WildBrain Ltd.

Hello and welcome to Wildbrain's Fiscal 2024 Q&A 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 Persaud. Vice President, Investor Relations at WildBrain. You may begin the conference.

Thank you, everyone, for joining us today for WildBrain's first quarter 2024 earnings call. Joining me today are Josh Sherba, our President and CEO, and Aaron Ames, our outgoing CFO. Also with us and available during the question and answer session is Danielle Neese, our EVP of Finance and Chief Accounting Officer. Before we begin, please note the matters discussed on this call include forward-looking statements under applicable security 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 materially differ 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 for joining us today. Last quarter, I outlined our three strategic pillars of content creation, audience engagement, and global licensing. 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 three strategic pillars as our 360-degree capabilities. I also detailed our sharpened focus on key brands and partnerships. As part of those efforts during the first quarter, we realigned our senior management team and business under our three pillars and core capabilities to focus on fully unlocking the significant growth potential for key proprietary brands, including Peanuts, Teletubbies, and Strawberry Shortcake, as well as key partner brands. In this realignment, we have three distinct businesses and teams supporting each of these capabilities. Content creation integrates all of Wildbrain's development and production capabilities, including our Vancouver animation studio, the London-based digital studio, formerly the Wildbrain Spark digital studio, our Toronto animation pre-production business, House of Cool, and live action production business, bringing creative excellence across all formats for Wildbrain's proprietary content, as well as partner projects. Audience engagement integrates Wildbrain's extensive capabilities in delivering entertainment content to audiences around the world, including our global distribution business, our world-leading YouTube network, digital marketing expertise, and our digital advertising business. Global licensing includes the activities of our leading licensing agency, Wildbrain CPLG, our franchise management activities for key owned brands, including Teletubbies and Strawberry Shortcake, the management of key third-party IP partnerships, and our interest in the Peanuts brand operated by the Peanuts Worldwide subsidiary. Under this structure, with teams working cohesively, we will fully unlock the 360-degree capabilities. As part of the overall realignment, we are unifying our premium and digital-first content under the Wildbrain banner as we phase out the Spark sub-brand to strengthen our positioning in the market as the best-in-class solution for IP owners across our entire ecosystem. As media consumption has evolved to become more fragmented, Omni platform content has become critical in building an ecosystem around each IP in order to reach a scaled audience. This is non-exclusive, audience-led content that can be distributed and licensed across a multitude of platforms. It represents the single largest amount of consumption in today's kids market, with YouTube accounting for the vast majority of this viewership. Thinking back to my earlier days here at Wildbrain, my team first started uploading videos to YouTube as a simple form of distribution and monetization of our own library of some 13,000 half hours on YouTube. The size of the library enabled us to quickly build scale and in turn become a leader in optimization of that content. as well as a leader in content discovery. This expertise began to attract partners from across the kids media industry to our network, further allowing us to grow our viewership, which increased insights, deepening our expertise, which attracted even more partners to our platform. Fast forward to today, and our YouTube network is among the largest kids networks globally, which we are leveraging to drive increased engagement for our own brands and partner brands. One clear example of the power of this integrated approach is how we are bringing our own strawberry shortcake brand back to life. We have been able to drive significant increased engagement across AVOD with over 1.2 billion views on YouTube and social media engagement rising. Year to date, we've seen growth of over 500% on TikTok and nearly doubled Instagram in that same timeframe. More recently, we've seen our engaged Facebook community reach over a million followers and we have started collaborations with podcasts to further drive engagement. The brand strategy we put in place 12 months ago is showing real traction on our social media engagement in AVOD viewing, which in turn is leading to new licensing deals across multiple categories. Another important distinction for today's market versus 2013 when we started Spark is the viewing device kids and families use to consume content. YouTube is no longer just on your phone or tablet. Through the proliferation of connected TVs, it's on nearly every screen. Indeed, in the US, 88% of households own at least one internet connected TV device. The world is becoming screen agnostic. The device you watch Netflix or Peacock on is the same device you can watch YouTube videos. Many of you may recall about 18 months ago, we set out on a path to improve the quality of our views and our content on YouTube. We concentrated on increasing the quality of our own and partner content on the platform while pruning and cutting back on lower quality views. This strategy was informed by the deep insights and real-time feedback we are getting from our viewers on how they want to engage on our network. We are seeing very strong results in this endeavor and over the last 12 months have seen sequential improvement every month across total network watch time and average duration of viewing. This higher and deeper engagement has also resulted in improving CPMs. In fact, CPMs have similarly improved every month over the last 12 months. With all three of these KPIs now showing year-on-year growth over the last three months, It's clear that managing towards higher quality engagement is the single most important driver of sustained success across this ecosystem. We just wrapped up a busy season of industry trade shows, and we heard consistent feedback from IP owners and partners. WildBrain is truly unique in the marketplace with its ability to grow audience engagement organically. Quite simply, there are not a lot of companies that have the scale and capabilities to provide services to brand owners who are looking for higher quality engagement. Wildbrain is that solution. With content creation, audience engagement, and global licensing under the Wildbrain banner, we are positioning ourselves as the best-in-class solution for not only our own IP, but for global partners. With our strong leadership team, I'm confident this new simplified structure will supercharge our plans to focus on the growth of key owned IP, such as Peanuts, Teletubbies, and Strawberry Shortcake, alongside key partnership brands. This new structure is leaner, faster, and brings us back to our entrepreneurial roots where great ideas and great execution can live and happen fast. A key theme for our company is focus. And by focusing our effort on a few brands, we can leverage our full capabilities to build brand awareness and affinity, which drives monetization. Both during the quarter and shortly after quarter end, we signed a number of deals on some of these key brands. We're seeing the results of focusing on our own key brands in the first quarter results. We saw growth of over 100% in our wild brain brands, largely driven by licensing and strawberry shortcake. One of the advantages of growing our own brands is the benefit of gross margin expansion. Even from a smaller revenue base, growth in our own brands can have a real impact on our profitability, which we saw this quarter. The engagement trends across premium content, digital first content, and social media engagement has led to an increase in licensing revenue. In premium content, the first two of four CG animated specials for Halloween and Christmas debuted on Netflix. Building on the brand activity, product launches and activations are set to roll out into 2024, further expanding the choices for fans, both young and young at heart, to enjoy the world of strawberry shortcake, both on and off screen. With different iterations gaining strong momentum, particularly in this nostalgic era of strawberry, we see multiple categories getting traction in certain geographies, including the U.S., EMEA, and Asia. Teletubbies secured new licensing partners and content deals to expand the brand into additional categories, with growth in the digital space and fresh promotional activations in key markets. Highlights include a brand new e-commerce site, new apparel ranges from Dolls Kill, multiple fan-focused activations, and location-based events in China. For the Peanuts brand, WildBrain CPLG, which represents Peanuts on behalf of Peanuts worldwide across Europe, EMEA, APAC, and India, expanded the consumer products offering for the beloved brand with the signing of new and expanded partnerships across the globe, including cross-category global partnerships, new APAC and China partnerships, and new European and UK partnerships. The new licensing deals span sustainable lifestyle plush featuring Snoopy, a collection of puzzles and games, Peanuts-inspired posters, and wall art and apparel accessories for baby, kids, and adults. Last quarter, we spoke about the global partnership with leading lifestyle retailer, Miniso. It's still early days in this Miniso partnership, but they have shared with us that it is the best IP launch in Miniso history, which has led to a further commitment of more collaborations in 2024. We also secured a number of deals for our third-party partners, including multiple new cross-category consumer products licensing deals for the Sonic Prime brand in territories across the UK, Europe, and the Middle East, building on our partnership with Sega following the launch of Season 2 of the series on Netflix. As a reminder, many of our licensing deals have a minimum guarantee component, so the upside to a lot of these deals will typically flow into our financial results in the following year. But with each new partner and activation, we are building a strong pipeline of future profit for years to come. Lastly, I'd be remiss to not mention our China team has won the best licensing service award at China Licensing Expo. With the investments we've had in APAC over the past couple of years, we are already seeing significant demand for our IP, and most importantly, we see a long runway of growth. Turning to the content market, Since we spoke last quarter, one of the labor strikes has been resolved. As a Canadian-based studio, most of our projects were not directly impacted by the strikes. Instead, we saw more of the indirect impact, which was an overall slowing of green lights. While we haven't fully normalized, anecdotally, we are seeing some green shoots in the content landscape. As you may have seen earlier this week, Apple announced the green light of a new CG animated Peanuts feature film. In the untitled feature, Snoopy, Charlie Brown, and the gang take on a new adventure in the big city. Over the last several years, we have invested in our creative talent and capabilities, including the recent House of Cool acquisition. Expanding to full-length features for Peanuts is another step in that journey. We expect the content market to continue normalizing over time, and with a full pipeline, our outlook for growth in fiscal 2025 and beyond is strong. So it's been less than 60 days since our last earnings call when we discussed the sale of non-core assets. Reducing leverage and simplifying our company and capital structure remain a top commitment. It's still early days in the potential sale process, but we are encouraged by the level of interest in our deep asset base, including some brands within our vast library of IP that we would view as non-core. We are limited at this stage in terms of what we can discuss, but I would note we have several participants under NDA and expect that number to continue to grow over the near term. While we cannot predict the exact timing, we are working diligently to conduct a relatively quick process. Known IP is a scarce resource and these past several years have done nothing but prove its value as audiences fragment. Having IP that is known and branded is a huge advantage. Given our large portfolio of assets, we're confident that through this sale process, we can accomplish the three core objectives we outlined last quarter. That's one, simplify and focus our business. Two, improve our balance sheet. And three, drive shareholder value. Turning to guidance, we are reiterating our expectations and continue to expect revenue to be down moderately year over year and adjusted EBITDA to be slightly higher. This is not a change from our prior guidance, as you can see in our MD&A. Excluding the studio and TV, we're confident all our other businesses combined are expected to grow EBITDA 15 to 20% year over year. We expect strong growth across our business outside of the studio and television in 2024. And when we look to 2025 and beyond, our business is strong as we expect continued growth in our core business. In conjunction with our earnings release, we announced that Nick Gahn has been appointed as our new Chief Financial Officer, succeeding Aaron Ames, who will stay on in an advisory role. I'm delighted Nick has joined us as CFO. He brings over 20 years of experience in finance, operation, and business development. Having spent the bulk of his career at E1, he has a deep background and strong track record in the global growth and monetization of Kids IP and consumer products. As licensing increasingly becomes a bigger piece of our business, Nick's experience will be hugely valuable, not only from a finance perspective, but we will also leverage his skill set on the operational side. We're thrilled to welcome him to the team. You'll hear from Nick next quarter. Aaron has been an integral part of Wild Brain for over five years, and he will be with us during this transition to ensure the near-term strategic priorities we've outlined. refinancing or paying down the convertible debentures and the non-core asset sales continue to move through their respective processes. Before I turn it over to Aaron to review our results, let me take this opportunity to thank him for his years of leadership and dedication to WildBrain. Aaron has been a trusted partner and passionate champion of our company. As I mentioned, he will be staying with us in an advisory role to ensure a seamless transition. With that, I will turn it over to Aaron, who is suffering from a cold. So I will cross my fingers that he can get through the next couple of paragraphs.