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Good morning. My name is Enis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Boat Rocker Media Third 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 both 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 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 on the impacts 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 they are contained in Boat Rocker's annual MD&A dated March 31, 2022, 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 its 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 at Boat Rocker Media. Mr. Young, you may begin your remarks.
Thank you, Enis. Thank you, and good morning, everyone. Thanks for joining us for Boat Rocker's Third Quarter 2022 Results Conference Call. On the call with me today are Michelle Abbott, our CFO; Ivan Schneeberg and David Fortier, our Co-Executive Chairmen and Co-Chairmen of Boat Rocker Studios.
I will provide some introductory commentary on our results for the quarter before turning it over to Michelle for a brief financial review. David will then discuss some recent creative highlights before we open up the call to questions. So let me then turn to our third quarter results.
Our robust results this quarter reflect improved adjusted EBITDA, with margins coming to an excess of 21% for the quarter and very nearly 10% for the year-to-date period as we began to recognize revenue from our premium scripted slate of 7 series. This solid performance has allowed us to swing from a net loss in 2021 to net profit in 2022.
In addition to generating stronger cash flow -- in sum, also, this quarter was a very strong one in addition to getting the stronger cash flow in the quarter, as I said. We continue to operate against a backdrop of continued demand for content globally, driven by both established and emerging new broadcasters and streaming platforms. That said, business consolidation among 7 key buyers, broader economic uncertainty with an eye to impending recession and a continuously evolving COVID landscape has generated what we believe to be some short-term delays in both greenlight and spending decisions, especially in the U.S. unscripted market.
Looking towards the end of the year, we expect deliveries from our scripted space to continue in the fourth quarter. However, and as we said in August, we continue to make decisions in the best interest of our scripted shows that have the effect of extending our delivery schedules into 2023. Extensions to production and delivery schedules are common in our business and are often undertaken to meet our and our buyers' and audiences' high creative standards and, more recently, to accommodate COVID-related production suspensions that have sadly become ordinary course.
Our scripted series will all be delivered well in advance of their planned air dates. Those deliveries may simply take place beyond the end of our fiscal year on December 31.
Based on the reasons I just outlined, we now expect that adjusted EBITDA will fall below our previously stated guidance range, although we do project appreciable growth over the results we posted in 2021. While disappointed we will not be able to hit this adjusted EBITDA guidance we set out in the first quarter of this year, we have every confidence in the ability of our business to continue to build and to succeed over the long term.
We expect an expanding slate of premium scripted dramas, the continued success of our Kids & Family programming led by Dino Ranch. And the steady growth of the Representation segment will contribute meaningfully to the company's performance, both in 2022 and beyond.
We are also hopeful that the U.S. unscripted landscape will improve in the first half of 2023 as major buyers emerge from the reorganization efforts and look to satisfy continued demand for content. Boat Rocker's diversification and flexible model allows us to work within the guidelines of virtually any buyer, large or small, and produce at every budget level and in every genre.
Now before I turn it over to Michelle for the financial review, I did want to say a few words. I want to thank her personally and publicly for all the she had done for Boat Rocker over the last 6 years. This is Michelle's last meeting at Boat Rocker. Over that time, Michelle worked extremely hard to support both organic and inorganic growth, build up our finance team and help complete our IPO and take us through our first year and a half as a newly public company.
As you'll recall, we announced last month that Judy Adam, whose career highlights include around 20 years with Corus in progressively senior capacities and, more recently, as a CFO of public companies, MAV Beauty Brands and Fire and Flower, will be joining us later this month. Michelle will spend some time working with Judy and the finance team in the coming weeks to ensure an orderly transition to the CFO. Thank you again, Michelle.
With that, I'm going to turn it over to Michelle to conduct a brief financial review.
Thank you, John, and good morning, everyone. As John mentioned, this quarter, we maintained high levels of activity across the business, with more than 40 shows in various stages of production. While revenue dropped principally due to the mix and timing of deliveries, adjusted EBITDA increased dramatically in the third quarter of 2022, up 50% over the prior year period. The company's delivery schedules vary from period to period and year-over-year, with shows being ordered, produced and delivered at all times during the year. As we have said previously, it is most meaningful to analyze the company's results over longer periods rather than quarter-over-quarter or year-over-year as production and deliveries can move across both quarter and year-end.
Revenue for Q3 2022 was $80.7 million versus $203.3 million in Q3 2021, a decrease of $122.6 million or 60%. Revenue for the 9 months ended September 30, 2022, was $193 million, compared with $317.9 million for the same period of 2021, a decrease of $124.9 million or 39%.
The main revenue variance is in the Television segment. In the 3 months ended September 30, 2021, we delivered 4 of 9 episodes of the scripted drama American Rust to Showtime and 3 of 10 episodes of the scripted drama Invasion to Apple TV+. Despite having several premium scripted dramas currently in production, there have been no deliveries of such IP-owned series in the current year, which explains the variance.
In the Television segment, 24 and 126 half hours of content were delivered in the third quarter and first 9 months of 2022, respectively, compared with 14 and 176 half hours in the prior year period.
Revenue in the Kids & Family segment increased both -- over both the third quarter and year-to-date periods of the prior year. We delivered 34 and 48 half hours of content in the third quarter and first 9 months of 2022, respectively, compared with only short-form content delivered in the prior year period.
Revenue in the Representation segment increased by 15% in Q3 2022 and compared with Q3 2021, driven by the timing and scale of projects for on-screen talent, which can vary from period to period.
Production, distribution and service costs for Q3 2022 were $46.5 million compared with $178.1 million for the same period of 2021, a decrease of $131.6 million or 74%.
For the 9 months ended September 30, 2022, production, distribution and service costs were $112.9 million compared with $254.3 million for the same period of 2021, a decrease of $141.5 million or 56%. The reduction in these costs for both periods is related to the decrease in revenue.
Adjusted EBITDA for the third quarter was $17.4 million compared with $11.6 million for the same period of 2021, a positive variance of $5.8 million or 50%. The increase in adjusted EBITDA in Q3 '22 over '21 was a combination of the following factors: the increased segment profit in Television related to a mix of higher-margin deliveries, the increased segment profit in Kids & Family related to a higher volume of deliveries and foreign exchange gains in the current year due to strengthening of the U.S. dollar compared to the Canadian dollar through the third quarter of 2022.
Adjusted EBITDA for the year-to-date was $19 million compared with $12.7 million for the same period of 2021, an increase of $6.4 million, also 50%.
Net income in the third quarter was $3.9 million compared with a loss of $1.8 million for the same period of 2021.
Net loss for the year-to-date period was $3.9 million versus 15.6 million in the prior year period.
Boat Rocker remains debt-free other than our normal course interim production financing. And as at September 30, 2022, the company had total cash of $106.4 million compared with $97 million at December 31, 2021. Looking ahead, we expect to continue to invest in owned IP, particularly in series we are distributing internationally as well as the broader business.
In the 9 months ended September 30, 2022, the company generated positive free cash flow of $18.2 million compared to negative free cash flow in the same period of 2021 of $30.4 million. We continue to forecast to be cash flow-neutral at the end of 2022, which will be a material improvement from 2021.
For the balance of 2022, we continue to expect a strong adjusted EBITDA contribution, supported principally by a number of deliveries, including the first few episodes of our owned scripted dramas currently in production. We remain focused on adjusted EBITDA as the most important measure of the company's performance.
I will now turn the call over to David to talk about the studio highlights. David?
Thanks, Michelle, and good morning, everyone. It remains a very busy time in our studio as we push to deliver additional episodes across our divisions and genres through the balance of the year and into 2023. Boat Rocker remains focused 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.
During the quarter, we announced a new first-look deal with Canadian actor, writer, director and producer, Jay Baruchel. Jay is known for his work on Man Seeking Woman, as the lead voice in How to Train Your Dragon franchise, co-writing and starting in the Goon movie franchise and his roles in blockbuster feature comedies, Tropic Thunder, Knocked Up and This is the End. Jay recently hosted our hit series LOL: Last One Laughing Canada for Amazon Prime Video. Jay is a creative and unique comedic talent, and we look forward to working closely with him to develop and produce an array of original television, film and digital projects.
Turning now to scripted. We recently announced that Keeley Hawes known for hits Bodyguard and Line of Duty, among others, joined Krysten Ritter as co-lead in Orphan Black: Echos, the highly anticipated spin-off series of Boat Rocker's international hit show, Orphan Black, currently in production in Toronto and expected to air in 2023 on AMC. We are already seeing cuts of the first 2 episodes, and we think our Clone Club fans will be really thrilled with what we're -- with where we're taking the franchise.
Season 2 of American Rust, starring Jeff Daniels and Maura Tierney, is in full prep mode and begin filming in Western Pennsylvania at the end of this month. The second season will stream exclusively on Amazon Freevee, and Boat Rocker will distribute the series globally.
As we've mentioned previously, Boat Rocker has its largest slate of scripted series to date, and our distribution team is handling international rights on Orphan Black: Echoes, American Rust, Robyn Hood, Beacon 23 and Slip. Our distribution team returned to the major television market, MIPCOM, in Cannes last month and full force for the first time since before the pandemic and generated a ton of excitement and interest from multiple international buyers for these shows.
Turning now to unscripted, our Canadian units continued to deliver both fresh content and new seasons of some of the country's most-loved shows. We recently launched Sarah's Mountain Escape, a new series starring acclaimed designer Sarah Richardson on HGTV Canada. HGTV Canada is also home to our series Top Chef Canada, which returned for an incredible 10th season. Over on CBC, we premiered the sixth season of The Great Canadian Baking Show.
Turning to the U.S. Production has started on our upcoming football documentary titled B.S. High, which chronicles the truth-is-stranger-than-fiction story of the Bishop Sycamore Centurions' football team scandal. This feature doc from Michael Strahan's SMAC Entertainment, Adam McKay, Boat Rocker and The Athletic will debut on HBO in 2023.
Turning next to the Kids & Family segment. Our franchise brand, Dino Ranch continues to grow in terms of episodic content and international reach. We recently announced that the series has been renewed by Disney for a third season. With the second season airing now, the show continues to retain its #1 position in its 7:00 p.m. cable show time slot in the U.S. and is available to you in more than 170 countries worldwide.
Looking to our Dino Ranch consumer products and merchandising program, we now have a total of 50 licensees globally, up from 45 last quarter, bringing the Dino Ranch world to life through toys, apparel and more. Online toy sales continued to perform at or above target. Our exclusive Dino Ranch Amazon store launched in May and has rolled out in Canada, U.K., Germany, France and Italy.
The toy launch at bricks-and-mortar stores in the U.S. began in the third quarter, in time for the back-to-school shopping season and well in advance of the critical holiday season. We feel we have both the critical mass and the right mix of online and physical retailers to meet demand in the key U.S. market and internationally, and we're eager to see how our first full holiday season goes.
The Kids & Family team also recently saw the premiere of our exciting new supernatural animated series, Daniel Spellbound for Netflix. We're thrilled that Daniel debuted on Netflix in Top 10 Kids in most major markets globally, including Canada, U.S., U.K., Germany and France. In addition, season 8 of our long-running series, The Next Step premiered on September 26 on CBBC in the U.K. and Corus' YTV in Canada.
Finally, the inaugural stand-alone Children's & Family Emmys will be presented on December 10 and 11 in Los Angeles. The National Academy of Television Arts and Sciences took the decision to create the dedicated event in recognition of the fact that it is the fastest-growing genre that they award, with a 23% increase in programming over the last 2 years. We're thrilled to be recognized with 2 nominations, A Tale Dark & Grimm, which is nominated for outstanding animated series, and the kids show -- The Kids Tonight Show, which is nominated for outstanding host.
Finally, our Representation clients had another stellar showing at the Emmys, with clients involved in more than 10 projects receiving nominations and with Jean Smart winning Best Actress in a Comedy for Hacks for the second consecutive year.
Representation clients also continued to appear in key projects with leading broadcasters, studios and brands including client Ralph Macchio, who returned for Season 5 of Netflix superhit Cobra Kai; and Emma Watson, who became the face of new fragrance Prada Paradoxe. Our talent management clients continue to participate in an increasingly wide range of projects, with higher activity levels supporting revenue growth of 15% this quarter over the prior year quarter.
In closing, we remain focused on leveraging our scale and diverse capabilities to produce premium content across all genres for the world's leading broadcasters and streamers. Boat Rocker is in a strong position as we remain a provider of choice for buyers worldwide as content -- as demand for content continues to be strong globally, notwithstanding some of the consolidation trends we're seeing in the U.S. and international markets. We look forward to updating you on our progress during our full year results call in March.
Operator, that concludes our prepared comments this morning. We now like to begin the question-and-answer session.
[Operator Instructions] First question comes from Sid Dilawari with Cormark Securities.
The first one that I have is on, maybe if you can talk about some of the deliveries you're expecting in Q4. Should we expect to see larger year-over-year declines in TV revenue given the relatively lower-budget shows? I think in Q4 '21, you delivered 9 episodes of American Rust and 7 of Invasion.
Yes. Sid, it's Michelle calling -- answering your question here. Yes, Q4 last year was quite strong because you're absolutely right. We delivered the rest of the episodes of American Rust and of Invasion. So there will be a decrease in revenue in Q4 over Q3, but it still will be a strong Q4 in the Television segment.
Okay. That's helpful. And then maybe if I can dig a little bit more into Season 2 of American Rust. When do you expect to sort of make your first set of deliveries to Amazon?
That will be -- we start shooting at the end of this month. And so deliveries will begin probably sometime in March or April, depending on -- well, I don't have the production schedule in front of me, but it will be sometime in the spring.
Okay. And then just an obvious question here about the EBITDA. Just going back to your point about EBITDA coming in lower than the initially expected guidance of $40 million to $50 million, can you talk about some of the factors that sort of played a role into this? And how much lower -- I don't know if you can provide this number, but should we expect a material downward revision to like the $40 million that you initially guided?
It's John here. Sid, I'll jump in. Well, first things first. Obviously, it's a really strong quarter for us. And you're right to point out we had those American Rust and Invasion shows delivering Q3 last year and a bit more in Q4, but still a great quarter for us. And we said again that we've got -- we're really looking forward to appreciable growth over 2021. So that will give you some sense of how we're feeling about where 2022 will end up.
And it's really just a couple of things we've mentioned here is, number one, with regard to the revenue recognition and the deliveries this year, we've got a lot of shows in post production going into November, December. And we certainly didn't want to make decisions that were not [ apt ] to the quality of the programming we're making. We've got 5 -- I think, 4 or 5 season 1s we're doing. And I know Dave and Ivan can talk about this, but it's very important that we deliver those shows with the quality, the premium quality we want.
So trying to move those particular show deliveries or episode deliveries perfectly in line with the calendar fiscal year-end, it's just not something we wanted to really get involved, and we put the shows first in order to deliver them the way we want. We're selling. They're very important franchise shows for us. So it's very important that we do that.
So that's kind of really part of it. There's a little softness in the U.S. unscripted. As you well know said, there's been some merger activity, a lot of channels in the U.S. caught up particularly in the WarnerMedia-Discovery merger that obviously slowed a little bit of their buying. We expect that to come back nicely in 2023.
So those are the couple of reasons, but hopefully, it gives you some sense as to why we've done it. And we're certainly going to look towards some nice growth in '22 over '21, even though not quite -- disappointed we're not quite where we want it to be, but I think for a good reason.
Okay. That's helpful. And maybe if I can just squeeze one more in there. Just on the Representation side. Year-to-date growth has been in the low single digits so far. Can you maybe talk about how you think Q4 shapes off from a Representation perspective?
In a word, solid. Sid, really solid. I think at the end of the day here, we've got a business that does grow steady, and we've predicted that over the last couple of years. I think we're going to see it come strong again in Q4 and deliver that sort of growth we'd hoped for over 2021. They've added new managers to the team. You'll see that in our financials with the cost. So that's going to be something that will not only deliver next quarter but all the way through '23 and beyond. So it's going along nicely. Clients are getting work, and the other business is going very steady.
[Operator Instructions] There are no further questions at this time. Mr. Young, you may proceed.
Thank you. And thanks very, very much. And thank you, everyone, again for joining us today. Look forward to updating you on our progress. Excited about that, and we'll get to that in March on the next conference call. Thanks very much, everyone.
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.