TBRD Thunderbird Entertainment Group Inc

Railroad Ranch Capital Management, LP (together with its affiliates, “Railroad Ranch,” “we” or “our”), one of the largest shareholders of Thunderbird Entertainment Group Inc. (TSXV: TBRD) (“Thunderbird” or the “Company”) with beneficial ownership of approximately 6.9% of the Company’s outstanding shares, today expressed its support for Voss Capital, LLC’s (“Voss Capital”) efforts to reconstitute the Board of Directors of the Company (the “Board”) and drive shareholder value.

As a significant and long-term shareholder of the Company, we have expressed our views regarding Thunderbird to the Board on numerous occasions; however, the Board has exhibited a lack of urgency in addressing our concerns, which is why we were pleased to see Voss Capital’s nomination of a competing slate of director candidates. We are confident that an improved Board can help close the valuation gap and deliver value for Thunderbird shareholders.

SHARE UNDERVALUATION AND THE NEED FOR A STRATEGIC REVIEW

We believe that the management team of Thunderbird, led by CEO Jennifer Twiner McCarron, has done a fantastic job of executing their business plan over the last several years. Though it has not been reflected in the stated financials yet, it appears to us that a significant amount of progress has been made in shifting the business mix towards more partner-managed and owned-intellectual-property projects while continuing to deliver strong growth in the core production services. However, we believe three key factors are causing the share price to not reflect the positive trajectory in Thunderbird’s fundamentals:

1. Low visibility provided to investors about the future earnings trajectory of the business. The thrust of the issue here is that (i) many of the Company’s projects fall under various non-disclosure agreements with its customers and (ii) the specific timing of project milestones (i.e. one quarter or the next) is somewhat outside the control of Thunderbird as customers often determine final launch schedules. As a result, management has historically provided very little forward-looking information about what top- and bottom-line growth expectations are reasonable. While we are sympathetic to the disclosure issues Thunderbird faces with regards to its financial outlook and believe the Company is making efforts to improve in this area, we believe much more can be done to improve investor communications. Regardless, Thunderbird will always be the type of business where insiders have a very significant informational advantage about earnings potential relative to public shareholders, which may make Thunderbird better suited as a private company where it can be appropriately valued.
2. Low trading liquidity. When we first became investors in Thunderbird during the fourth quarter of 2020, the average stock trading volume was approximately 150,000 shares per day. Over the past three months, this volume has declined to approximately 30,000 shares per day on average.1 This very low level of liquidity makes it extremely difficult to attract interest from new institutional investors who are reluctant to spend research resources on a security in which it will be challenging to build a meaningful position.
3. The Company’s acquisition ambitions are hampered by the public market valuation. As a result of the two items above in addition to various other factors, the Company currently trades for just 7.2x consensus fiscal year 2023 EBITDA estimates.2 At this multiple, which we believe significantly undervalues Thunderbird, it is difficult to find acquisition targets that are value accretive, especially if they are large enough to require Thunderbird to issue equity as part of the transaction (and given the Company’s depressed valuation, we would strongly oppose any such issuance). Once again, this should cause the Board to consider whether Thunderbird should remain as a standalone public company.

The result of these issues is that Thunderbird’s investors are left with an illiquid stock and a suboptimal valuation, while management is handcuffed executing its preferred strategy of acquiring other small studios. We believe that all stakeholders would benefit from a rigorous strategic review process examining various ways the Company can address these issues, including through a potential sale of the Company. In our view, prospective buyers of the Company, having signed the requisite non-disclosure agreement to gain a full picture of Thunderbird’s prospects, would place a higher value on the business than what is currently reflected in the public markets.

QUESTIONABLE CORPORATE GOVERNANCE AND NEED TO UPGRADE THE BOARD

We have experience dealing with challenging corporate governance situations. Issues rarely materialize all at once, but rather develop through many small changes that metastasize into a larger problem over time. While a cursory glance might lead someone to believe the Board has five “independent” directors, as noted below, four of the six members have long-standing relationships with other members of the Board (with two of such interconnected directors being added to the Board in the past two years). Given the web of connections outside of Thunderbird among directors Frank Giustra, Marni Wieshofer, Linda Michaelson and Jerome Levy (collectively, the “Affiliated Directors”), we question whether they are truly independent. Our concern is that these directors may effectively form a supermajority voting bloc of two-thirds of the Board that may inhibit the Board from exercising independent judgment and acting in the best interests of shareholders.

• Ms. Wieshofer often points to her three-and-a-half years as CFO of Lions Gate Entertainment Corporation (“Lions Gate”) as justification for why she is a qualified Board member. Her time as CFO coincided with Mr. Giustra’s time as CEO of Lions Gate, now over twenty years ago. Their relationship was specifically cited as a reason for her appointment to Thunderbird’s Board in December 2019.3 In a nod towards their longstanding relationship, Ms. Wieshofer was also appointed to the board of Accesco Impact last year, a philanthropic organization Mr. Giustra started in 2007.
• Ms. Michaelson was appointed to the Board in March of 2021. Ms. Michaelson and Ms. Wieshofer have a long relationship. Specifically, Ms. Michaelson cites in her list of experiences multiple engagements working on behalf of Lions Gate. Ms. Michaelson more recently represented Sony in the acquisition of Industrial Media, a company whose CFO at the time was Ms. Wieshofer’s husband, Roland Wieshofer.
• Mr. Levy joined the Board in January 2022. In the press release announcing his appointment, Ms. Wieshofer specifically cites her long-term relationship with Mr. Levy where they worked as partners at MESA Securities, Inc. and later Houlihan Lokey.

Further exacerbating our concerns around potential misalignment of interests between the Affiliated Directors (other than Mr. Giustra) and shareholders is their lack of share ownership.4 This lack of vested financial interest in Thunderbird’s stock price, especially for Ms. Wieshofer, who is currently receiving over $200,000 in annual Board cash compensation, is troubling.

Railroad Ranch believes that shareholders deserve to be represented in the boardroom by truly independent directors with relevant industry experience and a shared objective of representing the best interests of all shareholders. It is with that in mind that we are excited by the candidates nominated by Voss Capital and the opportunity to replace the Affiliated Directors. In our view, at least three of the Affiliated Directors must be replaced in order to restore investor confidence and set Thunderbird on a value creating path. We call on the Board to hold the upcoming annual meeting promptly in order to allow shareholders to express their views at the ballot box.

About Railroad Ranch Capital Management

Railroad Ranch Capital Management, LP is a Dallas-based private investment firm.

Contact

Gavin RicheyRailroad Ranch Capital Management, LP214-996-0851

___________________1 Source: three-month average daily trading volume as per Bloomberg Finance L.P.2 Source: Bloomberg Finance L.P. as of November 15, 2022.3 https://www.prnewswire.com/news-releases/marni-wieshofer-appointed-lead-director-of-thunderbird-entertainments-board-of-directors-300975014.html4 As per page 19 of the Company’s most recent circular filed on November 8, 2021 and a search of insider transaction filings that shows no insider purchases in the intervening time frame.