Pre-emptive measures taken to safeguard our business for the long-term
Notice of Q3 2020 earnings call
HALIFAX, April 29, 2020 /PRNewswire/ - WildBrain Ltd. ("WildBrain" or the "Company") (TSX: WILD), a global leader in kids and family entertainment, announced today preliminary financial results for its Fiscal 2020 third quarter ended March 31, 2020 and provided a business update and actions taken in response to the coronavirus pandemic.
Eric Ellenbogen, WildBrain CEO, said: "As we navigate the global coronavirus crisis, we're focused on the well-being of our team, serving our customers and delivering for our audiences, while taking actions to safeguard our business for the long-term. Early in the pandemic, we moved quickly and decisively to implement cost-containment measures as well as widespread work-from-home solutions, enabling our employees to remain connected and productive. These actions have allowed us to produce content at our studio at nearly 95% efficiency."
Ellenbogen continued, "During this period of stay-at-home, our shows are experiencing unprecedented levels of viewership, providing hours of comfort, education and entertainment to our audiences. We are pleased to be an integral part of so many families' solution to managing through this difficult time. Producing high-quality kids' and family entertainment is the core of what we do at WildBrain, and we remain committed to and energized by this mission."
Aaron Ames, WildBrain CFO, added: "Third-quarter financial results reflect steady execution of our priorities to build our business for the long-run, although due to COVID-19 effects, advertising revenue declined further in our AVOD business in the latter part of the quarter. The global advertising industry has taken a significant hit, and based on industry estimates, we anticipate these conditions will persist into our Fiscal 2021. However, we do not expect this to have a material effect on our Canadian TV channel business, which derives approximately 90% of revenue from subscribers. We have taken early mitigating actions to preserve cash, reduce overhead and lower our operating expenses. Such measures, combined with initiatives taken in recent quarters to pay down debt and improve our financial position, will help safeguard our business. We monitor the situation regularly to assess if additional actions are warranted, while continuing to invest across initiatives that drive the long-term value and growth of our business."
Preliminary Financial Results for Q3 2020 and YTD 2020
WildBrain announces the following preliminary financial results for its Fiscal 2020 third quarter (Q3 2020) and nine-months (YTD 2020) ended March 31, 2020:
$96.0 million to $100.0 million
$331.0 million to $335.0 million
Loss before Income Taxes1
($205.0 million) to ($215.0 million)
($210.0 million) to ($220.0 million)
Adjusted EBITDA attributable to WildBrain2
$17.0 million to $19.0 million
$62.0 million to $64.0 million
The Company also expects to report:
$62.2 million in cash on hand and $32.6 million in committed undrawn revolving facility as at March 31, 2020;
Net leverage ratio3 in the range of 5.25 to 5.45x vs a covenant requirement of 6.75x;
No near-term debt maturities: all of the Company's long-term debt, approximately $507.0 million, matures at the end of 2023 or later; and
A non-cash goodwill impairment charge of $185.0 million in Q3 20204. The COVID-19 pandemic has significantly impacted global business conditions and stock market valuations in recent months. In light of the potential impacts of global economic uncertainties, as well as the impact on advertising revenue from YouTube's changes to targeted advertising, we expect to record this non-cash charge. This impairment does not affect our operations, cash flows, or our ability to meet debt obligations.
These results are preliminary, and are subject to change, following completion of management's financial close process and approval by the Board of Directors.
We are taking appropriate measures and have implemented business-continuity plans to enable us to keep our people safe while managing our global operations. These have included temporarily closing all of our offices and facilities and implementing work-from-home measures for all our employees across our global organization. Fortunately, we are able to conduct much of our business remotely.
Premium Content Production Continues
We were able to expeditiously transition our animation studio of approximately 700 team members to work-at-home solutions. The studio is currently operating at nearly 95% productivity and is expected to deliver our shows on budget and with only minimal delays.
Our current production slate remains healthy, with a robust pipeline. Production is ongoing on new WildBrain proprietary content, as well as content for partners such as LEGO, DreamWorks, Netflix, Mattel and Apple TV+.
We have currently experienced no disruption in our live-action projects, presently scheduled to start in late summer.
Rising demand across all platforms for kids and family content has opened up new market opportunities, which we expect to increase our pipeline in the coming quarters.
Content Distribution Across All Media Platforms
Our Canadian Television channel business continues to deliver consistent cash flow with subscriber fees comprising approximately 90% of segment revenue. Family Channel is seeing strong viewership in April to date, with ratings up more than 17% across kids and family demos.
Revenue in our Distribution business (excluding WildBrain Spark) fluctuates quarter to quarter based on when deals are closed and timing of content deliveries. The current environment is creating increased demand for our expansive library.
WildBrain Spark continues to enjoy strong audience growth with views up 34% and watch times up 69% in the last 30 days versus the same period last year, averaging more than 3.5 billion views each month on our premium network. Consistent with a broad pull-back in media advertising and YouTube data-collection policies implemented in January, WildBrain Spark has seen its revenue decline approximately 60% in April to date, compared with the same period a year ago. We are taking mitigating actions by reducing costs and reallocating resources to growth areas. Over the longer term, we believe we are in a favourable position to capitalize on the growing trends of viewership and advertising moving online given our network scale, global reach and service offering of quality programming, analytics and custom content to support advertisers and their brands.
Consumer Products Driven by Peanuts Franchise
Our first new original Peanuts series, Snoopy in Space, is currently streaming for free on Apple TV+, extending the Peanuts brand to a new generation of kids and families.
While current disruptions in the global retail sector caused by COVID-19 are expected to impact our consumer products-owned business, as market demand recovers, we expect the resilient Peanuts franchise – a top-10 character brand at retail – to perform well supported by our new content rolling out on Apple TV+.
We continue to regularly assess the COVID-19 situation and evaluate the potential impacts on our business. We continue to strongly believe in the long-term prospects and opportunities for our kids' content and brands. Our strategy remains focused on growing our business by creating content that drives brand awareness and engages audiences on all the platforms where kids and families are watching, and by selling consumer products inspired by these shows and brands.
Business Protection Measures
We have initiated a further $2.0 million in quarterly operating expense savings to safeguard our financial position and preserve cash, including:
Implementation across the global organization of a temporary 20% reduction in salaries for senior management, who will receive new Restricted Share Units in lieu;
Temporarily reducing salaries at WildBrain Spark as well as furloughing some employees as part of the UK government's funding support during the coronavirus crisis;
Board of Directors has agreed to receive Deferred Share Units in lieu of all cash fees;
Suspending new non-critical employee hiring;
Suspending and terminating consulting agreements;
Suspending travel and non-critical spending; and
Evaluating and applying for government programs where applicable.
Loss before income taxes in Q3 2020 was primarily impacted by an unrealized foreign exchange revaluation loss of an estimated $26.0 million, largely due to the Company's term loan denominated in US dollars, and also by the goodwill impairment.
Adjusted EBITDA is a non-GAAP financial measure and does not have a standardized meaning prescribed by GAAP. Adjusted EBITDA represents income of the Company before amortization, finance income (expense), taxes, development expenses, impairments, equity-settled share-based compensation expense, and adjustments for other identified charges. Adjusted EBITDA reflects only the portion attributable to WildBrain (excluding non-controlling interests). For more details, see the "Non-GAAP Financial Measures" section of the Company's Q2 2020 Management Discussion and Analysis. See Table 1 below for a Reconciliation of preliminary results to Adjusted EBITDA.
Net debt includes long-term debt, lease liabilities and bank indebtedness less cash, and excludes interim production financing. Net leverage ratio as discussed in this press release is a reference to the Total Net Leverage Ratio as defined in the Company's senior secured credit agreement available on SEDAR at www.sedar.com. The adoption of IFRS 16 in Q1 2020 added $34.2 million in new lease liabilities, which will not have any impact on the calculation of the Total Net Leverage Ratio as per the terms of the senior secured credit agreement.
The non-cash goodwill impairment charge of $185.0 million excludes goodwill held in the Company's Peanuts and Television cash generating units (CGUs).
Table 1: Reconciliation of preliminary results to Adjusted EBITDA
(in $ millions)
Q3 2020 5
YTD 2020 5
Loss before income taxes
Finance cost, net
Change in fair value of embedded derivative
Amortization of property and equipment and intangible assets
Amortization of acquired and library content
Write-down of investment in film and television programs, acquired and library content, intangible assets and goodwill
Reorganization, development and other
Portion of Adjusted EBITDA attributable to non- controlling interests
Adjusted EBITDA attributable to WildBrain
Amounts for Q3 2020 and YTD 2020 in the table are preliminary and represent the mid-point of our disclosed range.
Q3 2020 Conference Call
The Company will report its Q3 Fiscal 2020 results after market close on Wednesday, May 13, 2020 and hold a conference call at 9:30 a.m. ET, Thursday, May 14, 2020 to discuss the results.
To listen, call +1 (888) 231-8191 toll-free or +1 (647) 427-7450 internationally and reference conference ID 9975808. Please allow 10 minutes to be connected to the conference call. Replay will be available after the call on +1 (855) 859-2056 toll free, under passcode 9975808, until 11:59 p.m. ET, May 22, 2020.
The audio and transcript will also be archived on the Company's website approximately two days after the event.
At WildBrain we make great content for kids and families. With approximately 13,000 half-hours of filmed entertainment in our library – one of the world's most extensive – we are home to such brands as Peanuts, Teletubbies, Strawberry Shortcake, Caillou, Inspector Gadget, Johnny Test and Degrassi. Our shows are seen in more than 150 countries on over 500 telecasters and streaming platforms. Our AVOD business – WildBrain Spark – offers one of the largest networks of kids' channels on YouTube, with over 168 million subscribers. We also license consumer products and location-based entertainment in every major territory for our own properties as well for our clients and content partners. Our television group owns and operates four family entertainment channels that are among the most viewed in Canada. WildBrain is headquartered in Canada with offices worldwide and trades on the Toronto Stock Exchange (TSX: WILD). Visit us at www.wildbrain.com.
This press release contains "forward-looking statements" under applicable securities laws with respect to the Company including, without limitation, statements regarding impacts of the COVID-19 situation on the Company, its business and future financial and operating results, actions being taken by the Company in response to the COVID-19 situation and expected impacts from such actions, the Company's preliminary financial results for its Fiscal 2020 third quarter, the Company's cash position and availability under its revolving facility, the Company's net leverage ratio, a goodwill impairment charge to be reflected in the Company's results for its Fiscal 2020 third quarter, production deliveries and pipeline, business protection measures being implemented by the Company and expected operating expense savings from such measures, market trends, the business strategies and operational activities of the Company and its long-term prospects, and the timing for release of the Company's Q3 2020 financial results. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties and are based on information currently available to the Company. Actual results or events may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations, among other things, include epidemics, pandemics or other public health crises, including the current outbreak of COVID-19, the magnitude and length of economic disruption as a result of the worldwide COVID-19 outbreak, the reliance of the Company on the Internet and other technologies to continue to conduct its business, failure to meet covenants under the senior credit facility of the Company, the ability of the Company to execute on its business strategies, the ability of the Company to realize expected operating cost savings, consumer preferences, market factors, conditions in the entertainment and brands industries, the ability of the Company to execute on production and licensing arrangements, the ability of the Company to complete its financial close process in a timely manner, employee and employee retention risks, and risk factors discussed in materials filed with applicable securities regulatory authorities from time to time including matters discussed under "Risk Factors" in the Company's most recent Annual Information Form and annual Management Discussion and Analysis. These forward-looking statements are made as of the date hereof, and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law.