WildBrain Ltd.

Hello and welcome to Wildbrain's fiscal 2023 Q4 and full year earnings call. Today's conference 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 1 on your telephone keypad. If you would like to withdraw from the queue, press star 2. I'd now like to turn the call over to Kathleen Persad, Vice President, Investor Relations at WildBrain. You may begin your conference.

Thank you, Operator, and thank you, everyone, for joining us today for WildBrain's fourth quarter 2023 earnings call. Joining me today are Josh Sherba, our President and CEO, and Aaron Ames, our CFO. Also with us and available during the question and answer session is Danielle Neese, our UVF Finance and Chief Accounting Officer. Please note 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 and acquisitions 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, cost and expense management, the company's leverage and plans for debt and leverage reduction, refinancing of the company's indebtedness, the value of the company's assets, and the future growth, objectives, targets, and financial and operating performance of the company and its businesses. Such statements are based on factors and assumptions that management believes are reasonable at the time they were 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, which are available on the investor relations section of our website at wildbrain.com. Please note that all currency numbers are in Canadian dollars unless otherwise stated. After our remarks, we will open the call for questions. I will now turn the call over to our President and CEO, Josh Sherba.

Thanks, Kathleen, and thanks to everyone for joining us today. I just wrapped up my first 100 days on the job a few weeks ago, and in that time across the company, we have focused our strategic vision, executed cost reductions and right sizing to ensure we have the right resources in the right places to drive our refined strategy, built out our three-year long-range plan, enhanced and rebuilt our budgeting process, and initiated a process to improve our balance sheet. Before I go into detail on our results and outlook, let me start by thanking all of the incredible employees at Wildbrain who have been working so diligently during this period to optimize and streamline our business. In our first all-company meeting as CEO, I shared a quote I love from management guru Peter Drucker, culture eats strategy for breakfast. A company's vision articulates its purpose, but it's our values and our culture that drive us. At Wildgrain, we're investing heavily to strengthen our culture. It's our culture that defines our shared commitment to solve problems, share information, serve customers, deliver experiences, and drive growth. We have incredible assets, but it's because of our culture that we will win. When I took over on May 9th, I was in a lucky position of inheriting a healthy organization with a strong pipeline for growth. This allowed me to devote my energy over the past few months to working with the team to refine our vision and define who we are and where we want to go. Over the last three years, we have built a platform that consistently delivers creative excellence. This is the core engine of what we do. Without sacrificing a stitch of that creative excellence, I wanted to enhance our focus, urgency, and accountability across the business to better direct our internal investment Maximize our ROI, make sure we're going after the largest profit opportunities and really clarify both internally and externally who we are and what we can be. While our results have shown growth, results also haven't lived up to our potential. We can do better, particularly on the cost side. We needed more focus to remove excess costs and focus is a key change I'll be bringing to our company. meaning focus on our core competencies of content creation, audience engagement, and global licensing, both at the operational level as well as in our approach to capital allocation. So I'd like to walk you through where this work has taken us, starting on the operating side with our strategic vision. Why what we've built is so valuable in today's landscape and how we're positioned to take advantage of the significant opportunities ahead. At Wildbrain, our vision is to inspire imaginations through the border of storytelling. As we've discussed over the past few years, we've built three strategic pillars across our business that we believe uniquely position us in today's market and have set us up for years of strong growth. These pillars are, first, a premium content creation engine, second, a scaled global audience engagement, and third, our global consumer products licensing platform. Through these pillars, we cultivate and create exceptional entertainment experiences for our own and partner brands that captivate and delight fans new and old. We commonly refer to these strategic pillars as our 360 degree capabilities. As a team, we spent the last three months really digging into our largest opportunity sets, And we determined that to fully unlock significant growth across these pillars, we required a higher degree of focus. While in the past, we sometimes diluted our resources across too many projects, going forward with clear focus on our key opportunities, we will be able to execute to unlock that growth. Defining these opportunities has allowed us to put all our energy into executing against the potential we see in the successful monetization of a few key brands across our global platform, both for owned and partner brands. We will center the company around a handful of owned brands and global partnerships, all of which are monetized across the full spectrum of our three strategic pillars. In the owned brands category, today we're including Peanuts, Teletubbies, and Strawberry Shortcake. We intend to add to this group with a very small number of other proprietary IP that could come from our vast library or through acquisition, or be a completely new brand we create in-house. We see opportunity in focusing our energy to diligently grow these IPs in meaningful ways. On a larger scale, we're beginning to see the results of this focus at Peanuts, where we have a steady output of new content, strong audience engagement, and global licensing. We see a long runway ahead for growth. Recently, our Peanuts Worldwide team signed a partnership with Apple for a new Apple Watch face featuring exclusive Snoopy and Woodstock animations. Wildbrain CPLG, meanwhile, inked a new relationship with retailer Miniso for extensive lines of toys and other products for Peanuts, Teletubbies, and Strawberry Shortcake to launch in over 5,000 stores this fall. By focusing our efforts on a few brands, we can leverage our full capabilities to build brand awareness and affinity, which ultimately drives monetization. We believe Teletubbies and Strawberry Shortcake have a lot of value to unlock, and we're taking steps to ensure we set them on the right path to do so. We're seeing double digit increases in franchise activations, digital watch time and social media engagement, and that is translating into double digit gains and new licensee growth. We're starting from a small base, but by aligning our resources to drive growth, we see a clear path for these IPs to continue to grow these brands worldwide. In the global partnership category, SEGA is a prime example of the type of global partnership we're establishing. The premium series Sonic Prime dropped its second season on Netflix in July, and just as with the first, zoomed to the top 10. This IP, through the strong execution of our global licensing platform, Wildbrain CPLG, continues to generate traction in sonic licensing. We've seen double digit increases in both royalty revenues and expansion of our licensee base. We will look to replicate this type of global partnership, leveraging our 360 capabilities and world class support for our brands and partner brands. With our core capabilities built, It's important we remain agile and continue to adapt Wild Brain to thrive in today's evolving marketplace. Today, there's an important reframing of how content is being consumed by kids and families. Driven by YouTube, kids are curating their own personal viewing experiences. From influencers to sports to music to low-cost narrative content, kids have never had the level of choice that they have today. We're also seeing parents and kids co-viewing more than ever. Shared viewing is not a new concept, but it's rising in importance as families connect together. Increasingly, streamers are gravitating towards making fewer but higher quality premium series and movies across all genres with an emphasis on opportunities for hit content that appeals to the whole family. They will typically pay a premium price for exclusive rights on such content. This strategy has them focusing on a few key areas, known IP, movies, and serialized shows like Sonic Prime. In that vein, after quarter end, we closed on the House of Cool transaction. This highly complimentary acquisition meaningfully broadens and deepens our capabilities, including expanding into full-length movies or features as we refer to them in the industry. It also enhances our IP funnel, leading to significant new partner or purchase opportunities. In addition to premium content for SVODs, what I'm calling omni-platform content is a critical second category of the content ecosystem. This is non-exclusive, audience-led content typically made at a lower budget that can distribute and license across a multitude of platforms. It represents the largest amount of consumption in today's kids market. YouTube accounts for the vast majority of this viewership, but we also engage on a myriad of AVOD and fast services, as well as linear TV and non-premium content on SVODs. In addition, such content can feed into large nascent distribution platforms like Roblox that experiment with video and of course into social media platforms. We are and need to be everywhere kids and families are watching. Omni platform is all about discovery and engagement and being experts in this space is a critical component of the 360 degree capabilities for our own and partner brands. We have a huge advantage in owning the Spark network with its scaled engagement and deep insights into how kids consume content on YouTube. Taking these insights, we continue to iterate and innovate, which has led to higher quality engagement across the platform. Over the past year, Our average duration of viewing increased 50%. With an engaged audience, we see how quickly a brand can pick up speed. We saw one series recently shoot to up to over a billion minutes viewed in just 90 days. A high quality engaged audience will drive the monetization into other areas of our business, namely consumer products. All that said, we could be doing more to monetize that engagement. We see this not only as a critical tool to drive consumer products revenue for our own IP, but also to drive awareness and engagement to unlock licensing opportunities across our partner brands as well. The Wildbrain team has worked hard over these last few months to look at this evolved media landscape to best position our 360 degree capabilities. We have clearly defined where Wildbrain needs to be. with respect to the performance of each of these strategic pillars in order to optimize the entire structure as a holistic machine to drive significant earnings and shareholder value. Diving into specifics of where we landed, we are driven by content creation, where we will focus on producing premium and omni platform content, expand into features, and reduce the development slate. Secondly, in audience engagement, we will build our franchise strategy for each For reach, relevance, and revenue for our own IP, we'll deliver value of data analytics and insights across the organization and continue to enhance digital marketing capabilities. And lastly, in global licensing, we are hyper-focused on global partnerships like Sega, Playmobil, and Supercell. We are also hyper-focused on maximizing the value of our own IP and building location-based entertainment, or LBE, strategies and expertise. The LBE market is valued at over $4 billion and growing. As consumers look for interactive experiences with their favorite brands, we can provide this expertise as a natural extension of our capabilities. As we refined our focus on key brands, we had an opportunity to reevaluate our cost base, as well as how we're investing across the organization to ensure we're prioritizing high ROI opportunities. To that end, we did execute cost reductions and right-sizing this summer. While we're managing our expenses more prudently, we're still making targeted investments to drive growth and are very confident in our ability to deliver that growth. We're making our library work harder for us, and we're beginning to realize the investments in the CPLG expansion in APAC and location-based entertainment, as well as enhancing our technology platform at Spark. In success, We aim to become the choice for independent IP owners, including gaming and toy companies, to partner with on their IP. We believe we are the only independent company in today's market that can offer all of these capabilities under one umbrella in the kids and family space, and this will give us the ability to become highly selective of who we partner with. Turning to our capital structure, we are intent on simplifying our capital allocation framework. Starting with our balance sheet, we're actively working on further reducing our leverage with a target of under four by the end of fiscal 2024. We have $140 million of convertible debentures maturing in September 2024, and we're exploring several options to refinance or pay off these notes. One of several options for reducing our leverage is through the sale of non-core assets. As we are now laser focused on growing our key brands and global partnerships, there is an opportunity to review potential divestments from our deep asset base, including our vast library of IP that we would view as non-core. Selling one or a few of those non-core assets will help streamline and enhance our capital structure in a manner we view as a creative, both to our leverage profile and to shareholders. The market for premium IP remains strong. While it's still early, we're very pleased with the feedback and interest we've received today. Over the last 12 months or so, or sorry, over the next 12 months or so, we're targeting a range of between $100 million and $300 million in asset sales subject to market conditions. Said another way, we will only pursue asset sales that we believe enhance our value per share. Given our large portfolio of assets, we're confident that through this sale process, we can accomplish three core objectives. First, simplify and focus our business. Second, improve our balance sheet. And three, drive shareholder value. Looking ahead to our long-term capital allocation framework, first and foremost, we will de-leverage the balance sheet and maintain the ability to invest in our key brands for sustainable growth. Over time, once our balance sheet has appropriate flexibility We will look to allocate capital to the best and most accretive use. This could include IP acquisitions, investing in our existing IP, or through repurchasing our shares. We see this as a tremendous opportunity to create significant value for our stakeholders and are intent on putting Wildbrain in a position to execute against these value accretive opportunities. Last quarter, I talked about our diversification as one of our differentiators. With approximately 40% of our revenue from content and now approximately 40% from consumer products, we are less tied to sector specific impacts. That diversification is benefiting us as we look to fiscal 24 given the current state of the content market. While the content industry has gone through some changes over the last 12 months, The recent dual strikes in the labor unions have led to a slowdown in activity, which is leading to a delay in project greenlights. While we were initially expecting EBITDA growth from our studio, we now expect a timing delay from the impact of the strikes on the content market of approximately 10 to 15 million in fiscal 24. I want to reiterate, this is simply a timing shift, not a missed revenue opportunity. We believe we are being conservative in our outlook for the studio amidst the direct and indirect impacts of the ongoing strikes. There is heightened volatility in the near term as the industry tries to come together to find amenable solution for all parties involved, but the content business will rebuild as everyone gets back to work. Our pipeline is strong and we continue to work to add more quality owned and partner content in our studio. We expect television to follow its prior year trend consistent with the broader linear market. And excluding the studio and TV, all other businesses combined are expected to grow EBITDA between 15 and 20% year over year. On a consolidated level in fiscal 24, we expect revenue to be down moderately year over year and adjusted EBITDA to be slightly higher. With less live action expected, gross margins will be higher and we will efficiently manage our expenses, both of which will benefit EBITDA. Before I turn it over to Aaron, I want to take a step back to our investor day in 2021. At that time, we provided growth objectives for a two-year CAGR of 12% to 17% for revenue and 15% to 20% for EBITDA in fiscal 24. While the difficult macro environment has shifted our timing, we are still targeting strong double-digit growth in 2025 and beyond. As our guidance implies, after a few years of investment, we are seeing growth take hold in our business outside the studio. As the studio profit rebuilds once the industry normalizes, this will further add to our profit growth going forward. This growth, coupled with greater balance sheet flexibility through the sale of non-core assets, will lead to materially reduced leverage. We expect strong growth across our business outside of the studio and television in 2024, and when we look to 2025 and beyond, our confidence is strong as we expect continued growth in our core business. I will now turn it over to Aaron to review the results in the quarter.