WildBrain Ltd.

Welcome to Wildbrain's third quarter Shisco 2025 earnings call. Today's conference is being recorded. Note that all lines are being placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And to ask a question during that time, please press star then number one on your telephone keypad. And if you would like to withdraw from the queue, press star two. And I would like to turn the call over to Tashin Tassat,

Vice President of Investor Relations at Wildbrain.

Thank you, operator, and thank you everyone for joining us today for Wildbrain's third quarter 2025 earnings call. Joining me today are Josh Sherbaugh, our President and CEO, and Nick Rahn, our CFO. Before we begin, please note the matters discussed on this call include the Wildbrain's statements under applicable securities laws, which reflect Wildbrain's current expectations of future events. Such statements are based on a number of factors and assumptions that management believes are reasonable at the time they were made and information currently available. However, many of these factors and assumptions are subject to risks and uncertainties beyond Wildbrain's control, which could cause actual results and events to differ materially from those that are disclosed or implied by such foreign-wishing statements. Such risks and uncertainties include, but are not limited to, example, economic, business, and political positions. Wildbrain undertakes no obligation to update such foreign information, whether as a result of new information, future events, or otherwise, except if it is first required by applicable law. Please note all currency numbers are Canadian dollars, unless otherwise stated. After our remarks, we will open the call for questions. I will now open the call over to our President, CEO, Josh Schoening.

Thank you Kathleen. Thanks for joining us. We grow sustained strength in the very quarter, fueled largely by our global licensing business and our own franchises. Peanuts, strawberry shortcake, and telecommis continue to fuel our 360-degree strategy, contributing meaningfully to not only the 44% -over-year growth we've reported this quarter within licensing, but across the full platform of our business. In the last year, our key-owned brands, as a percentage of continuing operations revenue, have increased from just over 50% to over 70%, signaling meaningful progress in our strategy to focus on our core brands, which strengthens our profitability. This cannot be overlooked. We have evolved to a vertically integrated IT company with world-class capabilities. These results reflect the deliberate steps we've taken to focus our strategy on accelerating the growth of these high potential opportunities, and we are now beginning to see the results of those efforts. We also saw a return to growth in content creation and audience engagement this quarter, with production commencing on a new teen live-action series for Netflix called Finding Her Edge, and continued production on the Peanuts feature film for Apple TV+. Our industry-leading capabilities in fast and avid remain important accelerators for our own brands and partners, and we've seen a consistent rise in viewership this quarter. As I reiterated before, in a fragmented content environment, well-known IP is critical to success. Turning back to licensing for a deeper dive, Peanuts continue to demonstrate its evergreen brand appeal worldwide. Rolling out in late March, we saw the first ever global IP activation between Peanuts and Starbucks. Peanuts-themed merchandise and consumables rolled out in Starbucks stores in every major market around the globe. The response was immediate and overwhelmingly positive. Merchandise sold out in the first week in the majority of markets, and in some places die-hard fans queued up as early as 3 a.m. to get limited-time production products. We also continued growth for Strawberry Shortcake and Teletubbies this quarter. The growth of Strawberry Shortcake continues to be impressive. Similar to last quarter, revenue for the brand was up over 200%. To further illustrate this momentum, if we measure Strawberry Shortcake by retail sales, it has now surpassed over $150 million U.S. over the last 12 months, and we believe we have a long runway to continue growing this brand. Strawberry Shortcake historically has done over $800 million U.S. dollars in retail sales, and we are enacting plans across content, digital-first initiatives, and brand collaborations now to drive growth for the long term and position us to realize Strawberry's full potential. For Strawberry Shortcake, this fall we will see the launch of new Berry Besties licensing program celebrating Strawberry's squad of cute friends. The program is ramping up at the Las Vegas Global Licensee Show next week, and we will feature collaborations with some notable brands. We'll have more to report here soon. In other Strawberry Shortcake news, we announced a collaboration with Sanrio's popular Hello Kitty brand this week for co-brand employees, fashion, and stationery, launching this September in the U.S. and Canada. This exciting brand mashup of two timeless icons will see capsule collections launch across specialty retailers, engaging fans with fun and unique product ranges. Licensing partners already on board include Jawswares, Fireworld, and Loungefly. The Hello Kitty partnership follows our ongoing licensing partnership with Cloudco's iconic Care Bears, which has been especially hit with fans that an expanded line of new crossover products will be coming to markets in the U.S. and Canada. We've seen tremendous sustained engagement from fans of Strawberry in the U.S. and Canada, and we are now strategically working to expand the brand's licensing program across Latin America, the U.K., Europe, and APAC in the coming year. On the Teletubby side, our franchise and marketing teams are already generating buzz in the market for the 30th anniversary of the franchise in 2027, as they head to Las Vegas Licensing Expo next week. Licensing is a long-lead time business, so it's never too soon to start laying track for licensees and retailers to come on board for big anniversary milestones. We've seen the success of such strategy firsthand with Peanut's 75th anniversary this year. In the near term for Teletubbies, we recently announced a raft of new licensing deals, including a brand new digital game with the Sandbox, a new line of collectibles with PotMart, and multiple retail partnerships for apparel, plush, accessories, and even cosmetics. This summer, fans will find a range of apparel and accessories at U.S. retailer Five Below, and we continue to see great trends with top licensees like Kate Worthy, Long Fly, and Loyal Subjects. Our other resurgent franchise, Yo Gabba Gabba, recently took to the stage for two live performances at the Coachella Festival. Thousands of fans enjoyed fun and nostalgic shows featuring the brand's characters, special musical guests from the brand's Apple TV Plus series, as well as crossover kids' characters, especially at the Teletubbies, Strawberry Shortcake, and Caravagers. The event generated more than 35 million impressions across media, and connected music fans, new and old, with its beloved IP. In the words of our franchise management team, Yo Gabba Gabba won Coachella. This viral pop-up event followed our recent announcement that Jazzwares has signed on to launch a robust slate of toys, costumes, and accessories to the brand this year. We're excited about the momentum of the Gabba brand, and we will be announcing further licensing partnerships in the coming weeks and months. And I remind you of Gabba's beautiful legacy. With five international tours, we see a significant opportunity to develop and roll out a new live tour show as we look to further extend and monetize the brand. Across our key brands, we have laid out the building blocks of our enhanced platform to engage and monetize our IP in the digital world. We know the importance of driving engagement across AVOD, SVOD, FAST, socials, and gaming, and leveraging this awareness and interaction to drive licensing relationships utilizing our own global licensing platform. These strong results are the very beginning of this hard work coming to life. As we discussed last fall, licensing success begets success, and that compounds value over the long term. Across our key franchises, we continue to exceed our KPI's across watch time, social engagement, and new licensee growth, setting us up for meaningful growth over the years to come. Turning to the macro view, as with the rest of the world, we are actively assessing the potential impact of U.S. tariffs to our diverse business. While the situation is still too fluid to forecast any exact impact, I thought it would be helpful to zoom out and bring up a few key items to think about our business in general. As far as tariffs on consumer products in the U.S. are concerned, we are not a manufacturer ourselves and do not have the team direct supply chain impact nor the cost structure of the manufacturer. We have the benefit of diversification across our business. That is, diversification across lines of business with content creation, our digital businesses like AVOD and FAST, and within our licensing business. We saw the benefit of diversification in 2024 as the slow-down in content from the strikes hit our production pipeline, but we saw growth in other areas of our business. We even have the benefit of diversification within our licensing business. In our CPLG business, we represent over 3,000 licensees on a global basis across hundreds of brands and territories. We are a global business, not overly indexed to any one geographic region. In our largest brand, Peanuts, we have the benefit of a broad mix of licensees across categories and across territories. Lastly, we have many Evergreen brands such as Peanuts, Teletubbies, and Strawberry Shortcake. Well-known ITs tend to perform better in a downturn as we saw during the COVID time period. Turning to audience engagement, we continue to see a significant opportunity in FAST, where we remain the distributor with the largest number of pitch channels. Minutes used of wild-brained content across global FAST platforms remains healthy with growth of over 50% -to-date for this fiscal year, versus the same period last year. Revenue in FAST was slightly down in the quarter with the timing impact. Adjusting for timing, underlying growth was strong, and we continue to be a destination for third-party brands like the recently launched Pokemon. We saw incredible viewership on the newly launched channel, making it the largest and fastest release ever for wild-brained. Monetization in FAST, and especially in kids content, has lagged. But with our market-leading position, we are poised to capitalize on the opportunity as advertisers recognize the attractiveness of the platform and viewership continues to scale. Kids and families continue to be engaged on our A-Line network on YouTube. We saw solid growth in viewership on our own brands in the quarter, including Teletubbies and Strawberry Shortcake, and we continue to be a valuable partner for third-party brands such as Ragdoll, as we discussed last quarter. We also saw growth in the quarter from our Media Solutions team. As a reminder, Wildbrains Media Solutions is our direct ad sales team who sell advertising space on our YouTube and FAST channels. Leveraging our expansive presence across platforms and our premium, broad-text quality content, our Media Solutions team empowers brands and media agencies to reach parents and families through COHA and -ROOP-compliant opportunities. They are also experts at brand integrations for our own and third-party brands on leading gaming platforms such as Roblox and Fortnite. We've made significant progress over the last several months enhancing our technology, team, and tools to drive higher value bespoke offerings in the A-Line and FAST ecosystem. The team has done a tremendous job driving results for top brand advertisers, and we see the opportunity to grow this business for years to come. On the content creation side, we saw a return to growth in our production business with a new live-action series we're doing with Netflix, Finding Her Edge. And our production teams are also hard at work on the new animated Peanuts feature film, Roblox TV+, with another Peanuts special rolling out soon, bringing us up to seven specials launched on the platform and three more in production. As we announced back in December, we signed an agreement to sell our TV channels to IOM Media Ventures. We're pleased to have found the ideal partner in IOM, an independent Canadian-owned children's studio. In April, we provided an update on the transaction after we were unable to negotiate a new series arrangement with Bell for the channels, following a decision from the CRTC. We have entered renegotiations with IOM regarding certain commercial aspects of the sale agreement and expect the transaction to proceed. Taking a step back, the sale of the channels is part of an overall strategic objective to simplify and streamline our business to focus on key franchises such as Peanuts, Strawberry Shortcake, and Teletubbies. This strategy has not changed and we have a clear path ahead as we continue in our commitment to harnessing high growth opportunities and cash generation. The deal with IOM will require approval from the broadcast industry regulator in Canada. After regulatory approval and closure of the transaction, we will be able to revisit our variable voting structure. For those unfamiliar, under the Broadcast Act, we are currently subject to a number of restrictions on non-Canadian ownership. Simplifying our voting structure to a single-class structure will provide strategic flexibility to well-brained. With our unique 360-degree capabilities, our diversified brands, and a streamlined business, we are well positioned to deliver growth and value for years to come. With that, I'll turn it over to Nick to review our results.

Thanks, Josh. To start on the financials, as a reminder, in accordance with the RFRS accounting rules, we have classified Canadian television broadcasting, or television, as held for sale in the quarter, and presented the historical results of this business unit as discontinued operations. As with the last order, our reference results from continuing operations and results including discontinued operations are applicable in my remarks. Revenue from continuing operations in the third quarter was $128 million of 42% -over-year. Revenue including discontinued operations in the third quarter was $140 million of 40% -over-year. Global licensing revenue in the quarter was $71 million of 44%. It was another strong quarter for peanuts and the grocery, broad-based, that cost more than the number of fees and licensing categories. We also saw impressive growth in our high-end and our marketing brands, Shorter Shortcake and Telecubbies. Both these brands have been important contributors to growth this fiscal year, with Shorter Shortcake's revenue a triple digit percentage, and Telecubbies' revenue a double digit percentage this year. For Shorter B Shortcake particularly, we are encouraged by the broad base of growth for the brand. As we noted last quarter, for many of our licensees, we asked for a shrugger rush of minimum guarantees, and we're into the sell-through phase where we have quality, sustainable revenue. The trajectory we're on is based on our marketing and digital content strategy to drive greater engagement through continued social media focus and YouTube and Fire content, which we then leverage to drive new licensees on the consumer product side. As Josh noted, with Shorter Shortcake having delivered annual retail sales of $800 million US dollars, in the past, we're focused on the upsides that this brand can bring us. As we've been talking about on prior calls, the growth in global licensing is a result of management actions to focus the business on high potential, higher margin, higher cash generated businesses that set aside for sustainable earnings and free cash flow growth. Content creation and audience engagement revenue in the quarter was $57 million, up 40% year over year. This revenue increase in this period was driven by growth in production of media solutions revenues, as compared to prior year, offset by lower distribution YouTube and Fast revenues. As Josh mentioned, adjusting for some tiny impacts underlying growth fast was wrong. Revenue from television was $12 million in the quarter. From comparability, as we had provided last quarter, supplemental information for continuing and discontinuing operations can be found in the earnings release. Growth margin percentage for continuing operations in the quarter was lower, primarily from a mixed shift in revenues and higher participation costs in the quarter. As CNA and continuing operations was $27 million in the quarter, up 12%. Adjusting for foreign currency translation differences and non-recurring items, underlying as CNA costs were low single digits, as we invest in higher opportunity businesses to continue to fuel long-term growth. Adjusted easy dark and continuing operations was $16 million, up 18%. Adjusted easy dark and continuing operations was $26 million, up 33%. Net loss for continuing operations was $11 million, compared to net loss of $16 million in the prior period. Free cash flow in the quarter was positive $13 million, compared to negative $3 million in the third quarter of 2024. -to-gain free cash flow was positive $67 million, compared to negative $23 million in the nine-month period in fiscal 2024. Free cash flow is subject to variability arising from working capital timing and our insurance production financing tables. We remain confident that the business will maintain strong free cash flow growth from the end of the year, high-efficiency and quality of the assets we have, coupled with a higher tax generation conversion and more asset-like profit streams we've been building in licensing. Our leverage at the end of the quarter was 4.4 times, down from 5.3 times in the December 31 quarter. We are comfortably in compliance with all finance requirements, and our commitment to reducing leverage under 4 times remains unchanged. To give you guidance, we reconfirm our outlooks for fiscal year 2025 for revenue growth, including discontinued operations of approximately 10 to 15%, and adjusted EBITDA growth, including discontinued operations of approximately 5 to 10%. Last quarter, we have given incremental color about underlying revenue growth of our continuing operations of 15 to 20%, and adjusted EBITDA growth of .5% to 17.5%. With more visibility into the balance of the fiscal year, we continue to see revenue growth trending to the higher end of that range, but with the timing-impacted distribution deals, which are higher margin, we now see adjusted EBITDA for continuing operations growth of approximately 5 to 10%. Moving on to our expectations for free cash flow. As I said, this is subject to material funding variances, but the quality of earnings we're driving this year leads us to see free cash flow being strongly positive, with a good proportion of the $67 million -to-date holding through the fourth quarter despite some expected working capital outflows. Housing interest are unlevered free cash flow, with $32 million in the quarter and $105 million -to-date. That compared to $10 million in all of fiscal 2024. Another proof-point of our turnaround and our ability to operate and grow despite higher leverage. Through fiscal 2025, we've delivered quality EBITDA growth over prior years and materially better cash creation. We have so much work to do, but have built a strong foundation for significant growth in cash generation for years to come. I'll hand it over to Josh as he wraps up.

Thanks, Nick. These strong results show that our franchise-focused strategy is working across the full 360° platform. We have evolved to a vertically integrated IP company with the unique ability to develop, distribute, and monetize entertainment franchises across multiple platforms and revenue streams. This model allows us to supercharge the reach and longevity of our owned and partner brands. Looking ahead, we will continue to double down on high-growth opportunities, including for our owned IP, day-loss, fast, and media solutions, as well as continuing to grow our content production pipeline. We also remain focused on reducing our debt and streamlining the business with the sale of television. Now more than ever, we are well positioned to deliver sustainable growth and draw shareholder value. With that, I'll over-introduce the questions.

Thank you, sir. Ladies and gentlemen, a reminder to please press star 1 if you have any questions. And if you would like to withdraw from the queue, you will need to press star 2. And if you're using your speakerphone, please lift the hands up first before pressing any keys. Please go ahead and press star 1 now if you have any questions. First question will be from Julie McReynolds

at IDC. Please go ahead. Please go ahead, Drew, unmute your line.

Yeah, my apologies. Good morning, everyone. Thanks for taking my questions. I just want to clarify, and it gets to a broader question. So obviously, it's great to see the revenue momentum. Just in terms of the flow through to adjust any bit, I think, Nick, you're just trimming kind of what your fiscal 2025 would be, XTV in terms of margin guidance. Obviously, there's a big revenue beat, not particularly the cost for that from my perspective. But just can you speak to this as we look forward, the flow through of revenue into profitability? Obviously, you've got a revenue mix that's evolving with some higher margin and lower margin businesses. Just wondering if you can untap

that one a little bit, and then I'll ask just a couple others. Thank you. Sure. So as

you know, different parts of the business give off different margins. And when we spoke last quarter, we were seeing either downgrade from 12.5 to 17.5 percent for continuing operations. Distribution is point of high revenue, and we can be impacted by timing of distribution. And distribution is also a higher margin. So we've had some margin mix shifts in which we're seeing for the balance of the year, which is therefore impacting the flow through in

the way that you're

seeing.

Okay. And with respect to content production,

and good to see

the

demand coming back overall, just can you untap that with respect to the proprietary pipeline, your own production, what that pipeline is looking like, and then the level of third party service revenue that you generate. You know, both kind of coming back and speak to that. And then third, just on tariffs, thanks, Josh, for your comments on, you know, your exposure, you know, from a direct perspective doesn't look to be overly material. Just wondering what you're, you know, seeing in terms of, you know, end demand out there across your licensed products. And on the assumption that tariff regime becomes more co-hering as we go forward, more constructive here when we think about, you know, licensed products heading into kind of holiday season. So, presumably from that perspective, you know, you're still relatively well positioned, but wondering if you're seeing any softness in real time. Thank you.

Sure. So, maybe I'll

speak to the tariff question first and then talk about the context later after. I mean, no question, it's an evolving situation. We're dealing with a different set of facts as of Monday. And as I talked about, we've got a lot of diversity built into our business. But you rightly pointed out that we're kind of at a critical point for holiday orders and still we're going to have conversations that are happening over the next few weeks, you know, particularly based on the new set of facts that were established on Monday. So, you know, we've reaffirmed our guidance for this year. Obviously, we've only got, you know, kind of six weeks left in the quarter, in our fiscal year, so we feel good about that. And we'll monitor closely any impact that we might see coming into the holiday season. But as you said, we've got a diversity of geographically from our licensing business, and we've got also a large range of licensees who have different name, fashion, bases all over the world. So, there's a lot of diversity built into our overall licensing business. On the content slate, yeah, we're pleased to see it coming back. You know, we had anticipated growth this year and further growth into next year, and that's still planned. And our IT slate is coming along. We're in production on the PNAS feature for Apple TV+. We continue to have more PNAS content in the pipeline. And your question about third parties, yeah, that business has been coming back. You know, we continue to be in business with LEGO, who we produce a number of series for, and we're just getting started on new projects for them. So, overall, it's certainly not back to the games of 2019 or early 2020, but it is coming back, and you're seeing that come through in our numbers, and we expect that

trend to continue. Okay, that's great. Thank you both. Thank you. Again,

ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touchtone phone. Next will be Dan Kernos at Benchmark. Please go ahead.

Great, thanks. Good morning.

And let me just start by saying, Josh, Nick, that's another solid print from you guys. You guys have put up a few quarters now that are really showing momentum, and particularly in the licensing side. The growth rate accelerated over more than the delta and the comp in the quarter. So, there's some clear momentum there. I want to, Josh, just double-click on the macro just for one second. I appreciate that all the color you gave in the remarks as well as the answer to the last question. Just to be clear, though, on the economic side, higher prices would actually, in a way, you get some offset because of the growth share, right, as opposed to lower volumes, higher prices could be sort of

a

net neutral, depending on what happens to demand, obviously. And then on the guidance piece, look, obviously, those of us doing the monkey models out here, it's always tricky to figure out timing with you guys, but I mean, I appreciate Nick's comments. It looks like you're painting above the high end of your guidance on revenues. I'm just trying to get a sense if there's any uncertainty or

conservatism baked into, you know, given what's going on in the landscape. So,

yeah, on the royalty, or on the fair question, I mean, we, yeah, it is a royalty business for us based on wholesale prices. And look, ultimately, consumer demand will have an impact on the business. There's no question about that. But it's early to predict. But what we do know is that historically, when there's been downturn in the economy, there's been a flight to familiarity from a brand standpoint. And we've seen, you know, peanuts perform very well during those early days of COVID. And we know historically, in other kinds of economic turbulence, it's performed well. So, we mean, there's a number of details that we'll only know in time, but we feel positive overall about

our position. Give it to Nick.

I think you're going to speak to the guidance point. You're right. It's kind of timing is tricky to predict. And again, I zoom out from that sometimes and look at the overall momentum that we're delivering in the business. So, you know, strong frugato growth, strong licensing growth. Margin is tricky because the margin on production versus distribution versus cleanups versus probably short-cake, they're all very different margins. So, the niche can impact within any given quarter. So, that when you go in neutralizing over time, then you come back to the momentum on the business. But as you know, we've got kind of three strong quarters this year and things are looking positive.

Got it. That's helpful. And then, Jack, maybe some more fun ones just on the,

you know, the Starbucks partnership. Really appreciate the caller there. You know, are there other opportunities to do similar things? I know you referenced some shots on goal with Strawberry. Obviously, Pina is a global brand, so it's kind of easier to leverage that. And I know that you've been focusing on O&L IP, but, you know, if something like a Sonic, well, maybe not as profitable perhaps, but it feels like you've been, you know, with the success that you're seeing in Pina, that you might be able to leverage from the other global iconic brands that you have access to. Sure. So, yeah, the Starbucks campaign is a huge success. And I think it does speak to the unique aspects of Pina as a global top-ten brand, that it could work in so many different locations at that scale. So, whether it is a direct comp for doing that with any of our other IP, I think would be a stretch. But in terms of showing our ability to execute on those types of programs, and there are certainly other opportunities in that space for us to prostate and manage on. But it also just gives Pina that much more strength in today's market and relevance, and does open up opportunities for further programs with Starbucks or with other global chains. So, yeah, it was a huge success, so a big thanks to the team for pulling it off.

And last one for me, just on Strawberry, because it's kind of important and it's

really scaling. I mean, you see the historical numbers, you get the current run rate. Maybe just, you know, is there anything that you can give additional color on beyond your prepared remarks and how you're

kind of leaning in there and how fast you think you can kind of resale from here? Well, I mean,

look, there's not a lot more detail that I can offer, but in terms of, you know, kind of broad sell-through, that's really encouraging for us. It's not being driven by any one specific licensee or category. It's really across all retail categories. And I would also say that, you know, socials are leading indicator for us. We've increasingly seen a direct correlation between uptick in social engagement and sell-through at retail. And we continue to reach new heights on our socials, which we think, you know, continues to be a great leading indicator for where we're going next.

All right. Just one more thing, guys. Telecom is obviously a priority for us as well. And like Corby, Telecom is a brand that's done very material retail sales in the past. It's done over a billion US retail, probably as we said, over 800 million US retail annually. In the past. And Josh spoke about the value of known IP. So, you know, we're really excited to have two brands that are on a broad trajectory already. We're not having to send huge amounts of marketing dollars to break them. The marketing dollars that we're putting in are extremely effective. So, you know, that's actually just a lot of runway for the future.

Trust me, Nick, I did not want to tell it to be short. It just felt like we were in different stages. But, you know, clearly you guys have a lot of runway in front of you on both brands.

So anyway, I appreciate the color, guys, and I'm glad we have another solid color. Thanks, guys. Again, a reminder to please press star one on your telephone keypad should you have any questions. And at this time, we have no further questions registered,

which

concludes our conference call for today.

Thank you for attending. You may now disconnect your minds. Enjoy the rest of your day.