Boat Rocker Media Inc

TSX:BRMI

Earnings Call Transcript 2023-Q1

[Operator]

Good morning. My name is [ Anis ], and I'll be your conference operator today. At this time, I would like to welcome everyone to the Boat Rocker Media First Quarter 2023 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 2023 and beyond, anticipated financial 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, receptions of trends and current business conditions, expected future developments and other factors which management considers appropriate and reasonable in the circumstances.

This forward-looking information represents management expectations as of today and accordingly, is subject to change. Such information is based on current assumptions that may not materialize and are contained in Boat Rocker's annual MD&A dated March 30, 2023, 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 its filings with the Canadian Securities Administrators on SEDAR at www.sedar.com.

With that, I will now turn the call over to Mr. John Young, Chief Executive Officer of Boat Rocker Media. Mr. Young, you may begin your remarks.

[John Young, executive]

Thank you very much, [ Anis ], and good morning, everyone. Thank you for joining us for the Boat Rocker Media First Quarter 2023 Results Conference Call. On the call with me today are Judy Adam, our CFO; Ivan Schneeberg and David Fortier, our Co-Exec Chairman and Co-Chairman of Boat Rocker Studios.

As is normally the case, I will provide some introductory commentary on our results for the quarter and our outlook before turning it over to Judy for a brief financial review. David will then discuss some of the recent creative highlights before we open up the call to questions.

So let me now turn briefly to some opening comments. As you may have seen from our results, 2023 figure off to a really solid start. We generated a sharp increase in revenue, largely on the back of a broader slate of delivery spanning all of our genres, highlights in the unscripted world, including the delivery of episodes of Canada's Ultimate Challenge, a new series for the CBC, further deliveries of Season 2 of Dino Ranch in our Kids & Family group.

And excitingly, we started to deliver our scripted dramas Orphan Black: Echoes and Robyn Hood this quarter. As we said last quarter, we expect revenue to be balanced over the remaining quarters of the year, although adjusted EBITDA improvement is expected to be biased towards the second half of the year, reflecting growth in the higher-margin distribution revenue following deliveries of our premium scripted shows earlier in the year.

On the strength of the deliveries in the first quarter of 2023, adjusted EBITDA was narrowed over the prior year period, improving to a loss of $2 million from a loss of $6.2 million last year. From an industry perspective, we've entered into a more challenging period. On the one hand, there is still ongoing demand from consumers and buyers for our content, both domestically and globally. On the other hand, key buyers in the U.S. are continuing to look to cut costs and rationalize budgets.

And as I'm sure, most listeners are aware of last week, the Writers Guild of America elected to go on strike. While we remain in the very early days of this labor action, a prolong strike could have a meaningful impact, resulting in delays in development, greenlight and production of new and returning scripted series. Additionally, other U.S. talent guilds, the DGA and SAG-AFTRA are also in the midst of renegotiating their collective agreements, and it's possible that there could be some further labor action as a result.

That said, we believe we are well positioned to remain operationally flexible in this evolving market, given the depth of our development and production slates, combined with our ability to produce in multiple territories in all genres and at all budget levels. Despite the current challenges and assuming the WGA strike is not prolonged and the other U.S. talent guilds conclude their renegotiations this summer, we're still targeting to improve financial performance this year as we anticipate delivering the balance of all of the episodes of the 7 premium scripted shows that commenced production last year.

So with that, I'm now going to turn it over to Judy to conduct the brief financial review. Judy?

[Judy Adam, executive]

Thank you, John, and good morning, everyone. The first quarter saw continued high levels of activity across the business with 10 shows delivered and 33 shows in various stages of production. Revenue increased meaningfully, principally due to the timing of deliveries and overall mix of revenue types, and our adjusted EBITDA loss improved over the prior year period.

Total revenues for Q1 2023 was $79.8 million versus $46.8 million in Q1 2022, an increase of $32.9 million or 70%. Revenue growth in the Television and Representation segment was partially offset by a decline in Kids & Family segment. Revenue in the Television segment increased 190% in the first quarter as we delivered 47.5 hours of content as compared to 20.5 hours in the same period of 2022.

The current year increase delivery of 4 episodes of our premium scripted drama or 2 last echoes, which has significantly higher average revenue per episode than any of the company's other productions delivered in the current or prior year period. Revenue in the Kids & Family segment decreased $3.8 million or 20% in the first quarter as we delivered only 3 half hours of content this year versus 10 in the prior year period on the production side. This was partially offset by a 16% increase in service revenue.

Revenue in the Representation segment increased by 12% in the first quarter of 2023, with the increase driven by the timing and scale of projects for our on-screen talent, which can vary from period to period. Production distribution and service costs for Q1 2023 were $59.4 million compared with $31.2 million for the same period of 2022, an increase of $28.2 million or 90%. The increase in cost was most attributable to the increase in amortization of investment in content of $28 million associated with the increase in production revenue.

General and administrative costs for Q1 2023 were $22.9 million, consistent with the prior year period. Adjusted EBITDA loss for the first quarter was $2 million compared with a loss of $6.2 million in the same period of 2022, an improvement of $4.1 million. The improvement was due primarily to a higher segment profit in Television and Representation as well as lower corporate costs, partially offset by lower segment profit in Kids & Family.

Net loss in the first quarter was $9.5 million compared with a loss of $12.3 million for the same period in 2022, an improvement of $2.8 million over the prior year period. Boat Rocker remains debt free, other than our normal course interim production financing. And as at March 31, 2023, the company had total cash of $70.5 million compared with $85.8 million at December 31, 2022. In the 3 months ended March 31, 2023, we generated positive cash provided by operating activities of $19.5 million, due to increased collection from receivables and increased deferred revenue during the quarter.

However, free cash flow in Q1 was negative $12.8 million, primarily due to the timing of repayments of the interim production financing, which exceeded proceeds from interim production financing by $30 million in the current quarter. With proactive management of overhead expenses and a strong discipline on investment spending, we continue to forecast positive free cash flow in 2023.

I will now turn the call over to David to talk about the Studio highlights.

[David Fortier, executive]

Thanks, Judy, and good morning, everyone. The first quarter of 2023 remained busy for Boat Rocker Studios as we worked to complete and deliver our slate of projects across all divisions, including our premium scripted series slate, which we believe will be a key contributor to our financial performance in 2023.

On the scripted Television front, as John mentioned, we continued to deliver episodes of the series we commenced producing last year, including the first episodes of the eagerly anticipated Orphan Black spinoff series, Orphan Black: Echoes for AMC as well as episodes of our series for Corus Robyn Hood from Director X. We also recently wrapped production on the second season of American Rust. The early cuts of the episodes are excellent, and we think both fans of the first season and new viewers alike will be taken in by the performances of a stellar broadcast, including series leads, Jeff Daniels and Maura Tierney.

We were thrilled to finally share Zoe Lister-Jones Slip with the world this quarter after garnering widespread critical acclaim at South by Southwest in March, Slip premiered on Roku Channel last month to further rave reviews, including recommendations from top predicts at the New York Times and Time Magazine. We are extremely proud to have partnered with Roku, Zoe and Dakota Johnson and Ro Donnelly's production company, TeaTime Pictures to produce such a unique and compelling series.

Our production partnership with Bay Mills led by Shamier Anderson and Stephan James yielded another positive result as we partnered with them on the development of a new scripted series, titled Christopher Robin. This R-rated live-action animated hybrid is loosely inspired by [indiscernible] and has been reimagined for an adult audience.

Turning to unscripted, Pretty Baby: Brooke Shields, a new documentary produced by Boat Rocker premiered on Hulu and ABC News' most watch program to every debut on the platform. In addition, the documentary was named as an early Emmy award frontrunner by the Hollywood Reporter in their latest round of nomination predictions for 2023.

BS High, a new premium documentary for HBO chronicling the Bishop Sycamore High School football scandal has been accepted into the prestigious Tribeca Film Festival in New York City and will premiere at the festival on June 14. We were also pleased to see that all 3 of Boat Rocker's unscripted shingles, Matador Content, Insight Productions and Proper Television were included in the Realscreen Global 200, a list of the top production companies working in nonfiction and unscripted content around the world.

Finally, several productions at Boat Rocker in the unscripted space, including Mary Makes It Easy, the Amazing Race Canada and Buffy Sainte Marie's Starwalker were all recently honored with 8 Canadian Screen Awards during the Canadian Academy's Annual Screen Week Celebration of Excellence in Canadian television.

Turning to Kids & Family. Dino Ranch secured new licensing deals in the EMEA and APAC regions during the quarter. The franchises more than 50 licensees globally are producing a growing array of Dino Ranch branded products, including toys, books and apparel available around the globe. Dino Ranch remains a top 10 show for total viewership in the U.S. and ranks #1 with girls 2 to 5 and #2 with boys 2 to 5 in its time slot.

Boat Rocker delivered episodes of Season 2 during the first quarter and is currently producing episodes of Season 3, which we hope to begin to deliver later in the year. During the first quarter, our long-running series, The Next Step saw its eighth season nominated for the 2023 Shaw Rocket Fund Kids' Choice Award and received 3 Canadian Screen Award nominations, including Best Children's or Youth Fiction Program or Series.

Turning to Representation. During the first quarter, several untitled clients received well-deserved industry accolades, including 5 Tony Award nominations for best direction of a musical, best performance by an actress and leading role in the musical as well as best performance by an actress in a featured role in a musical.

Downtown Owl, a dark comedy based on the novel by Chuck Klosterman has also been slated to premier at the Tribeca Film Festival in June. The film marks the directorial debut for untitled Client Hamish Linklater, stars untitled client Vanessa Hudgens and was produced in partnership with Laura Rister.

Finally, Untitled clients also continue to be cast in high-profile scripted dramas. Abubakar Salim was cast in Season 2 of the Game of Thrones prequel House of Dragon as an example. In closing, we are incredibly proud of the series we're developing, producing and delivering this year. In addition to being encouraged by the opportunities that lie ahead for the company. There's no doubt that the year ahead could pose some challenges, particularly as we move deeper into the Writers Guild strike.

However, we continue to believe that we are well positioned to succeed with many of our deliveries already scheduled and beginning to flow with the pace increasing in the second quarter. Even with some headwinds facing the broader entertainment industry and greater macroeconomic uncertainty, we believe that our scale, wide-ranging capabilities, diverse customer base and clean balance sheet leave us well positioned for the year ahead.

Operator, that concludes our prepared comments this morning. We would now like to begin the question-and-answer session.

[Operator]

[Operator Instructions] Your first question comes from Vince Valentini with TD Securities.

[Vince Valentini, analyst]

First question is on the second quarter. Given the timing of deliveries, I think you're aware of when the big budget shows are delivering, and you're already in the process of delivering some of them. Is it safe to say that the writers strike will impact Q2 and we should see EBITDA be up year-over-year in the second quarter, albeit I know your visibility gets worse beyond that?

[John Young, executive]

Vince, it's John here. Yes, I think the first point is right. We don't think there'll be any significant effect at all in our Q2, that's for sure. We are lapping a very, very strong quarter in Q2 last year or so, but -- and we can talk a bit more about that. But otherwise, I don't see any real impact on -- by the strike on our Q2. Most of the work and most of the deliveries for that quarter are well underway and will be done shortly.

So -- but it was a strong quarter. We had a very strong quarter. We had unusually strong quarter, we had in Q2 last year. But yes, still looking solid. And most of the work in Q2 is looking fine. The strike shouldn't affect it at all.

[Vince Valentini, analyst]

Great. Second question is on library sales and Canadian productions during a writers strike. In your past experience, when these things happened, is it not a bit of an offset that you can't produce your U.S. base shows, but you maybe -- there's content that's needed and broadcasters and streamers need stuff, so maybe they buy more of your library content, and that's a bit of a revenue and margin offset?

[David Fortier, executive]

Yes. You're talking about the Canadian productions that we have ongoing, Vince, or ones that we're developing that could launch this year and get going just because the timing obviously has an effect. But we have -- on the Canadian side, we have some Canadian productions. We have -- that we're hoping to get second seasons on obviously, with examples like Robyn Hood.

So it's -- when we go back to the last strike, which was a long time ago, obviously, territories outside the U.S. become hot beds for development for sure, coproduction deals and anticipated production. But we're always active in those areas, and it just sort of just heats up as the strike continues.

[Vince Valentini, analyst]

Okay. Fair enough. And last one just on Kids and Dino Ranch. Did you give us any commentary? If I missed it, I apologize, but on the actual merchandising sales in the first quarter and how those looked versus the prior year?

[John Young, executive]

We didn't give that kind of detail, Vince. But again, they were not far off what we did in the prior quarter. So again, still on track, Dave mentioned how the show itself is performing so very, very well. We've got a lot of licensees coming with new actual product in the coming couple of quarters.

So our CPG, our product sales is never a big piece in the first quarter and much more biased towards the Q4. So relatively in line with our expectations for Q1 and relatively similar to Q1 last year and biased towards Q4 in the holiday sales period.

[Operator]

Your next question comes from Aravinda Galappatthige with Canaccord Genuity.

[Aravinda Galappatthige, analyst]

Just to kind of maybe just revisit Dino Ranch a little bit. And obviously, it's difficult to call at this stage, but any kind of update as to how you see the outlook for consumer product sales there, looking at rating trends and obviously, conversations you're having with your merchandising partners. What should we be looking for to get a sense of the prospect of an upswing on the merchandising side there?

[John Young, executive]

Yes. Thank you, Aravinda. Thank you for the question. I think as we've said in the first -- from our Q4, we had significant improvement over -- in '22 over '21. And -- but as we got into the end of Q4 and beginning of Q1 this year, we could certainly see with these -- some of the slowdown in the retail, some of the issues that we're facing -- macroeconomic conditions that we're facing, we certainly see a little bit of that slowdown.

So for us, I think anything that comes close to 2022 for our Dino Ranch brands would be a solid performance. We're not really calling that number up or necessarily down. But I think the headwinds are definitely -- they've not seen them dissipate yet. But because we've got lots of new products coming out this year, new licensees bringing products to the market, yes, we're still excited about what we can do there this year, but I don't think we're going to see sort of the upside, if you will, on 2022's numbers.

[Aravinda Galappatthige, analyst]

Okay. And anything you can say about sort of the rating trends? I know you kind of highlighted like you indicated a high level still a top 10 show and some of those demographics there, the 2 to 5 obviously continues to be the top show. Anything in terms of trend, I mean, has largely held up when you kind of look aside those ratings?

[John Young, executive]

Yes, the show itself, Aravinda, we've said, and again, the distribution of the show to the territories around the world is -- has performed absolutely to expectations we're in. I think it's over 173 countries that we're in with that show and is performing very well in each of these markets that has held up very nicely.

As being said, we're just finishing delivering Season 2 this year and maybe starting to deliver on Season 3. So it's still very early days, but for the show -- but I think the takeaway, Aravinda, it's performing very well as a TV show throughout the territories, but it's including some of the strongest markets like the U.S. and others. So we're very pleased with how it is holding up as a show.

[Aravinda Galappatthige, analyst]

Great. And I was wondering whether you could provide a little bit of granularity around how maybe a bit more extended Writers Guild Strike would kind of impact your both EBITDA and free cash flow? I know there's some sort of nuances there. I was wondering if you can revisit that and just kind of give us a little bit of a sense of how we can play out? I know there's some cost reduction opportunities as well. Any color you can provide on that if, obviously, things kind of trend toward sort of the barrier scenario?

[John Young, executive]

Yes. Look, we've thought about this a fair bit, and there's obviously been a lot of work over the last number of months leading up to this point, an unexpected outcome, I suspect, in terms of where we're at. And of course, you somewhat forgive me, Aravinda for saying, it is a little bit too early to tell, right? But what we've looked at and what we can say is for 2023, the vast majority of our scripted shows are sort of in post production. And we don't see a significant concern around those getting delivered this year.

And so that's the upside part. But I think, again, as you mentioned, a prolonged strike is going to have more of an impact on our development, on our pitching, on our ability to get new greenlight to move forward into '24 and beyond.

So I think at this point, it's -- we're cautiously optimistic. We won't have a prolonged strike, but I think our 2023 should be hopefully not too badly impacted with a prolonged strike. But I think the longer term, '24, '25 is where I think things -- we need to look carefully at things there if we are into a long period of labor action. But right now, just a little bit too early to tell where this is going, and we're hoping that the WGA and also DGA and SAG-AFTRA who are getting into discussions in the next month or 2, will also get solved.

[David Fortier, executive]

I think it's also interesting because of the situation we're in with essentially having produced 7 new scripted series, we'll be looking for renewals of these series over the course of the next number of months. And so if the strike is relatively prolonged, the opportunity to just pick up and hopefully get those renewals and get going quickly will be helpful.

And as for cost cutting, we understand that over the course of time, we do have levers to pull. But as John said, it's just way too early to think about doing anything in that regard because we want to be able to hit the ground running when the strike does end. And so we just have to play that day by day.

[Aravinda Galappatthige, analyst]

Okay. Okay. And lastly, on the free cash flow. I know that you sort of previously sort of indicated you can kind of be around that breakeven level. Is that still your expectation for the year?

[John Young, executive]

Yes, absolutely, Aravinda, yes, breakeven, yes, slightly positive. We're aiming for that neutral to positive for '23.

[Operator]

Your next question comes from David McFadgen with Cormark Securities.

[David McFadgen, analyst]

Maybe I could start off with just a question on the writers strike. Is there a certain point in time where you say, now this is going to start to impact our '24. For example, let's say, the strike goes on in the end of July, it's still hasn't been resolved, do you think at that point in time -- or you could say, okay, this is going to start to impact '24 now. Have you thought about that?

[John Young, executive]

We're thinking about all the different ways where we need to tackle this issue depending on how long it goes, David. So there's definitely a lot of work being done internally, whether that's on our -- the fact that we're in all sorts of genres. We're a diversified business with a lot of ways to tackle that, delivering our shows this year, as we mentioned, and, of course, the proactive looking at our cost management.

So there's a lot of things we're looking at there. And -- but at this point, as we say, it's just a little too early. We're a week into this. And rest assured, we're going to be doing everything we can to make sure we're in the right position to come out of this, whether it's short-lived or prolonged, we'll be all over that, but it is just a little too early at this point.

[David McFadgen, analyst]

Okay. Can you give us an update on where you're at in terms of the exploitation of the new Orphan Black series?

[David Fortier, executive]

Yes. The distribution efforts began really in earnest, David, at MIP. We're actually teased some stuff last market and then at MIP in this spring. And we're getting some -- obviously, because of the franchise, we're getting a lot of interest. And the folks and the distribution team usually take 4 weeks -- 3 to 5 weeks after the market to sort of evaluate how the discussions went and the offer start coming in. So we're really happy with the response that we've gotten in the market.

[David McFadgen, analyst]

Okay. Given how that shows tracking, do you think that there's potential that it could replicate the success in the first series?

[David Fortier, executive]

It's so hard to tell. I mean Orphan Black original was such a juggernaut. I mean, obviously, we have high hopes for the sequel, and it's just so hard to tell how audiences can react. But we're always crossing our fingers for a repeat of that, but no way to tell at this point.

[Operator]

[Operator Instructions] Your next question comes from Drew McReynolds with RBC.

[Drew McReynolds, analyst]

Just two for me. First, on the Representation business as we kind of go through the strike and maybe into a more prolonged scenario, how is that segment expected to evolve? And second question, just on the overall content cycle with continued rationalization and prioritization of budgets out there. Just is there any kind of change in the content cycle, let's say, over the last month or so or a quarter or so relative to kind of what -- how you expect that content cycle to evolve?

[David Fortier, executive]

On the first -- on the Representation piece, Drew, in the early goings, productions are still going. Studios, production companies have sort of built their current productions around being able to continue on for a certain period of time. And so we're not expecting to see anything meaningful in the short period. Obviously, we don't see results from the Representation business until sort of later on after the work has been done.

Obviously, a prolonged strike would result in fewer productions getting made and obviously fewer actors getting to work. So there's no doubt that any kind of a prolonged strike would mean less work for the actors, so there would have to be an impact there, but a way to really to speculate again.

On the sort of the macro piece with just content spend in general, we were seeing a slowdown like everybody else in buyers buying content or going into development deals. But we saw sort of going hand-in-hand with the anticipation of the strike. Everyone knew or sense that it was going to happen. I think there was a reluctance on the buyer's part to enter into deals knowing that they would have to suspend and ultimately stop those deals from happening.

And so the -- our view and our sense was that everyone was just being very cautious. So we did see that. But again, hard to differentiate any kind of macro trends from the anticipation of the strike. We're just hopeful that we're going to see an increased demand for the other types of content that are out there. And luckily, the company was built purposely to weather these types of storms with the multi-genre production capabilities.

And we're really hoping to double down on our unscripted slates, our doc slate and also our capabilities on the scripted side as well as the other 2 genres in other territories around the world like Canada, the U.K. and Australia and elsewhere.

[Operator]

There are no further questions at this time, Mr. Young back over to you.

[John Young, executive]

Okay. Well, listen, thank you very much for joining us today. We look forward to updating you on our progress on our second quarter conference call in August. Thank you very much, and goodbye.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.