WildBrain Ltd.

Hello, and welcome to Walbrain's Fiscal 2024 Q2 to Earnings Call. Today's conference is being recorded. All lines have been placed on you to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question during this time, please press Start, then 1 on your telephone keypad. If you would like to withdraw your question, please press Start 2, and then the number 2. I'll now like to turn the call over to Kathleen Persaud. Vice President, Investor Relations at WildBrain. You may begin the conference.

Thank you, Operator, and thank you, everyone, for joining us today for WildBrain's second quarter 2024 earnings call. Joining me today are Josh Sherpa, our President and CEO, and Nick Gaughan, our CFO. Before we begin, please note the matters discussed on this call include forward-looking statements under applicable securities law 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 company's content production pipeline and greenlights, the markets and industries in which the company operates, cost and expense management, the company's leverage and plans for debt and leverage reduction, including through the sale of non-core assets, 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 Forum, 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'll now turn the call over to our President and CEO, Josh Sherpa.

Thanks for joining us today. Here at Wildbrain, our mission is to inspire imaginations through exceptional entertainment experiences that captivate and delight fans. Over the last few months, we have realigned our business to execute against this mission with efficiency and effectiveness. Since my appointment as CEO, we have aligned our teams to a 360-degree strategy across our core capabilities of content creation, audience engagement, and global licensing. We're seeing increased collaboration across the business and our partners are seeing it as well. leading to several more meaningful commercial conversations about our holistic capabilities. I'll spend a few minutes with an update on each of these pillars, but let me first start with our updated outlook for fiscal 2024. We are updating our expectations for the year as a result of the slower than anticipated normalization of the content production market and the subsequent impact on our studio business. We had previously stated our expectation for revenue in fiscal 2024 to be down moderately and adjusted EBITDA to be slightly higher as compared to fiscal 2023. As we look to the balance of the year, we are updating our view of revenue to be down by approximately 8% to 12% and adjusted EBITDA to be down approximately 5% to 10% compared to the prior year. The delta on previous guidance is in our studio business. As has been widely written in the entertainment trade press, the content production industry has been in a period of protracted slowdown, starting about 24 months ago with big streamers prioritizing profitability over subscriber growth. This was punctuated and magnified by the dual labor strikes in Hollywood last year. The writer's strike was the second longest labor stoppage on record and the first time in more than 60 years that both the writers' and actors' unions were on strike simultaneously. The impact of the slowdown in green lights, along with the knock-on effect of prolonged timelines for subsequent orders, was above our initial expectations. As I noted back in our September call, the industry was experiencing heightened volatility, leading to less overall visibility in the near term. We now have more clarity on the rebuilding of our studio business, but it has shifted a few months later than expectations. With animation projects typically running about 18 to 24 months, We are now at what we see as the bottom of the trough of our earnings from this segment. We are seeing green lights resume and having more meaningful conversations with our partners on pending projects, which I believe speaks to our creative capabilities and our premium brands. The investments and realignment of the business we have been speaking about on the last few calls, coupled with our strong creative capabilities, has set apart our studio as a preferred vendor of choice in and our pipeline for fiscal years 2025 and 2026 demonstrate this. As we look to our pipeline for fiscal years 2025 and 2026, we remain confident that the downturn we're seeing in fiscal 2024 is a timing delay. With our studio production slate now 60% greenlit for fiscal 2025 and 50% greenlit for fiscal 2026, we believe we are well-positioned to deliver growth. To put some context on those percentages, our fiscal 2025 green lights are closer to what we would see in a normal operating environment for our studio at this time. And the fiscal 2026 green lights are more than double where we would normally be at this point. We are seeing a return to activity across the industry and see the path back to a more normal content production environment. Our meaningful franchises like Peanuts and our expertise in premium production are key drivers of future growth and opportunities for our studio business. Excluding content and television, we're on pace to deliver 15% to 20% EBITDA growth year-over-year in fiscal 2024. Looking to 2025 and beyond, a strong rebound in our content business coupled with continued solid growth across our other businesses, excluding television, position us well for significant growth. Turning to the activity in the quarter, in content creation, we saw the release of several projects. As a reminder, content creation integrates all of Wildbrain's development and production capabilities, including our Vancouver animation studio, our London-based digital studio, our Toronto animation pre-production business, Hustle Cool, and live action production business, bringing creative excellence across all formats for Wildbrain's proprietary content, as well as partner projects. A third season of our hit series, Sonic Prime, produced in partnership with Sega, debuted on Netflix on January 11th. You may have recently seen the data Netflix released on their viewership. The data provided a nice vignette into what resonates with audiences. We were excited to see Sonic Prime was their most watched original animated series. We remain a strong partner to Netflix with multiple series on the platform. The data also demonstrated that across the board, kids content and specifically franchises are top performers, with a lot of known IP appearing on that list. And lastly, the Netflix data showed that viewership on kids content, and especially movies, is strong. This last point was reinforced by recently released Nielsen data, which captured streaming content trends for 2023. In the movies category, The Nielsen data showed that the top seven films in 2023, as measured by views on all streaming platforms in the US, were all animated kids and family features. The Netflix and Nielsen data both highlight the growing importance of movies to engage kids. This trend was a component of our strategic rationale for the House of Cool acquisition last year, which helps take our storytelling to the next level. while also adding the capability to do features, setting us up as a top provider for premium animated content. As announced last November, Apple TV Plus has greenlit a new Peanuts feature film. We've only just begun production on that movie, but we certainly look forward to the day when we see our Peanuts feature in the top 10 list. The green light of that feature is a positive indicator for Wild Brain and the Peanuts brand. To have secured a green light for a new Peanuts movie amidst the slower environment is a testament both to the strength of the brand and to our partnership with Apple TV+. Moving on to audience engagement, we integrated our 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. Kids continue to be highly engaged on our YouTube network, with over 56 billion minutes of videos watched in the quarter, and the network performed well, with revenue and profitability both up double digits in the second quarter. We continue to see strength in several of our KPIs, including average view duration, which increased nearly 40% year-over-year, on top of the increases we've seen for the past few quarters. Increases in average view duration is an important component in driving engagement as it maximizes the amount of ad revenue each video generates. We have been on a deliberate path to improve the quality of our views and our content on YouTube. We concentrated on increasing the quality of our owned 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 drawing from YouTube, showing how audiences want to engage with content on our network. When audiences engage, we can see tremendous growth in views. Take our original YouTube series, Boy and Dragon, for instance. We've seen views up over 1,000% year over year, with subscribers on our channel doubling to 1.9 million in a few months. It's a great example of leveraging our extensive audience reach coupled with our strong creative team, then layering in our deep insights into how to attract, retain, and entertain kids across our digital network to grow and monetize brands. We know that managing toward high-quality engagement is the most important driver of sustained success across the ecosystem. We recently commissioned a research study to examine how kids and families are consuming their entertainment. The research results reinforce the trends we have been seeing. The data shows that kids and teens are actively curating their own omni-platform content experiences seamlessly across streaming and gaming platforms and devices. Where linear broadcasters were once the intermediaries and curators for video content, this generation of kids are doing that curation on their own, watching shows on SVOD services, YouTube, Fast, and non-YouTube AVOD platforms. They're moving freely from one platform to the next as they seek and discover the content they love. Our new research further shows that gaming platforms such as Roblox and Minecraft are an essential part of the Omni platform landscape and experience for kids. With our in-house expertise and capabilities across all of these platforms, we present a huge advantage for brand owners who want to reach today's audience. We leverage this to drive engagement and ultimately content distribution and consumer products revenue, both for our own brands like Peanuts, Teletubbies and Strawberry Shortcake, and for our partner brands. Adopting omni-platform marketing strategies that cross over in entertainment consumption habits is a pivotal trend for 2024 and beyond, and Wildbrain remains at the forefront of this entertainment revolution. Our new research also shows that family co-viewing on connected TVs continues to grow as a trend. 81% of US and 78% of UK families co-view several days a week. Our research shows that families co-view to spend quality time together. As both streamers and AVOD providers want to capture this trend, we are positioned to be the preferred vendor. With our premium studio in Vancouver, our pre-production company, House of Cool, in Toronto, and our digital first studio in London, we have significant competitive advantages to flex around formats and pivot to various teams internally, depending on creative needs, opportunities, and visions. Combined with our comprehensive content distribution offering to engage audiences, our capabilities and flexibility differentiate us in the market. Something we know from industry conversations is being noticed by significant partners and now generating meaningful opportunities for us to grow our business. So there are two clear trends in how today's kids consume content. On the one hand, kids are curating their own omni-platform experiences across platforms and devices. And on the other hand, families are gathering together to enjoy tentpole premium content on the biggest screen in the house. At Wildbrain, we bring together content creation and audience engagement to appeal to both of these audiences. For Omni Platform, we have a deep library and the distribution expertise to deliver shows in all formats, short form, long form, clips, and social media to kids wherever they're watching and whenever they want on any device. For premium content, we've built the creative capabilities to tell multi-layered stories that appeal to the whole family. And of course, building on content creation and audience engagement, global licensing completes the 360-degree IP cycle to extend the fandom and love for brands off-screen into consumer products, promotions, and live experiences. At Wildbrain... This includes the activities of our leading licensing agency, Wild Brain CPLG, as well as our franchise management activities for key owned brands, including Teletubbies and Strawberry Shortcake, plus the management of key third-party IP partnerships and our crown jewel, Peanuts. During the quarter, we saw growth with Wild Brain CPLG, as well as strength in Peanuts and owned brands. For Peanuts, you may have seen widespread news coverage around the holidays of a Snoopy plush toy wearing a puffer jacket, which was placed with CVS Pharmacies in the U.S. The news was in response to Puffer Snoopy, as he was called, going viral on social media. I don't mention the trend as a material driver in the quarter, but more to the point out that engaging with audiences across all platforms, including social media, is necessary to raise brand awareness. Of particular interest in this case was the way Gen Z engaged with the brand on TikTok, leading to a sellout of the product before Christmas and a frenzy of news coverage from such outlets as the Wall Street Journal, Business Insider, and NPR. As The Atlantic put it, Snoopy is the hero Gen Z needs. Peanuts has always been popular with this newly developed popularity trend. Peanuts has always been popular, but this newly developed popularity on social media combined with the new content on Apple TV Plus has allowed for a whole new generation of fans to connect with the brand. We're seeing positive viewing trends for Peanuts with increased views, new viewers, and multiple viewings by audiences. Building brand awareness, even in established brands, can take time, but this increases the value of the brand over time. as we saw with growth in peanuts in North America in the quarter. Our own brands, in addition to peanuts, performed well in the quarter, with the number of licenses growing at double-digit rates. At Wildbrain CPLG this quarter, we saw success with third-party brands, particularly Paw Patrol, as a key contributor to growth in licensing revenue. Paw Patrol is benefiting from the release of the new feature film. Looking ahead to our own upcoming feature with Peanuts, the halo effect for licensing gives us continued confidence in the opportunity we see for that business. It's worth noting the diversity and depth of our portfolio with partners. From collaborating with MGM Consumer Products on their Smash Hit series Wednesday to iconic properties like the Grinch or perennial fan favorite Peppa Pig, Wildbrain CPLG is a full-service agency with the infrastructure, scale, and expertise to provide turnkey services to partners around the world. Across our own brands and the quality partner brands we work with, we have a long runway for growth in licensing. Turning to our capital allocation, reducing leverage and simplifying our company and capital structure remains a top commitment. We are continuing to pursue non-core asset sales. While we cannot predict the exact timing, we are working diligently to conduct a thorough process. Given our large portfolio of assets, we are confident that through this sale process, we can accomplish the three core objectives we previously outlined. First, simplify and focus our business. Second, improve our balance sheet. And third, drive shareholder value. Looking back over the past six months, we've made consistent progress in building the foundations for success. We realigned the business around three core capabilities. We refocused our key franchises and reorganized the senior management team. The senior management team recently held a two-day summit as part of an annual review of our franchise strategy plans, and the increased collaboration across the teams was evident. With great franchises and a strong team aligned together, we are well positioned to deliver value. Nick is a great addition to our team. His wealth of experience in the kid space and his operational excellence are already adding value to the organization. With our portfolio of IP and our in-house capabilities, we are well positioned to capture growth and deliver value. With that, I'll turn it over to Nick.