusted operating income of approximately $900,000. As you would expect, we remain on target to report positive adjusted operating income for full year 2024 and beyond. Thus, we expect to enjoy the next phase of financial flexibility for Dolphin, as we no longer have the singular focus of the acquisition strategy that we've employed since uplisting to NASDAQ in 2017 and now expand our focus to growing margins and cash flow, while we build businesses such as sports and seize opportunities, including within our Ventures strategy. More on that in a little bit. Turning to operating updates, just last month, in what is technically our third quarter, Dolphin announced the acquisition of Elle Communications. Elle is a leading PR agency, specializing in social and environmental impact. Elle joins our publicity and marketing group as a division of 42West and will work well and share clients alongside our other preeminent PR firms, Shore Fire Media and The Door; our influencer marketing agency, The…

Thank you, Bill and good afternoon everyone. I'll now dive into Q2 2024 financial results in more detail. Total revenue for the second quarter of 2024 was $11.4 million, representing a 4% increase from the second quarter of 2023. Operating expenses for the three months ended June 30th, 2024 were $12.6 million, including approximately $600,000 of depreciation and amortization and $191,000 related to the impairment of goodwill. This compares to operating expenses of $18.5 million for the same period in 2023, which included approximately $500,000 of depreciation and amortization and $6.5 million of impairment of goodwill. Net loss for the quarter ended June 30th, 2024 was approximately $1.6 million and included approximately $600,000 of depreciation and amortization, $191,000 of impairment of goodwill, and $500,000 of interest expense. This compares to a net loss of $7.8 million for the same period in 2023, which included approximately $500,000 of depreciation and amortization, $6.5 million of impairment of goodwill, $500,000 of interest expense, and $100,000 of equity losses in unconsolidated affiliates. Loss per share of $0.08 per share based on 19.4 million weighted average shares outstanding for basic loss per share and 19.6 million weighted average shares for outstanding -- sorry, 19.6 million weighted average shares outstanding for diluted loss per share for the three months ended June 30th, 2024. For the three months ended June 30th, 2023, loss per share was $0.60, based on 13.2 million weighted average shares outstanding for both basic and fully diluted loss per share. Cash and cash equivalents were $9.8 million as of June 30th, 2024 compared to $7.6 million as of December 31st, 2023. I will now ask the operator to open the phone lines for questions. Operator, would you please poll for questions?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Thank you. We have a question from Allen Klee with Maxim Group. Your line is live.

Yes. Hi. Good quarter. Good job. Could you remind us how to think about seasonality, if there is any, in third quarter versus fourth quarter?

Sure. Yes. Thank you, Allen. I appreciate that. Yes, we feel good about our quarter two. Obviously, it's nice to keep going up year-over-year. Well, Q4 is our best quarter every year and always will be because as our influencer marketing company grows, and it's roughly between 20% and 25% of our revenue, it's heavily weighted to the second half of the year and specifically into Q4 because so many influencer campaigns are -- or so many companies want to run influencer campaigns for the holiday season. So, we tilt into the fourth quarter, and we dip in the first half of the year. Of course, Q1 this year was enhanced by much -- not all, but much of the Blue Angels revenue. So, -- and Q2 improved year-over-year. But Q3 should be stronger, and then Q4, of course, is our best year -- excuse me, best quarter. So, there's a little bit of seasonality that will tilt us in Q4 favorably.

Okay, that's great. You also mentioned, in the second half, a plan to go into sports. Is the thought to do that organically? I thought I heard you say that.

Yes.

Or M&A -- okay. And it's like from a PR perspective or other things, too?

Really, it's going to be -- thank you for that question. It's worth me reiterating, it's -- this is a business we'll build part -- we're happy with what we've got with our acquisitions. We love the group that we've assembled, and there's no acquisition in the works, which is for the first time since 2016. So, maybe it's time to see if the rust is on the golf clubs or something. But the -- with that said, with sports, it's also a function -- we wanted to build it anyway. But there just aren't many management companies for athletes, and that's going to be our angle on this. To start, we're going to treat sports and the athletes as influencers, which they are today, and really launch into that business, which will be directly analogous to our influencer marketing agency, where we represent the athletes or broadcasters, sportscasters, and typically take a percentage of their revenue for the deals we bring them in the neighborhood of about 20%. So, that's going to be our entry point into sports. But of course, the great thing about an industry that large, besides tremendous growth, is simply the fact that those athletes will -- as they start becoming brand ambassadors, will want PR services, and we can run events and/or bring them to events that we're running in the entertainment world. There's just a tremendous crossover as -- it's been true since Michael Jordan or even before, right, with the Gatorade commercials, but it's at a different level now. And I think with the Supreme Court's ruling three years ago with the NIL laws, those college athletes are influencers, and that's how they get paid. So, we're excited to be entering into that business, and we're sharing it on this call because we plan to have an announcement before the next call, outlining who we're launching with and our plans in that space, but -- in further detail. But we're very excited for it.

Yes. It's pretty incredible like with the Olympics, how positive it was and like the brands of certain athletes. A lot of them had brands, but it was really like just grew it in a nice way, it seemed like. So--

Yes. And the world's just changed. Just a riff on that one second. And wouldn't it be great if Dolphin launched with an Olympic athlete or two, Allen? Let's see what happens. But the -- when I say the world changed, I alluded to being tall earlier in this call, this is an aside, but I played college basketball at Creighton, and there was no -- you couldn't receive any money. You weren't even allowed to take summer jobs, right? So, the world is upside down in terms of compensation of these college athletes, and good for them, and being able to take influencer dollars. But the same thing is true with the Olympics. Paris is widely regarded as an extremely successful Olympics. But the IOC changed their rules. Remember how strict they used to be. They would sue anybody and everybody for just mentioning the word Olympics, which they still do to some degree. They enforce it, as they should. It's the cornerstone of their trademark and their IP. But as an athlete, you were never allowed to share posts or go on social media during the games. And now, you can pretty much do it as you wish, except live streaming from the Village and from the competitions. So, the rules are relaxing is all I'm saying and seen as a positive for the games. Having Simone Biles get ready for a big competition is just hyping up the game. So, there's just a lot of opportunity in sports. And the merging of brands wanting to use social media to promote their product, whether it be with celebrities, influencers or athletes, I don't know that the brands see a difference, and I don't know that we should either. They're all capable of bringing audiences, is the point.

Makes sense. Okay. And I was curious -- this is a very theoretical -- and you probably can't exactly answer this. But like you mentioned that you'd like to announce another IMAX partnership. Is there a rule of thumb that if you announce one on a certain date, reasonably, how to think about how long it takes to get that produced and then hopefully make some money?

Yes, great question. And of course, it depends on the length of the subject matter, but Blue Angels was a little longer because we were following the Squadron for a full season, which is a whole calendar year. So you're filming a whole year. Documentaries are a little quicker than that usually. If you announce something in the second half of the year, you may be looking to have the film finished by the second half of next year and in theaters within six months after that. So, we may be looking at something that could be in theaters first half of 2026 and try and speed up our pipeline after that, if we're lucky. But there's also a world -- with documentaries, you could be in theaters in the fourth quarter of next year if you announce something at the end of this year. It all depends on how -- what you need to film versus archival footage, et cetera.

Got it, okay. And then, as you also -- this is another thing you can't exactly answer but -- although you did it well on the last one. The live event that you don't have yet, is the way to think of that as potentially kind of a recurring revenue type of -- is there a way to think about it, if that works, like how -- if that could be meaningful in the margins of it relative to your base business today?

Sure. Yes. We're still less than a year with the blessing, that is Special Projects in our company. They came in October 2nd of last year. It's funny. I don't have kids, and I remember the birthdays of every one of our companies, right, the date that they came into the family. But with that said, I think we've got them fully integrated at this point with all of our PR firms and influence marketing agency. Everyone is working very well together, and the client referrals are happening in both directions. So, obviously, the next step, and starting in the spring and throughout the summer, is working to design the first event in partnership or -- most likely in partnership with media publications to help bring additional awareness. So, the goal is to have events that are almost like ventures or -- well, they are ventures, but to your point, to create recurring revenue, can you launch something that, in success, you have every year the same event same time of year? And when you do, then you've got an annuity like what Blue Angels is going to give us, and you have recurring revenue, I guess, I should say, is more than annuity. And then, heaven forbid, you do a second or a third or a fourth, and you build a real nice business that way. So -- and obviously, events come in all shapes and sizes, just like movies do. So, there are events where your total cost may be $1 million, and you're hoping to make $0.5 million. And I'm not saying that's Dolphin's cost. I'm just saying the cost of the event. And you have events where it might be $5 million, and you're hoping for $2 million of profit, so -- and up and up and up, right? So Comic-Con was recently -- and I just think about where that started and where it is now in terms of over 100,000 attendees and the revenue that, that generates over four days in San Diego. So, yes, long answer to a short question, yes, we're thinking about events that can be annual instead of one-time and that could be recurring revenue.

Okay, great. On the last call, you talked about that you could potentially also look at launching, like, another skin or beauty product and maybe another liquor-related product. Are those things you're still thinking about?

Yes, I was alluding to that when I said I think we'll have a second consumer product venture to announce before the end of the year, so in the second half of the year. We committed to building a slate of these over the next three years or four years, and getting to more than half a dozen or around a dozen, maybe. We'll see. But with liquor, we could do one a year for sure. And skincare was going to start in 2025, excuse me. So, most likely, it will be liquor for us, right, the second one of this year we could probably identify and announce. So, -- but we're excited to have another consumer product before the end of the year. And then those are -- they're the Keith Goodman specials. They are products that we have a real expertise in marketing. And those are two primary ones, categories, liquor and skin care, but there are others and that we can partner. We have a knowledge of the industry, so we can create partnerships with the manufacturers and the distributors, and we don't put up any cash. And we get an ownership stake and a success stake in those ventures, and we build them to consumer products with the intent to sell them and -- whether it takes three years, four years, five years, but that's the point. And they're in industries where those sales happen. We all know so many of the liquor brands that have sold, whether they're celebrity-fronted or not, there's just a real active market in liquor startup brands just being bought every year, multiple brands, by -- pretty much by every major distillery. So, skin care is the same way. And people that remember our calls, we brought in Susan Yara and her group in January after Susan had exited the brand. She started in the summer of 2020. She exited in September of 2023. From start-up, three years, three months later, she exited for $355 million. And that was a skincare line that she promoted with influencer marketing. So, her and her group came into Dolphin and couldn't be more proud of that. So, with that expertise, we want to have skin care products by next year. So, yes, those -- we'll have a couple -- we expect to have a couple this year, Staple Gin being the first, of course. And then, God willing, we'll have two to three more next year and every year thereafter. And we can -- within a couple of years, you've got a decent-sized slate going with exits coming a year or two later. That'd be fantastic.

So, following up on your comments on the liquor category, is there any public source that we can look at to track how Staple Gin is doing?

That's a great question, Allen. Yes, there would be usually under subscription services, I would believe. But Marvin Shanken has got some great publications in that world, and the impact newsletter being one of them. And I've known Marvin for years, and he is a very good man and obviously an authority in that space. So, we can get you some additional sources of information on that. But it's off to a good start. I'd like to tell people, using an Olympic analogy, I couldn't be more proud. We're three months in, and it's winning so many awards, and it's -- the distribution in New York and then announcing Southern today. That runs the risk of going under the radar a little bit of just how big a deal that is. That's the 800-pound gorilla in liquor distribution in the United States. They're just easily the biggest and just pretty much have a national reach with 44 states. And -- but the Olympic analogy I'd like to use is, you've got a great 12-year-old gymnast and she is winning every competition in her state. And she may be an Olympian one day, but you're not going to know for three years. And that's where we are with Staple Gin. Every indication is that it's -- the one thing I think we can say definitively three months in is that the product is incredible. If you need quality of product as a cornerstone for any successful consumer product, we've got that. The number of awards that it's winning three months in the market is just incredible. So, people that would know, and that does not include me, believe that this tastes incredibly well for Gin. And so, when you've got a good product to sell and you've got somebody that can market it between The Door and Rachael Ray, and then you got somebody that can distribute it in Southern, then, no pun intended, you've got a recipe to give the best chance of -- best likelihood of success. And so, it will be an interesting ride for the next couple of years with that product because it's off to a charmed start for sure, but it's -- these are early innings and need to win a few more quarters with it, too.

Thank you. My last question is, how do you think about operating leverage in terms of like what you're thinking about for growth in expenses relative to what's going on with revenues?

Yes, I think we're at the point now with acquisition strategy no longer being our focus. Then we're going to see, and we expect to see margin expansion and growth in cash flow, which is exciting, right? You've got your base. So, if we can increase revenues by X%, much higher margin is going to fall to the bottom-line. So, we're focused on that as a company and really see the spider web of internal referrals and the organic growth increase year-over-year. You're seeing it now. Look at, again, by what -- how we measure ourselves, Q2 last year, almost, it was a fine quarter, but it had an adjusted operating loss, I believe, of $1.9 million -- or excuse me, $500,000. Through the first half of last year, we had an operating -- adjusted operating loss of $1.9 million versus this year, we have an operating profit of $900,000 -- adjusted operating profit, right? So that's almost a $3 million swing year-over-year for the first six months of this year. And yes, Blue Angel has impacted that, but basic operations impacted that. So, -- and we're going to see that in the second half of the year, too. So, our goal has been pointing to the finishing of the group at the end of 2023 would lead to, we believed, adjusted operating income for full year 2024 and revenue of $50 million or more. Well, we had over $26 million of revenue in the first half of the year and we've almost got $1 million of adjusted operating profit in the first half of the year. We think we're going to hit both those goals this year, and each subsequent year should only grow. So, that's -- and that's without Ventures. That's without any of these lottery tickets working. But obviously, once we get two or three years from now and we start exiting, we believe then all bets are off at that point. So, yes, that's how we think about it. And we're focused on margins and cash flow, and it's really nice to be able to say that. I think, to further answer that question, I think I said last year, it's just really nice to just be able to not worry about like we financing for the next acquisition or financing for certain aspects of operations. We feel very good about where we're at. And in this environment and microcap environment, we think we've got a great story to tell because of just that factor alone. So, yes, thanks for that question because I went on a tangent there, but it's obviously important to a lot of people on the call.

No, that's great. You guys have -- you're putting together a nice -- everything you're doing, it's all gelling now. So, that's great. Congratulations. Thank you.

Thank you, Allen.

Thank you. As we have no further questions in queue, I will hand it back to Mr. O'Dowd for any closing comments he may have.

I was verbose on a couple of those answers this time. But well, thank you all of those who are out there listening and following our story throughout the year. Obviously, we've got a couple more pretty decent catalysts, we think, coming in the second half of the year, sports being the biggest, and looking forward to making an announcement before we speak again and we'll go into great detail on it on the Q3 earnings call. But Dolphin is in the sports business and that's very exciting for us. So, thank you, everybody, for listening, and we'll talk in three months.

Thank you, ladies and gentlemen. This concludes today's conference and you may disconnect your lines at this time and we thank you for your participation.