Good afternoon, ladies and gentlemen, and welcome to the Dolphin Entertainment second quarter 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Carbonara. The floor is yours.
Thank you. Once again, welcome to Dolphin Entertainment second 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 discussion of such risks, 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 we'll open it up for Q&A. Starting with the financials, Q2 revenue of $10.3 million represented a 19% increase year-over-year. Six-month 2022 revenue was $19.5 million, up 23% year-over-year. That's all organic revenue growth coming from our Dolphin 1.0 business and entertainment marketing. We continue to believe Dolphin is positioned to exceed $40 million in annual revenue for 2022 and to generate a larger EBITDA profit in 2022 versus last year. Turning to key profit metrics, operating income was $489,000.
This includes non-cash items from depreciation and amortization of $416 thousand, as well as an impairment of the right of use asset in the amount of $100 thousand related to the sublease of one of Dolphin's offices, offset by a gain from the change in fair value of contingent consideration of approximately $671 thousand. That nets out to an operating profit of approximately $334 thousand, all while we continue to invest in Dolphin 2.0, which offers upside optionality. As great as positive operating income is, our balance sheet is also worthy of extra focus. At the apex of our acquisition strategy to build the super group, our debt reached a high of over $16 million, has now reached a record low of below $5.3 million. This is a dramatic reduction.
Furthermore, the vast majority of our debt is long-term, and even so, the total remaining debt is less than our cash on hand. That only tells part of the story. It's also extremely important to point out that all puts and all but one earn-out contingent consideration has been paid from all six of our acquisitions to date. This complete transformation of our balance sheet has allowed us to remove our financial statement disclosure of going concern, and we believe serves as a differentiating factor for us in the marketplace. Simply put, financially speaking, we have moved to the next milestone for Dolphin. No going concern, more cash on the books than all remaining debt, which is at the lowest amount it's been since we listed on Nasdaq in 2017, and almost all of the debt remaining is long-term anyway.
All puts have been paid, all but one earn out paid. Basically, we finished paying for the super group, and we can look now to building profits and diversifying our investments. As I mentioned on the last earnings call with Q1, at this point in our company's history and continuing with our financial update in June, we announced a change of auditor to Grant Thornton LLP. Grant Thornton is a firm with more entertainment industry experience, providing professional services to 65% of Fortune 1,000 companies in the media and entertainment space. 65% that is half of the major studios. Dolphin is growing, and we believe Grant Thornton best understands where we are heading and has the systems and procedures in place to ensure timely filings of Qs and Ks as we did today.
We are now current in our financial reporting and look forward to staying that way. I'm excited to share some of those 2.0 updates, but first let's move to operational highlights on Dolphin 1.0, our super group of companies helping us to grow revenue on a double-digit basis profitably, and which both enables and turbocharges our 2.0 investments that in success could result in exponential upside. We'll start with our entertainment PR powerhouse, 42West. During the second quarter, 42West helped longtime client Tom Cruise launch the sequel to his 1986 film, Top Gun, with more than $1.3 billion in global box office revenue so far. Top Gun: Maverick has already surpassed Titanic to become Paramount's biggest domestic movie of all time. That's a shame for James Carbonara since he cried 12 times watching Titanic.
Also, we have announced that 42West is hard at work on 97 Emmy nomination campaigns, a truly staggering number. If 42West keeps your eyes popping, The Door, our leading culinary hospitality and lifestyle PR firm, will have your mouth watering. During Q2, The Door worked on campaigns ranging from Pat LaFrieda's Tomahawk gift box, which includes a colossal 40-ounce Prime Tomahawk rib steak. Wow. Alongside tender filet mignons and other grilling staples. As temperatures soared this summer, The Door also rolled out a promotion for Häagen-Dazs' new City Sweets ice cream collection. Preparing for fall, The Door also began promoting New York City's biggest wine and food festival, which will return October 13th through 16th, and is celebrating its 15th anniversary with over 80 events. 80, including a musical performance from Joseph "Rev Run" Simmons from Run DMC.
Speaking of music, Shore Fire Media, Dolphin's industry-leading music PR firm itself, had an eventful quarter as it was awards season. What a season Shore Fire had. You know, I like to highlight each of our companies every so often on these earnings calls, and I think this call deserves a special shout-out to Shore Fire. They just had a tremendous second quarter. Really, really tremendous. Best in company history, I believe. Shore Fire musicians won seven Grammys, plus a Lifetime Achievement Award for client Bonnie Raitt, whose brand-new album also topped six Billboard charts. Chance the Rapper showcased new music at the BET Awards, and hot gospel act Maverick City were among the top nominees at the Billboard Music Awards. Shore Fire also added Canada's top music award show, the Junos, to its roster. Shore Fire client Steve Aoki was named Adweek's Creative Visionary of the Year.
Not to be outdone, Shore Fire corporate clients, streaming platform Mandolin and debate series Intelligence Squared, were also winners. Named the number one most innovative music company by Fast Company and top podcast event by Adweek, respectively. Shore Fire placements also included client Chance the Rapper on The Late Show with Stephen Colbert, Mandy Moore performing on The Today Show and The Tonight Show with Jimmy Fallon, Jewel appearing as musical guest on Late Night with Seth Meyers, as well as Kesha appearing on Seth Meyers to promote her new show on Discovery+, and so much more. Shore Fire is killing it. Congrats to Marilyn and the team. Moving along to Dolphin's influencer marketing group, Be Social, kicked off the quarter with their spring showroom, working with brands from Lulus to POM Wonderful, capped off with a spring trend report before heading off to Coachella to elevate clients.
During the quarter, Be Social worked on projects that included Chanel, a partnership with Barbie and Forever 21, and paired the hottest spring and summer styles with the timeless classic, Michael Jordan's Air Jordan brand, produced by Nike. I may have worn a pair of those or two in my playing days. Turning now to Viewpoint, Dolphin's respected creative agency and video production boutique. Viewpoint completed marketing videos and brand work for a wide range of clients in Q2, including A&E Networks, CBS, AAA, and PayPal. That concludes our update on Dolphin 1.0. Turning to Dolphin 2.0, where Dolphin and its shareholders have equity in projects and participate in the upside that our best-in-class marketing companies regularly enable for our clients.
As a reminder for anyone new on the call, each call we have more and more new people on the call, or new to the Dolphin story. We define the work of our supergroup under Dolphin 1.0 as the very best at marketing pop culture, and we define what we call Dolphin 2.0 as using pop culture to market assets that we own. In terms of a business model, I'll remind you that broadly speaking, there are two types of Dolphin 2.0 initiatives. Ones where we develop assets in the categories of content, consumer products or live events, and ones where we receive ownership stakes in other people's companies that have assets in those categories. That's the core thesis behind Dolphin 2.0, taking ownership stakes in assets that we know how to market.
To put it more simply, we want to own some of the types of things that we know we can market better than anybody else. As a reminder, we have a couple of models for Dolphin 2.0, which include ownership stakes only and also equity plus asset development. For ownership stakes, we typically look to receive somewhere between 5%-10% of the equity in the respective company in addition to the monthly cash fee. Examples include Crafthouse Cocktails, a pioneering brand of ready-to-drink, all-natural classic cocktails that is promoted by the supergroup and led by The Door to help market their award-winning product. During the quarter, promotional activity included brand activations with Wiz Khalifa, and Crafthouse Cocktails also went global in Q2 and is now available in London, England.
With respect to the other types of Dolphin 2.0 initiatives wherein we develop and own assets that we are excited to market, we do not receive a monthly cash fee since we would often only be paying it to ourselves, but as a result, we take a larger ownership position in the product or venture. Examples of these types of Dolphin 2.0 investments would be Midnight Theatre and the NFT marketplace we have built. Let's start with Midnight Theatre. It was actually the first week in July, so just after Q2 ended, that Midnight Theatre's restaurant, Hidden Leaf, opened. Hidden Leaf, as I mentioned on the last earnings call, is the newest restaurant concept from Brooklyn restaurateur Josh Cohen of Chez Ma Tante, Lilia, and Misi. It opened its doors at 75 Manhattan West Plaza.
The beautiful standalone restaurant, tucked inside our exciting new performance venue, Midnight Theatre, features a pan-Asian menu created by executive chef Chai Chaowasaree of Pranna, Tamarind, Buddakan, and Kimpton Hotel Eventi fame. Internationally renowned bartender Iain Griffiths, co-founder of the wildly acclaimed and influential Dandelyan and White Lyan bars in London, is making their first permanent foray into the New York City drink scene with the opening of Hidden Leaf's bar and its street-level companion, the high-energy Aperitivo bar, Midnight Cafe. A few weeks later, Midnight Theatre also held the first of many anticipated private events prior to its official opening this September with the premiere of Kevin Durant's basketball documentary, NYC Point Gods.
NYC Point Gods profiles the highly influential eighties and nineties NYC hoops legends that emerged out of New York City, highlighting some of the most famous point guards in New York City history, including Rafer Alston, Kenny Anderson, Mark Jackson, Stephon Marbury, God Shammgod, Kenny "The Jet" Smith, Rod Strickland, and Dwayne "Pearl" Washington. We're highly encouraged by the potential for private events at Midnight Theatre. We're excited to share more in coming quarters, especially as the theater opens publicly this fall. As a reminder, for modeling purposes, there are 100 seats in the restaurant, and there'll be 160 seats in the theater.
Anyone can model out an average ticket price and the number of turns in the restaurant and do the same in the theater with an assumption of a number of shows per week. This will quickly get you to a revenue model, and you can apply a reasonable profit margin standard in the industry. Dolphin is the largest single owner within Midnight Theatre, and we manage all aspects of publicity and marketing for the venue, both the restaurant and the theater, as well as facilitate talent and commercial relationships within the entertainment and culinary industries. We invested $1 million into the venture for a stake of approximately 12.5%. We'd also invested in options for up to another approximately 25%. In success, of course, we will look to add locations around the country and around the world. Now I'll turn to NFTs.
In terms of the launch of two high-profile NFT collections that we have previously discussed, The Flower Girls and Creature Chronicles, we have decided to push those launches from this summer to this fall. Our decision was based on the calculation that the native crypto community will be stronger in the coming months than it has been in the previous 2 to 3 months. We have high hopes for both of these collections and want to give each of them the best possible chance of success. The postponement of the release of those two collections does not mean that our NFT teams have been idle. Far from it. As many of you know, during the second quarter, We Come In Peace, our Web3 agency, developed a full slate of metaverse-related clients and NFT projects to market for others.
We Come In Peace worked on promoting a new NFT-gated community called the Venice Music Collective, built for independent music artists in partnership with music and tech industry entrepreneurs Troy Carter and Suzy Ryoo. We Come In Peace has also helped bring to market a generative NFT project that reimagines a new visual language for Web3 that's made up of variations of the 26 letters in the English alphabet called The Symbols. Finally, We Come In Peace was tapped by reBASE, the first-ever geo-minting NFT platform, to help market and promote a new metaverse and NFT initiative co-founded by Bella Hadid. The marketing campaign for Bella's collection has already started and has gained a large number of followers. Now turning to our most recent Dolphin 2.0 initiative, our multi-year co-production distribution agreement with IMAX for a slate of documentary features.
The first project we have greenlit is The Blue Angels, developed and co-produced with renowned producer J.J. Abrams and his Bad Robot Productions, along with Zipper Bros. Films. The Blue Angels is currently in production and is expected to hit IMAX theaters in the second half of 2023. We are tremendously excited by this partnership with the IMAX team as we work together to build a slate of unforgettable documentaries that need to be seen on the big screen. I can say, I've seen the first footage from this film, and it is truly nothing short of spectacular. We will be very excited to bring this picture to market, and we believe it will be a tremendous ambassador for Dolphin's aspirations to invest in content as one of the four legs of our Dolphin 2.0 stool.
To remind those on the call, in summary, we're very excited about these five Dolphin 2.0 investments on top of a growing, sustainable 1.0 business that generated an operating profit here in Q2. Purely on Dolphin 1.0 alone, we are on a path to exceed $40 million in revenue this year and generate a larger EBITDA profit than last year. As I mentioned, 1.0 enables and turbocharges our opportunities with 2.0, and we're excited to keep building on that portfolio of investments for Dolphin and our fellow shareholders. 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 June 30, 2022. Revenues for the quarter were approximately $10.3 million as compared to approximately $8.6 million for the quarter ended June 30, 2021. Overall operating expenses for the quarter ended June 30, 2022 were approximately $9.8 million compared to approximately $8.4 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, changes in the fair value of contingent consideration, depreciation and amortization, and legal and professional fees. Direct costs for the quarter ended June 30, 2022 were approximately $939,000, compared to approximately $833,000 for the quarter ended June 30, 2021.
The increase is primarily a result of expenses incurred in our NFT business. Payroll and benefit costs for the quarter ended June 30, 2022 were approximately $7 million, compared to $5.6 million for the quarter ended June 30, 2021. The increase is primarily due to additional headcount in 2022 to support the growth of our business. SG&A expenses for the quarter ended June 30, 2022 were approximately $1.5 million, compared to approximately $1.2 million for the quarter ended June 30, 2021, primarily due to an increase in our bad debt expense. Legal and professional fees were approximately $613,000 for the quarter ended June 30, 2022, compared to approximately $458,000 for the quarter ended June 30, 2021.
The increase is primarily due to legal consulting and audit fees related to our restatement of the September 30, 2021 Form 10-Q, revisions of the Form 10-Q for March 31, 2021 and June 30, 2021, included in our Form 10-K filed on May 26, 2022, as well as fees associated with our change of auditors in June 2022.
Operating income for the quarter ended June 30, 2022, of $488,958 includes non-cash items from depreciation, amortization of $415,547, an impairment of the right-of-use asset in the amount of $98,857 related to the sublease of one of our L.A. offices, and a gain in the change of fair value of contingent consideration of $670,878 compared to operating income of $221,293 for the quarter ended June 30, 2021, which includes non-cash items from depreciation and amortization of $478,270, and a gain in the change of fair value of contingent consideration of $165,000.
Net income for the quarter ended June 30, 2022, of $612,008 includes non-cash items from depreciation and amortization of $415,547, an impairment of the right of use asset in the amount of $98,857, a gain in the change in fair value of contingent consideration of $670,878, and a gain in the change in fair value of warrants and a convertible note of $279,022, compared to net income for the quarter ended June 30, 2021 of $1,349,942, which included non-cash items from depreciation and amortization of $478,270, a gain in the change of fair value of contingent consideration of $165,000, a gain in the change of fair value of warrants and a convertible note of $333,974, and a net gain of $1 million stemming from the extinguishment of debt primarily related to the Paycheck Protection Program loans.
For the quarter ended June 30, 2022, $0.06 basic earnings per share is based on 9,498,266 weighted average shares and $0.04 fully diluted earnings per share is based on 9,626,143 weighted average shares compared to a basic earnings per share of $0.17 based on 7,664,000 weighted average shares and $0.13 fully diluted earnings per share based on 7,913,396 weighted average shares for the quarter ended June 30, 2021. Cash and cash equivalents were $7.2 million as of June 30, 2022, as compared to $9.3 million as of June 30. Operator, would you please poll for questions?
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions.
That was all organic growth again, and 2.0 revenues would start with really the Midnight Theatre opening in September. Really it'll kick into Q4, 'cause we're expecting a late September opening. With the push of the NFT collections into the fall, then I'd say Q4.
You're assuming that the size that you're gonna be raising, hopefully for those two NFTs, is similar to what you were thinking in the past, or has a decision been made to cut back the size of those launches as well?
No, we're keeping the size the same and looking for the optimal time to go after that community. We're seeing some signs of recovery. It's what you used to say in the movie business. You're shooting a movie at a release date, and we wanna give it the best chance possible. Fall seems better to us than the summer, given the volatility of the past couple of months.
Following up on NFTs, on the last earnings call, you mentioned how you were creating like an ongoing
Of followers, people that are excited to see an NFT collection drop. It doesn't affect our margins. It really is just trying to find an optimal time to put the release out. It goes on in somebody's world, it goes day to day and week to week. We are building those communities for both of those, and others, by the way. It's not just those two.
You mentioned that there were some costs in the quarter related to audit-related issues. Is there a sense of kind of more normalized legal and professional type of expenses?
Yes. Q1 was heavily hit by the one-time audit related charges. You know, it's all starting with Q3.
What does that mean? Is that like looking at kind of the last-
Q3 of last year.
Last year's topline numbers, like 500,000 or so?
I think so.
Okay.
The queue. I'd like to turn it back to management for any closing remarks.
Sure. Well, thank you. I know we just spoke again about four weeks ago, so here we are. Our revenue really jumped. I know it beat virtually anybody's expectations and so did our operating income. FC collections will continue to be good for us once we get some of the bigger ones out there. Blue Angels is off and flying, no pun intended. By 2023, we'll have real revenue coming from all those sources of 2.0. We continue to expect to be able to share more on our live event strategy, some announcements between now and then that you should keep an eye out for. Thank you for our loyal listeners, and we'll talk soon.
Sorry, if I may interrupt quickly. After I hand it back to management, we had a question come into queue, if you wish to take it.
Sure.
Thank you. We have a question from Allen Klee of Maxim Group.
Great.
Thank you. Bill, good afternoon. Thank you for hosting this call. I just had one quick question for you. As you've mentioned in the first six months of the year, advertising spend across many companies from newspapers to ad agencies, often one data firms.
Yeah, that's a very astute question, and thank you for it. While we certainly never root and would never want to root for layoffs, if those occur, and to a degree some of that is occurring at our clients, streaming services as well as some of the social media platforms, we certainly expect that the earned media will stay the same, if not increase, and hope for the best for our colleagues that they don't get laid off.
Got it. Great. Well, thank you very much, and best of luck.
Thank you very much.
Thank you, ladies and gentlemen. This does conclude today's conference call.