Boat Rocker Media Inc

TSX:BRMI

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Boat Rocker Media First Quarter 2022 Financial Results Conference Call. [Operator Instructions]

Before turning the call over to management, I would like to remind listeners that today's remarks include non-IFRS measures. Reconciliations between Boat Rocker's IFRS and non-IFRS results can be found in the company's MD&A. Additionally, management's outlook for 2022 and beyond, anticipated financial and operating results, plans and objectives, and answers to your questions will contain forward-looking information within the meaning of applicable securities laws.

These forward-looking statements reflect management's current opinions, beliefs, estimates, expectations, and assumptions, and are based on information currently available to management, which includes assumptions about continued revenue based on historical past performance, perception of trends and current business conditions, expected future developments, including expectations around the impact and trajectory of the COVID-19 pandemic and other factors which management considers appropriate and reasonable in the circumstances.

This forward-looking information represents management's expectations as of today and accordingly is subject to change. Such information is based on current assumptions that may not materialize and is subject to a number of important risks and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on this forward-looking information.

A description of the risks that may affect future results is contained in Boat Rocker's annual information form, which is available on the corporate website, and in its filings with the Canadian Securities Administrators on SEDAR at www.sedar.com. With that, I would now like to turn the call over to Mr. John Young, Chief Executive Officer of Boat Rocker Media. Mr. Young, you may begin your remarks, sir.

[John Young, executive]

Thank you very much, Michelle. Thank you. Good morning, everyone. Thanks for joining us for our first quarter 2022 results conference call. On the call with me today, Michelle Abbott, our CFO; Ivan Schneeberg and David Fortier, our Co-Executive Chairmen and Co-Chairmen of Boat Rocker Studios.

Given that our fourth quarter earnings call took place just about 6 weeks ago, we're intended to keep our prepared remarks brief this morning. I'll provide some introductory commentary on our results for the quarter before turning over to Michelle for a short financial review. David will then discuss some recent creative highlights, and we'll open the call up for questions.

Leveraging the significantly enhanced scale of the business that we delivered in 2021, the new year got off to a really strong start operationally as we had more than 40 shows in various stages of production in the first quarter of the year. And those were for a variety of buyers including our linear broadcasters, many of the world's leading streaming platforms, and some new market entrants.

With an expanded slate of 6 greenlit premium scripted shows already confirmed this year, we expect the output from the studio to be very strong as we advance further into the year. I'll let Michelle provide some additional detail during the financial review, but the results this quarter reflect the natural ebbs and flows of our production and delivery schedules as well as a strong comparator quarter in '21.

In 2021, it is our expectation that the studio strength will be reflected in the second half of the year when the shows we are currently in production on begin to deliver, including some of the premium scripted dramas I just referenced. Given the current volume of production and expected additional green lights through the year, we continue to expect to deliver $40 million to $50 million in adjusted EBITDA for fiscal 2022. With that, I'm going to turn it over to Michelle for a brief financial review. Over to you, Michelle.

[Michelle Abbott, executive]

Thank you, John. And good morning everyone. Boat Rocker is moving forward from the position of strength we established in 2021 and with high levels of studio activity to start the year. As John mentioned, our delivery schedules vary from period to period with shows being ordered, produced, and delivered at all times during the year and not necessarily on the same annual cycle.

On that basis, quarter-over-quarter comparisons are less meaningful than annual results, and often production deliveries can move across year-ends. Our revenue and adjusted EBITDA were down this quarter from Q1 of 2021. However, the prior year's quarter included delivery of several shows that were originally anticipated to be delivered in 2020 but were pushed into 2021 as a result of the pandemic.

For 2022, we expect our financial results to improve as we move through the balance of the year supported principally by a growing number of green lights and deliveries, as we remain focused on annual adjusted EBITDA as the most important measure of the company's performance as well as growth over multiple years, given the length of our production and distribution cycle.

Revenue for the 3 months ended March 31, 2022, was $46.8 million compared with $52.5 million for the same period of 2020, a decrease of 11%. Total revenue in the television segment decreased by $11.8 million in 2022 when compared to 2021. The segment delivered fewer half hours of production in the first quarter of 2022, 30 compared with 56 in the first quarter of 2021. All content delivered in both periods was unscripted. The deliveries of half hours and of premium scripted content in the television segment are expected to increase in the second half of the year.

Kids and family revenue increased by 56% in 2022, compared with 2021, with 10 half hours delivered in '22 compared with no deliveries in the prior-year quarter. The segment predominantly delivered content that was fully funded by presales, by the broadcasters. Service revenue, both animated and live action, increased period over period as well. While results in the representation segment tend to be more consistent, there can sometimes be significant one-off revenue items earned in a quarter that do not reoccur across periods, which was the case in Q1 2021. As a result, representation revenue dropped slightly, 9% versus a particularly strong comparative period last year.

Overall activity levels remain strong with talent continuing to regularly access opportunities across a range of film, television, and other projects, and the segment is on track with our expectations for the year. Production distribution and service costs for the quarter were $31.2 million compared with $34 million for the same period of 2021, a decrease of 8%. And the change was primarily the result of decreased production and service revenue.

Adjusted EBITDA loss for the quarter was $6.2 million compared with $1.7 million for the same period of 2021, an increase of $4.5 million. The larger adjusted EBITDA loss was due to a number of factors, including the addition of certain public company costs that were not incurred in the prior-year quarter as our IPO closed at the end of March 2021. Adjusted EBITDA was also affected by lower segment profit in television owing to a lower volume of content deliveries in '22 as well as lower segment profit and representation. This was partially offset by a higher segment profit in kids and family.

In addition, excluding share-based compensation expense, general and administrative costs were higher due to an increase in personnel and overhead costs incurred as part of becoming a publicly-traded company. Net loss in the first quarter was $12.8 million compared with a loss of $5 million for the same period in 2021. Boat Rocker remains debt-free other than our normal course, interim production financing, and we had total cash at March 31, 2022, of $84.4 million compared with $97 million at December 31, 2021. I will now turn the call over to David to talk about the studio highlights. David?

[David Fortier, executive]

Thanks, Michelle, and good morning, everyone. From a studio activity perspective, the year has gotten off to a great start. I'll take a few moments to go over a number of recent highlights that showcase the ability of our content creation engine to deliver exceptional programming of every genre and budget size for a range of audiences and for nearly every major global platform.

So, turning first to scripted, in early April, Orphan Black echoes the highly anticipated spinoff series of international hit show Orphan Black, which helped put Boat Rocker on the map. It was greenlit by AMC for an initial 10-episode order. This premium scripted drama had slated to begin principal photography this summer and is scheduled to air on AMC in 2023. The original series ran for 5 seasons, garnered more than 60 major international awards, and generated $125 million in sales, via the distribution partner at BBC Worldwide.

This time around, Boat Rocker will be distributing the new series internationally. And the response from Orphan Black's dedicated global fan base to the announcement of a sequel series has been phenomenal. Needless to say, we are thrilled to be expanding the Orphan Black universe, and our sales and franchise teams are delighted to have a new piece of medium content to sell.

We also recently had 2 of our other premium scripted shows begin shooting. Slipped, created by starring Zoe Lister-Jones from CBS's Life in Pieces, and recently added Emily Hampshire of Schitt's Creek fame to the cast, and the show began shooting in Toronto in late April. The comedy-drama series is being produced in partnership with our investee company TeaTime Pictures for the Roku channel. And this is TeaTime's first TV show to go into production. Boat Rocker will be distributing the show internationally as well.

Likewise, Beacon 23 began production in Toronto in mid-April, the premium sci-fi drama starring Lena Headey and Stephan James is being produced for AMC and Spectra. This is another exciting series that we will be distributing internationally. Late this summer we'll start production on our series Robin Hood for Corus. This near-fi action drama is a contemporary reimagining of Robin Hood and is creatively led by Hotline Bling music video director and filmmaker, Director X, and Orphan Black producer, Chris Roberts. This series will also be distributed internationally by Boat Rocker.

These scripted titles are in addition to the previously announced second season of Invasion and the Kristen Wiig-led series Mrs. American Pie which recently added Allison Janney to the cast. Both are for Apple TV+.

In total, that makes 4 original premium scripted series that our internal sales team will be taking up to market this year, in addition to an impressive lineup of kids and family and unscripted properties, as well as a strong library of third-party titles. As you can see, we continue to focus on developing owned content to which we can bring our full suite of capabilities, ranging from IP sourcing and creation to development, production, and financing, right through sales and brand building.

Turning now to unscripted, our production partner Insight is producing the upcoming 2022 JUNO Awards. The show will feature performances by Arcade Fire, Arkells, Avril Lavigne, Charlotte Cardin, and Mustafa, and will be hosted by Simu Liu who starred in the Marvel Cinematic Universal Shang-Chi.

Unscripted production pod, Maven, continues to build its production slate with a new greenlight from Roku for The Marriage Pact, an 8-episode series that shows audiences what really happens when single friends must follow through with marriage pacts that they established with one another. 2 of our reality series produced in 2021 during COVID recently premiered. Our docu-series Love Match Atlanta for Bravo premiered on May 8. The series follows the personal and professional lives of 5 Atlanta match-makers, and Love In The Jungle, a new competition dating series premiered on May 8 on Discovery+.

The popularity of food-themed competition shows remains high, and we continue to meet with success and expand our presence in the genre. The sixth season of The Great Canadian Baking Show is currently in production for CBC and the related spinoff series, Raufikat's Better Bake Along premiered on CBC Gem on March 25th. Wall Of Bakers, a spinoff of our series Wall Of Chefs premiered on March 25th on Food Network Canada.

We also just wrapped production on a new yet-to-be-announced food series format for a major streamer that we anticipate will air later this year. Several of our unscripted shows produced by Proper Television and Insight received some richly deserved recognition at the '22 Canadian Screen Awards held on April 10.

Turning next to the kids and family segment, for the fifth quarter in a row following launch, Dino Ranch was the number one preschool US cable show in its time slot for kids aged 2 to 5. In the first quarter of 2022, it racked up 9.6 million viewed hours of 17% from 8.2 million viewed hours in the fourth quarter of 2021. In April, season one launched in the UK on Tiny Pop, a UK free-to-air channel that will help drive further awareness of the brand nationally. The series also continues to stream on Disney+ in the UK, where it was the third-ranked show during the April to September 2021 timeframe. Online the show continued to impress, racking up 111 million YouTube channel views and nearly 320 million impressions by the end of the first quarter, including 9.2 million views in March, up from the 8.9 million in February.

These numbers reflect impressive growth over the fourth quarter of 2021 and are indicative of growing online engagement with the brand that we're driving through a combination of organic and paid strategies. In the first quarter, we continue to advance our global licensing and merchandising program. We currently have more than 40 licensees globally across a range of categories. In the U.S., we've already launched Dino Ranch toys across e-retailers. With the majority of our spring toy placement online, Amazon is our leading retailer.

To maximize sales on this industry-leading e-com site, we recently debuted a dedicated Dino Ranch brand shop on Amazon, featuring a wide range of licensed products, product launches from apparel, to accessories, to toys and books. Via strategic search engine optimization and targeted media buys, we increased online toy sales during the key Easter 2022 season. The U.S. Amazon-branded shop format will be replicated across all major territories beginning this summer.

Internationally, we continue to drive forward the rollout of the brand with more than 20 major in-store and online toy retailers in countries across Australia, Europe, and the UK. In the U.S., we're excited to looking ahead to the anticipated in-store debut of the products at Walmart and Target locations nationwide in August. We anticipate that the presence of merchandise on shelves at the biggest toy selling chains in the U.S. will help drive a significant increase in Dino Ranch toy sales and brand awareness leading into the critical holiday seasons.

Although we remain in the relatively early days for the brand and a start of a multi-year push to fully realize its potential, Dino Ranch has exceeded our expectations. This is a brand that we anticipate will continue to grow and develop over the longer term and one that is a flagship piece of IP for us. In other kids and family and franchise brand news, our evergreen series, The Next Step, wrapped production of season 8 last month.

We're approaching the 10-year anniversary of the first season of the series, which is our longest-running show and has been an international hit for us, broadcasting in 120 countries and comprising 232 episodes across the 8 seasons. Plus a spin-off, a robust M&L campaign, and a live tour. Season 8 of the show is due to premiere this autumn in the UK on CBBC and iPlayer, where it has been one of the most requested shows over the last 9 year, and on Corus Entertainment’s YTV in Canada. In addition, ABC Australia continues to support The Next Step and has acquired Season 8 for ABC ME. We've also closed the deal with WarnerMedia's HBO Max streaming platform for the series, including seasons 5, 6, and 7.

Turning briefly to representation, we're thrilled that Dakota Johnson, an Untitled client who was recently tapped to star in Sony Marvel's Spider-Man spin-off, Madame Web. We have a first-look deal with Dakota's production shingle, TeaTime, and we own a minority interest in the company. Mrs. American Pie, which, as I mentioned earlier, we are producing with Apple TV+, emerged from a first-look deal Boat Rocker had with Laura Dern's production company, Jaywalker Pictures. This emphasizes the importance of the partnerships that we have in terms of attracting fresh IP and working with A-list of Hollywood talent.

In that sense, it was also recently announced that Untitled Entertainment client, Uma Thurman, will produce and co-star with Samuel L. Jackson in a crime thriller, The Kill Room. In our last call, we emphasized that 2022 promises to be another strong year as we continue in the next phase of the evolution of our business. With a fleet of 6 premium scripted dramas green-lit already this year, up from 2 in 2021, and growing visibility on additional scripted green-lights in the near term, we remain confident in our momentum moving into the second half of the year.

We are focused on producing and delivering all of our current shows, catalyzing renewals of existing series, expanding our IP portfolio with a focus on owned IP, forging deeper relationships with top-tier creative and acting talent, and growing licensing and merchandising revenue from key brands. We believe this approach will allow us to further diversify our revenue mix and drive improved margins, which will in turn support our forecasted growth in adjusted EBITDA. All of this will be made possible by leveraging the expanded scale of the business we have built in recent years and the strength of the team across each of our business units.

We look forward to updating you on our progress as we move through the year. Operator, that concludes our prepared comments for this morning. We would now like to begin the question and answer session.

[Operator]

[Operator Instructions] The first question comes from Drew McReynolds of RBC.

[Drew McReynolds, analyst]

I'll just cover off just a couple of kind of more topical, kind of trendy questions these days. I think first, just on the M&A side, obviously, you have a strong balance sheet and continue to look for M&A. Just wondering how the environment is changing just given all of the dynamics out there. Second question would be just, is there any update from your perspective in terms of your M&L trajectory and how it kind of should build through the year? Just wondering if there's any difference out there from a supply chain perspective that you alluded to.

And then lastly, on the inflation side, just wondering how you manage through this inflationary environment and what gets passed through, what puts a little pressure on you? And that's it. Thank you.

[John Young, executive]

Thanks, Drew. I appreciate the questions. And let me just tackle them maybe in a different order than you suggested there. So let me just tackle the inflation point first. Drew, I think we're not really seeing too much in the way of inflation affecting the nuts and bolts of the business. You think about our production, a lot of our scripted productions are all part of guild agreements, collective agreements that set out various costs, et cetera. So we're not seeing that immediate change because those agreements are long-term arrangements.

In terms of the M&A or the toy business, we're seeing a little bit of cost increases there, but again, nothing that's not going to be absorbed I think in the actual retail selling prices. So again, I know there's lots of terrible news out there generally as inflation still takes up certainly in the U.S. above 8%, but we're not really seeing that impact because of the nature of our shows, nature of the work we're doing. We're really seeing that impact the business the way it certainly impacts I think several other businesses out there. So somewhat neutral for that.

Obviously, we'll start to see maybe some price pressure with regard to salaries as we move through into 2023, but nothing I can say that's causing us the concern I think that other industries may be seeing. On the M&L side, on the trajectory, there again, very excited, as we said before, to do with the products particularly hitting Walmart and Target in national campaigns across the U.S. later this summer. Word again is solid there because the product has arrived in the U.S., it's ready, the skews are there.

So the supply chain, I think [indiscernible] a little bit more towards the end of '21, as we've mentioned, where we didn't get enough and weren't able to get some of the launches we wanted in the pre-holiday season of '21. Again, most of that pushed into 2022. So we should be fine there. We're obviously hoping for seeing that revenue flow to Boat Rocker at the end of this year, starting to really come in at the end of this year based on the 2022 work that Jazwares and our other 30-odd licensees are doing. So, should be able to see that come through certainly in our Q4 this year.

And you touched, Drew, on the M&A dynamics. Again, as you may, you're probably going to talk a little bit, or at least we've been talking a little bit about just the tailwinds and the dynamic in our industry. And again, we're not seeing any sort of change or abatement to those tailwinds. It's still a very strong environment for content demand, where lots more pitches are going out there, lots of discussions, still newer platform participants coming to market, more and more work from the AVODs, or potential for us working with AVOD platforms as well. So the tailwinds generally continue to be strong for us. We're seeing that certainly all the way through this year.

The M&A is still something we're closely looking at. We're looking at those capabilities, areas that we can enhance and augment what we got going on at the moment. But as you can imagine from what we just said, with over 40 shows in production Q1, we're really busy getting on with that. And Dave mentioned the focus of getting, producing those great scripted shows, that this year is really a key focus for the content team. So M&A is still going to be part of our discussion. Our team is working and looking at sort of a strong pipeline there, but nothing on the cards to be executed in the short term yet, but continue to look at that to see what it can make sense for us.

[Operator]

[Operator Instructions] Your next question comes from Vince Valentini of TD Securities.

[Vince Valentini, analyst]

Thanks very much. Just one question for me. If I take your market cap and back out the cash you have, you get about $110 million of net equity value. I know strategically you wouldn't want to do this, but just to frame how low your valuation is. Do you not think you could sell the Dino Ranch franchise for that $110 million at this point, given how successful it is in the upside on M&L and given the teens multiples have been paid for hot kids franchises in the past?

[John Young, executive]

Vince, it's a very interesting point and it highlights, again, just how disappointed and frustrated management is with the current stock price as much as our shareholders are. So it is disappointing. I think there's a number of ways that we could look at the assets and the net assets that Boat Rocker has that would add up to a significantly greater amount than our net market cap, or however you want to look at net asset value. So, and Dino Ranch might absolutely be one of them.

I could look at lots of parts of our business. Our scripting, the premium scripting business, the Boat Rocker scripting is doing tremendously well right now. Our jam-filled pipes are full and going to deliver again in 2022, an amazing array of content. Our talent representation business is consistent. As you've seen a little bit off in the Q1, for a fuse of non-recurring items that happened in Q1 of '21. But again, as Michelle mentioned, on track to deliver that growth and have a very solid performance and representation in 2022.

So I can look at lots of ways and events, and I definitely think the overall point is that we are frustrated. I think shareholders are not getting the benefit of what we think the intrinsic value of our company is right now.

[Operator]

There are no further questions at this time. I would like to turn the conference back to Mr. John Young for closing remarks.

[John Young, executive]

Thanks, Michelle, and thanks everyone for joining us. Really appreciate the questions. Thank you. Look forward to updating you on the progress in our Q2 Conference Call in August, and have a great Thursday, everyone. Thank you.

[Operator]

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you for participating and ask you to please disconnect your lines.