WildBrain Ltd.

Hello and welcome to Wildbrain's fiscal 2022 third quarter earnings conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question during that time, please press star then one on your telephone keypad. If you would like to withdraw your question, press star two. I'd now like to turn the call over to Nancy Chan-Palmatier, Director, Investor Relations at WildBrain. You may begin your conference.

Thank you, Operator, and thank you, everyone, for joining us today. Speaking on the call today are Eric Ellenbogen, our CEO, and Aaron Ames, our CFO. Also with us and available during the question and answer session are Josh Sherba, our President, and Daniel Neith, our EBPS Finance and Chief Accounting Officer. First, we have some standard cautionary statements. The matters discussed on this call include forward-looking statements under applicable securities laws with respect to WildBrain, including but not limited to statements regarding investments by the company, commercial arrangements of the company, the business strategies and operational activities of the company, the markets and industries in which the company operates, and the future objectives and financial and operating performance of the company and the value of its assets. Such statements are based on factors and assumptions that management believes are reasonable at the time they were established. made and information currently available. Forward-looking statements are subject to a number of risks and uncertainties. Actual results or events in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the risk factors set out in the company's most recent MD&A and annual information form. Please note that all currency numbers are in Canadian dollars unless otherwise stated. For the question and answer session that will follow, we ask that each analyst keep to one question with one follow-up so that everyone has an opportunity to ask questions. If you'd like to ask an additional question, please rejoin the queue. I'll now turn the call over to our CEO, Eric Ellenbogen.

Thanks, Nancy, and thank you to everyone for joining our call today. In Q3, we delivered double-digit growth in both revenue and EBITDA compared to Q3 of last year, reflecting the success of the 360-degree IP strategy that we've rolled out over the past two years. We're now seeing the returns from investments in our IP library and premium productions now driving momentum across multiple earnings streams. And all parts of our content business are showing growth driven by that 360 strategy. And so today I'd like to provide a little bit more color on how that strategy actually plays out in our financial results. As I've shared with you on previous calls, when we sign significant content deals, it sets up a cascade of revenue that flows through our financials over a period of years. And in the near term, we often benefit from the licensing of rights to our library with revenue recognized in the same quarter in which the library is delivered. And then in the medium term, we realize the production revenue as we ramp up and deliver the new series and our specials. And finally, the newly produced content, taken with the library, drives viewer awareness and engagement, which, depending on the property, creates long-term consumer product opportunities. And I should add, in every instance, adds to the enduring underlying value of our proprietary IP. So let's take a look at some examples of the strategy reflected in our Q3 numbers. First, our recent Degrassi deal with HBO Max, which we signed and announced in Q3 and spoke to you about on last quarter's call. It's a two-part deal. So to start with, there's a library license for U.S. rights to the entire 14 seasons of the franchise's most popular installment, Degrassi The Next Generation. And the revenue from that license, which is distribution revenue, appeared in our Q3 results. And the second part of that deal is a commission from HBO Max for U.S. rights to a brand-new 10-episode Degrassi series, which will go into production this summer. This production revenue will flow through our financials in fiscal 2023. And since we've retained all distribution rights outside of the U.S. to both the new Degrassi series and the full library, we will soon realize additional revenue from territories and media worldwide. Let me take up another example, our Peanuts partnership with Apple TV+. As I've told you about on past calls, this is an extensive multi-year agreement, which includes not only rights to the Peanuts library, but also numerous new series and specials. And the first of that content began rolling out about two years ago, and we're now in continuous production, A great deal more content will continue to premiere for years to come. And we're just in the early days of delivering the largest slate of new content in the history of the Peanuts brand. Production revenue from the Apple deal has already been reflected in our financials for a number of quarters and will continue for the foreseeable future. Our most recent results only reflect production revenue from the first two series of Snoopy in Space and the Snoopy Show, and from the first three of multiple new Peanuts family specials that we're making for Apple TV+. These deals were executed a couple of years ago, so you can see there's a cadence to how the revenue from these large premium production deals come into our results over time. And as I've said, there's a lot more Peanuts content in that pipeline to flow into our financials for many years to come. Now, things get really interesting from a revenue perspective when we look at consumer products for a brand like Peanuts. All that new content, meaning the steady, years-long rollout of new, very high-quality content on one of the world's top streaming platforms, not to mention the world's best marketer, that not only creates a predictable flow of revenue for us, but also drives massive brand awareness and engagement. which in turn generates ever-increasing consumer product revenues. And the synergies of our licensing agency, CPLG, managing multiple territories around the world for peanuts, further contributes to the growth that we're delivering in our consumer product sector. So that's peanuts. Let me highlight one more example. Sonic Prime is the new series for the smash hit character Sonic the Hedgehog that we're producing for Netflix in partnership with Sega. That deal was announced in February 21, and we've been taking production revenue into our earnings over the past few quarters. Sonic is, of course, one of the most popular animated and gaming brands in history. The brand celebrated its 30th anniversary last year, is more popular than ever, with two hit movies that together have grossed over $600 million worldwide in just the past two years. Netflix, in fact, just released a new promotional trailer Their animation is late this week, which featured a tease of the new Sonic Prime content, and fans are buzzing with excitement. So this frenzy, the franchise, perfectly sets up our series to launch on Netflix later this year, and we're already seeing more consumer product opportunities for Sonic. Let's take a look at how those Sonic Prime consumer products economics work for us. First, because we manage licensing, for the Sonic Prime brand in multiple territories through our agency, CPLG, we get a meaningful commission on every consumer dollar. That's the agency piece of consumer products. Then, because WildBrain is a stakeholder in the IP alongside Sega, we also receive a material percentage of net profits for consumer products. So a deal like this is really a triple play. It generates production revenue, agency commission, and a share in consumer products profits. So these are three examples, Grassy, Peanuts, and Sonic Prime, all of how the 360 holistic strategy that we've launched creates multiple revenue streams from the very same deals. This is the strategic model we're using to structure our partnerships across the business. And for the last two years, we've been filling the pipeline with such deals. These also include Strawberry Shortcake, Teletubbies, Yo Gabba Gabba, Johnny Tess, Caillou, Chip and Potato, Johnny Jack Boy, Emojitown, Akato, Go Dog Go, and so on. And as these deals, and many others like them that we're working on behind the scenes, make their way through the pipeline of development, production, and distribution, we are layering on more and more revenue over the coming years. We also continue to extend our licensing reach to drive our consumer products business. WildBrain CPLG is further strengthening its global footprint with expansion across the Asia-Pacific region and the launch of new dedicated offices in Singapore, Taipei, and Seoul. And additionally, a licensing team, or part of WildBrain's existing Shanghai operations, will be expanded and rename WildBrain CPLG China. The new and existing operations will service the entire APAC region across approximately a dozen countries.