TPG Inc. (TPG) Earnings Call Transcript & Summary

Good morning. My name is Sylvia and I will be your conference operator today. I would like to welcome everyone to Boat Rocker's Corporate Update 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 Q1 MD&A dated May 15, 2024. Additionally, management's outlook for 2024 and beyond, anticipated financial and operating results, plan 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 and continued review 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 based on -- 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 matter 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 for the year ended December 31, 2023, which are available on the corporate website and in its filings with the Canadian Securities Administrators on SEDAR+ at www.sedarplus.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 with your remarks.

Thank you, Sylvia, and good morning, everyone. Thank you for joining us this morning to discuss some exciting corporate developments at Boat Rocker. As we announced this morning, we've sold our 51% stake in talent management company, Untitled Entertainment, to TPG Global, for proceeds comprising of approximately $51.6 million in cash and approximately 8.8% in the common equity of the new talent management company being launched by TPG. We're thrilled with this deal, as it provides exceptional value for shareholders, certainly healthy cash proceeds and an equity stake in TPG's new talent management company. The yet-to-be named company will acquire, invest in and build a diversified global business centered on talent management, representation and adjacent verticals. Our equity stake and Board representation in the company maintains our ties to the representation and talent management space. This deal will enable us to assertively continue to invest in our content for strategy and other opportunities, of course, to accelerate our adjusted EBITDA growth in the long term, including through M&A. This deal also further strengthens our partnership with Untitled founders, Jason Weinberg and Stephanie Simon, and build a new relationship with TPG, an outstanding leader in the entertainment space. As a leading investment firm with significant experience investing across the entertainment, talent management, media and music industries, we couldn't have found a better partner than TPG. We're also delighted to continue to collaborate with 2 exceptional Boat Rocker alumni, Michel Pratte and Eric Taitz, who will transition from their long-standing positions at Boat Rocker, effective immediately, to become the inaugural CEO and COO of TPG's new company. Michel has been an integral part of the Boat Rocker for over 15 years in various leadership roles, while Eric has also held key strategic positions at Boat Rocker since 2018. We wish them the very best in their new endeavors. Along with some operational changes as a result of this transaction, there are changes to Boat Rocker's outlook for fiscal 2024. We continue to be impacted by the delays in new content commissions and renewals, production and paid development, which are broadly impacting the media and entertainment industry at the moment. Taking into consideration these factors as well as the sale of Untitled, Boat Rocker now anticipates full year 2024 adjusted EBITDA to be approximately $10 million. With enhanced cash available for use in excess of $75 million and no corporate debt, Boat Rocker will continue to pursue an aggressive content investment strategy. Although it may take some time for the IP investments to deliver and begin to realize our full value, we believe this strategy ideally positions us for sustainable long-term growth. We will continue to exercise prudent cost management and adjust our planning and strategy as needed to meet the demands of this shifting market. While some industry headwinds remain, we are using this year and next to proactively set a firm path beyond that, starting with this Untitled transaction. Across strategy, operations and return on investment, this is a stellar deal that we believe delivers shareholder value and immense intrinsic value for Boat Rocker in the long term. We are steadfast in our conviction that using our capital and our corporate resources can maximize control over our destiny and provide the most flexibility and the likely strategy is the pathway to future growth. We're looking forward to sharing in that growth with all our stakeholders as we move into Boat Rocker's next chapter. We'll provide the market with an update on that strategy and our progress when we report in a short time our Q2 in mid-August. Thank you all for your time today. Thanks to everyone helping Boat Rocker move along in this strategic direction. And now we're going to open the call up for questions.

[Operator Instructions] And your first question will be from Drew McReynolds of RBC Capital Markets.

John, just maybe I'll start off with the change in guidance. There's obviously the sale in the announcement today. But alluding to kind of continued delays in a shifting market, I'm just wondering, if you can kind of unpack kind of the reduction in guidance to all the various factors and just remind us kind of the confidence, just given all the delays in terms of the timing of the recovery, do you think there's any structural decrease in demand here? Or is this strictly the industry getting back up on its feet?

Thanks, Drew. So first question first, on the guidance, I think the simple way to unpack that as we told the market at the start of the year at approximately $20 million was our target for adjusted EBITDA. And in that, we had thought that Untitled and our representation segment was probably going to come back to somewhere around 2022 levels. So 2023 was a down year, as you know, in our representation segment and we were factoring in, in '24 back to a sort of 2022 level for our segment profit in representation. And we were also factoring into that a stronger back half of 2024 versus the first half. So a simple way to look at it is, when you think about those numbers, this is largely, very, very much largely the back half of Untitled not being in our guidance in 2024. That's a simple way. There are some puts and takes but nothing necessarily material with what we had thought was going to happen in 2024. So really just the representation, I think not being in our numbers in the back half of '24. To your second -- sorry...

No problem. Yes. No, John, that's fine. Continue.

Yes. And your second point, Drew, is one -- is a question that I think all our industry is facing right now. I don't think it's necessarily a structural fundamental shift. I think it is just a slower pace coming out of TV in '22, the strikes, COVID and the strikes. We're not seeing it come back as strongly for a lot of reasons, including the buyers, considering what they have, looking at their business models and thinking how they themselves build going forward based on the content that they had ordered and produced over the last 3, 4, 5 years. So it's definitely not ramping up as fast. We're definitely not seeing buyers buy as much for sure but content is being bought. There are still billions being spent out there on trading and buying new content. And we are still in the market actively ourselves and pursuing that IT strategy of trying to buy and own and distribute content. So it'll take a little time, I don't think we're out of the woods yet. I don't think we're going to see this come back at all to the levels we saw in '22 anytime soon but still lots of opportunity. And again, I think that's why this transaction and setting ourselves up for the cash balance that we have and no debt, what I think, some interesting opportunities coming down the line because -- not only because of the shift and the somewhat struggles in the industry but I think there's going to be also some interesting other opportunities, whether it's M&A or other assets coming to market that I think we'll be able to take a close look at.

Okay. That's okay. Just 2 more here then, John. Can you just elaborate on the M&A environment? When you went public, it was a focus but obviously fairly volatile capital markets environment as well as operating environment. What's kind of changing on the M&A front in terms of the pipeline and your focus? And then secondly, just on, any tax implications that we should be aware of for modeling purposes just on this transaction?

The -- I'll answer the second and Drew, I don't think there's anything, again, you should think about. We've actually -- we got a pretty solid tax position on this transaction in terms of being able to shield and manage the tax impact on the transaction, very successfully in this case. So nothing to worry about there. I think you'll see that when we deliver our Q2s. There's nothing concerning there at all and be able to shield most of the gain. In terms of the M&A, we said for the last couple of quarters that going after IT, investing into coproductions or putting capital to the finishing touches of a piece of IP that needs a distribution advance or a final piece of capital going in, in order to make it happen, in order to put it into production, along with investing in our own IP such as our documentaries, which are, of course, are manageable from a budget perspective. We're able to see really solid MOICs and IRRs in that area. So that's been the focus for the last probably at least 2 or 3 quarters and I see that continuing as opposed to some of the production company acquisitions that you saw us make, as we built our diversified business a number of years ago, so that's definitely the focus. But in saying that, we're obviously seeing companies out there with a heavy load on their balance sheet of leverage, thinking about asset sales. We're seeing libraries come to market. And I think [indiscernible] and I think there is an opportunity and will be continued opportunity to pick up those types of assets, which I think offer more clearly a sustainable cash flow returning piece of business. So we see that as a key focus. And I think that's where our M&A activity will focus.

Okay. No, that's all very helpful. And then congrats on the announcements and I'll pass along.

[Operator Instructions] And at this time, it is Mr. Young, it appears we have no other questions. Please proceed, sir.