Boat Rocker Media Inc

TSX:BRMI

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Boat Rocker Media's First Quarter 2024 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 2024 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 include assumptions about continued revenue based on past performance, perception 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's 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 28, 2024 and first quarter MD&A dated May 15, 2024, 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 as well as its annual MD&A date March 28, 2024, which are available on the corporate website and in its filings with the Canadian Securities Administrators on SEDAR+ @www.sedarplus.com. With that, I will now turn the call over to Mr. John Young, Chief Executive Officer of Boat Rocker Media.

[John Young, executive]

On the call with me today are Judy Adam, our CFO; and David Fortier and Ivan Schneeberg, our Co-Executive Chairman and Co-Chairman of Boat Rocker Studios. Amidst continuing challenges in the media industry at large, we delivered a solid Q1, which illustrates resilience in some parts of the market and certainly at Boat Rocker. Adjusted EBITDA was $3.2 million and revenue was $51.3 million. We were pleased to see earnings in our representation segment start to return to near historical levels alongside strong deliveries in our Canadian unscripted business. As we mentioned on the last call, in 2024, we are executing on a robust content investment plan that will see Boat Rocker deploy a significant amount of cash available for use on investment in IP, particularly owned and scripted series, premium documentaries and international co-productions and completion financing opportunities. Our cash available for use remained high this quarter at $36 million versus $37 million in Q4. Ivan will provide more detail on some recent investments in content later on in our call. Our assumptions around full year fiscal 2024 performance have not changed, and we continue to focus our efforts on streamlining the business, managing costs as we set the company up for long-term success. I'll turn it over to Judy now for a brief financial review.

[Judy Adam, executive]

Boat Rocker delivered a solid Q1 performance with adjusted EBITDA of $3.2 million compared to a loss of $1.8 million in the prior year. Revenue was $51.3 million versus $79.8 million in Q1, 2023. The difference is largely owing to results in the television segment, which varies considerably from those in 2023 in a different product mix. Production revenue was $9.5 million in Q1 of this year compared to $42.3 million in the same period of 2023, a decrease of $32.8 million. This variance is partially attributable to the high volume of scripted production deliveries in 2023. In Q1 of this year, we did not have any comparable scripted production. Also, production revenue for unscripted shows was lower in the current year period due to timing of deliveries. However, Q1 2024 service revenue of $18.6 million was more than double that of Q1 2023 of $8.6 million due to strong performance by the company's Canadian unscripted business.In addition, Q1 2024 included expected producer and other fees with no similar amounts recognized in the prior year period. As a reminder, these types of solutions in our product mix, production volume and deliveries are not uncommon for Boat Rocker and indeed all production-based companies in the media and entertainment space. Similarly, Boat Rocker's distribution revenue can vary significantly quarter-to-quarter with a historical trend of a stronger H2. In Q1 of this year, distribution revenue was $2.96 million versus $4.28 million in the same period of 2023. Kids & Family revenue of $12.6 million compared to $15.7 million in the same period of 2023. This decline from the prior year was predominantly owing to lower service output offset by an increase in production deliveries. The company delivered and recognized revenue for 17 half hours of owned content compared to three half hours in the same period of 2023. Our presentation continues its expected recovery from the 2023 U.S. labor strike recorded $8.3 million of revenues compared to $9.6 million in the same period of 2023. Although there is still a lag, performance is trending towards historical levels. Production, distribution and service costs were $29.6 million in Q1 of 2024 compared to $59.4 million in the same period of 2023, a decrease of $29.8 million or 50%. This variance was driven by decreases in amortization of investment in content and service costs associated with lower production and service production revenue overall. Total general and administrative costs of $21.3 million declined from Q1 of 2023 where they were $22.9 million. Excluding share-based compensation, reorganization costs and transaction-related and other costs in both 2024 and 2023 period, G&A expense in Q1 2024 was $19.7 million, down 12% compared to $22.4 million in the prior year period. The positive downward trend is on to management's focused efforts to control costs across the company in a number of categories. Q1 net loss was $2.5 million compared to a net loss of $9.5 million in the same period of 2023. The improvement of $7 million. Consistent with Boat Rocker's Q4 2023 results, the company's cash position remains strong, with total cash at the end of Q1 2024 of $98.2 million, of which $35.9 million represents cash available for use. As John mentioned earlier, we are executing on a robust content investment plan that will see Boat Rocker deploy a significant amount of cash available for use on investment in IP over the remainder of the year. Ivan will now share some studio highlights with updates on our content strategy.

[Ivan Schneeberg, executive]

We're pleased to see our IP investment strategy really starting to gain momentum. Last quarter, we said we would be materially increasing our investment in content, including international and domestic coproductions, documentaries and of course, the premium scripted content that Boat Rocker is best known for. This investment strategy is underpinned by our belief that using our capital and corporate resources, including, in particular, our international rights management team, the cause projects to be greenlit and then to manage the monetization of that content is the pathway to future growth. We recently announced the new international live action scripted series called Mix Tape which we're coproducing with Ireland's Subotica and Australia's Aquarius Films; Stars Teresa Palmer from The Fall Guy and the Discovery of Witches, and Jim Sturgess from Apple TV's Home Before Dark and One Day. Boat Rocker will also be the distributor of this series worldwide. Mix Tape joins the previously announced video Nasty, a scripted series coproduction with Ireland's Deadpan Pictures, which is currently shooting in Ireland. Domestically, we have an exciting partnership with Toronto's Shark Teeth Films to distribute three upcoming scripted shows. Another installment of Secrets in the Ice and new factual series Discovered By Disaster and Secrets in the Dark. This partnership builds on the success Boat Rocker has had distributing Secrets in the Ice Season 3, which the company has sold in more than 50 territories worldwide. Our high-profile scripted releases continued to perform well with Palm Royale starring Kristen Wigg, Ricky Martin, Laura Dern, Allison Janney and Carol Burnett. Palm Royale is the #1 show on Apple TV+ top 10 and continuing to rate very highly in both the U.S. and Canada. American Rust: Broken Justice starring Jeff Daniels, and Maura Tierney continues to feature an Amazon Prime Videos top 10 television series and movies after its March 28 launch and is rating extremely well in IMDB's episodic ratings. Beacon 23, which also had a strong premier on Amazon Prime Video Canada has been sold to Amazon Prime in Africa, Australia and New Zealand. We're now eagerly anticipating the launch of Orphan Black: Echoes, Staring Krysten Ritter, Keeley Hawes and Amanda Fix, which will premiere on ITV in the U.K. tomorrow and on AMC, AMC+ and BBC America on June 23. Of course, as we previously announced such a strong performance on Apple TV+, the premium sci-fi series Invasion from Simon Kinberg has been greenlit for its third season. We're also about to start production on a new scripted series in partnership with a major streaming service, and we'll be giving more details on that shortly. Although we're honing in on owned IP, Boat Rocker maintains a diversified portfolio, including service production, which yielded further positive results this quarter. In unscripted Downey's Dream Cars starring Oscar Winner Robert Downey Jr. , secured two daytime Emmy nominations, Season 2 of Canada's ultimate Challenge premiered on CBC on April 28, while Big Brother aired its Season 12 Finale earlier this month. There's no doubt that the media and entertainment industry is still settling from the shock waves of the 2023 labor strikes and other macroeconomic and industry-specific factors, the continued impact development, green lights, releases and renewals. However, we are encouraged by our Q1 results and remain confident in our vision, our team and our financial and operating power. We believe that our IP first strategy is a winning one that will carry us through whatever this year brings and towards future long-term growth. Operator, that concludes our prepared comments this morning, and we would now like to begin question-and-answer session.

[Operator]

[Operator Instructions] Your first question comes from David McFadgen with Cormark Securities.

[David McFadgen, analyst]

Just a question on the cash. You said that you expect to use the cash available for use this year, you're going to ramp up your investment in IP production. How much of that cash do you expect to use? Are you going to use all of it by the end of this year?

[John Young, executive]

I'll let Judy jump in on the details, David. Obviously, we will not be using all of that cash. Part of it is for working capital, but most of it is for investment. We'll certainly be spending a significant amount of it. We've spent a fair amount already. Ivan talked about two or three shows that we're in coproduction or production on, and those are part of that strategy that we'll continue with. I won't be able to give you a number specifically on that. Again, as part of that strategy of taking that cash available that we've got putting it with our resources, the international sales teams and finding these projects that we're essentially finishing and get to distribute at the same time. Less development, much more into buying and owning the IP or at least at the very least, having a significant interest in that IP and selling the content around the world. We're spending more of that cash on those types of projects. We think that's a better bang for our buck, especially in a still challenged environment from the buyer's perspective. That helps. Judy Is there anything else you want to add to that?

[Judy Adam, executive]

No, John, I think you covered it really well. I'll just add that, yes, in Q1, you would have seen our cash available for use come down slightly, although we've made some commitments already at several those, which we've announced. The cash flow will be more the remainder of the year. You'll see a cash available for use coming down over the remainder of the year because of these investments.

[David McFadgen, analyst]

It seems you're going to use that cash to acquire distribution rights to sell third-party products around the world, but on the rights that you're acquiring the distribution rights. Is that correct?

[John Young, executive]

We'll do a bit of both, David. We'll try to find content within the teams ourselves that we can essentially own entirely while putting money to work to make it happen. That would be in the documentary area, particularly where the budgets are such that we can actually put the capital to work to entirely make the project go into production. As well as owning portions or significant portions of the IP where we're investing in those coproductions or those financing opportunities where we're the last dollars in, sometimes not insignificant dollars and we are the ones effectively making the project get over the finish line with our team having the rights to sell.

[Ivan Schneeberg, executive]

I think you've got it right, and we're using the money to buy IP. I think the shift in strategy is we're spending less money at the very early stages of development and trying to spend more money on causing IP to get created. We're trying to be closer to last money in. We're assured that money is going to -- if we've got our calculations right, generate a return. We're trying to get significantly closer to the finished product to ensure that every dollar we spend manifest into a piece of IP that can generate a return and be added to our library. As John said, we spread that amongst different types of projects. It's self-commissioned documentaries, coproductions, self-developed and back sold projects like some of our bigger dramas or from Orphan Black: Echoes, for example. Then also, you're right, third-party projects. In some cases, we're coproducers and partners on those projects and in some cases, we're just acquiring the distribution rights and selling the projects. I think the point is all of that cash is going into the creation of IP that we believe will generate returns for the company.

[David McFadgen, analyst]

Then I don't know if you can answer this question, but I'll try it anyway. Do you have an idea as to when you think the business start has fully recovered from the after effects of those two srikes? I guess, maybe it will be be easier to see on the representation side on a quarterly basis. I was just wondering when you think that the business turns and it's no longer impacting the business.

[John Young, executive]

I don't know if there is a perfect answer, but let me give you some thoughts. Every buyer, I think, is challenged in slightly different ways. You've got a market out there with a lot of different commissioning broadcasters with different solutions that they're looking for. We're not seeing a one-size-fits-all recovery. I think it's fair to say that we're going to be in, I think, in an overall global spending environment that's slightly less probably each year for the next number of years, 2022 seems to have been the peak at about $137 billion, and I think we're going to be less than that, certainly less than that in '23 and probably a little bit less in total in '24. I can see those numbers slightly going down, but certain buyers are going to increase their spend in '24 over the last few years. There's a real mix out there. I think as we get into '25 and '26, it's fair to say that I think we'll probably see a bit more of that normalization that the strikes in '23 are disrupting. That's probably fair. Our job is to make sure we're getting as much of the share of that wallet of those buyers wherever we can. I think, as Ivan said, better that we actually spend that capital where we know we can make content get produced, then spend more of our time developing for these buyers. It's a challenge right now to get those green lights as they think about their own business models and where they go going forward. It's not an easy one, but I think you've got to think a little bit less spend from '22 onwards. I can see that come down, not materially, I think a couple of percent a year would be my guess, and I am only guessing. I think that's fair. As they find their footing in this new world, this new business model for the streamers, particularly. I think that's probably what I think will happen '25, '26.

[Operator]

[Operator Instructions] Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.