Dolphin Entertainment : 2022 Q3 Earnings Call

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Dolphin Entertainment, Inc.

Dolphin Entertainment Third Quarter 2022 Earnings Call

November 14, 2022

Participants

James Carbonara - Investor Relations, Dolphin Entertainment, Inc.

Bill O'Dowd - Chairman & CEO, Dolphin Entertainment, Inc.

Mirta Negrini - CFO & COO, Dolphin Entertainment, Inc.

Analysts

Allen Klee - Maxim Group

Presentation

Operator

Good day everyone, and welcome to today's Dolphin Entertainment Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this call will be recorded and I will be standing by if you should need any assistance.

It's now my pleasure to turn the conference over to Mr. James Carbonara, Investor Relations. Please go ahead sir.

James Carbonara - Investor Relations, Dolphin Entertainment, Inc.

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 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.

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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.

Bill O'Dowd - Chairman & CEO, Dolphin Entertainment, Inc.

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 breaking news of today -- bringing 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. 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 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, Ann Taylor, Armani Beauty, Audi, Conde Nast, Etsy, Keurig 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 three 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 three market-leading PR firms in each of their verticals.

200 influencers on roster with hundreds of millions of collective social media followers. And now, we have an unmatched presence in the two 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 Earned Media influencer marketing

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represents the "other half" along with PR, it's which verticals we are uniquely positioned across to offer the benefit of the scale we just achieved.

Let me share some relevant stats. The influencer marketing industry has experienced strong double-digit CAGR over the past five 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. Less than $2 billion in 2016 and expected to be over $14 billion this year.

So the industry is one of the fastest growing as any brand marketer can tell you. But which categories use influencer marketing the most? Now you will see why this 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? Well, the second largest segment in 2021 with 23% of total spend was food and entertainment. The exact specialty of Dolphin's three market-leading PR firms.

So over 50% of total brand spend in 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 with the industry at 14. Collectively, the Dolphin Companies represent approximately 1,000 clients including global celebrities, feature films, television series, streaming services, musicians, venues, festivals, video game publishers, e-sports teams and leagues, culinary celebrities, hotels, toy companies, consumer product brands and Web 3 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 marketing campaign. Our PR firm Short Fire would find a strong influencer marketing campaign extremely beneficial in launching a single or album or a 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 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 large enough followings to where they are celebrities in their own rights and many have ambitions to be positioned to "crossover" into traditional media and many more have launched a

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wide array of consumer products and business centers. 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 influencer product launches as demonstrated by the countless examples in recent years, perhaps the highest upside growth opportunity for Dolphin's scale is Socialyte and Be Social and it's the focus on pitching, facilitating and sharing and the revenues created by influencer brands and content to 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 they are growing, and like Be Social, we believe we can grow them even faster by cross-selling their services to clients across our PR 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. To share more on those topics we'll 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 LA offices, with if I say so, the very impressive CEO, Sarah Boyd and its entire staff welcomed into the Dolphin family of agencies. Furthermore, Socialyte Chairman, Evan Luzzatto will continue as an advisor to Dolphin.

All right, cool. Let's shift gears to turn to providing updates on projects where Dolphin and its shareholders have equity in participating 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 from Midnight Theatre, a new restaurant and variety theatre 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 the theater with Peacock's premier of new romantic comedy Meet Cute. Midnight Theatre's red carpet was stacked with national media covering the arrival of the film's 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 theatre 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 theatre 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 buy outs, meaning 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 inside Manhattan West One Tower and L'Oréal, Paramount, Riot Games for our real cool League of Llegends event with Mastercard and SHOWTIME.

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Now turning to NFTs, on October 3rd, just after the quarter ended, we were pleased to report that our flagship NFT collection Creature Chronicles, a galactic immersive story telling 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 We Come In Peace was minted on the Solana blockchain and featured 7,777 custom-crafted avatars generating more than 13,175 SOL in primary sales at mint 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 paths 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, the James Beard Award Winning chef and owner of Compère 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 -- Marc Forgione from New York, Stephanie Izard from Chicago, Michelle Bernstein from Miami, Rodney Scott from Charleston, and Tiffani Faison from 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 are a foodie, you know all five of those names to go along with Nina Compton, six 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 to concept the menu and also take the largest share of profits supported by all of the other chefs in the network for a visit each year.

And 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 The Door in partnership with Nina Compton and her management team and it is in alignment with The Doors professional expertise in marketing culinary destinations and the Dolphin's family's passion for charitable giving.

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