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Wildbrain Ltd
Symbol WILD
Shares Issued 171,043,622
Close 2020-04-29 C$ 0.81
Recent Sedar Documents

Wildbrain estimates $215-million loss before tax for Q3

2020-04-29 21:21 ET - News Release

Mr. Eric Ellenbogen reports

WILDBRAIN ANNOUNCES PRELIMINARY RESULTS FOR Q3 2020 AND PROVIDES COVID-19 RESPONSE UPDATE

Wildbrain Ltd. has released preliminary financial results for its fiscal 2020 third quarter ended March 31, 2020, and has provided a business update and actions taken in response to the COVID-19 pandemic.

Eric Ellenbogen, Wildbrain chief executive officer, 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-per-cent efficiency."

Mr. 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 chief financial officer, 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 per cent 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 third quarter 2020 and year-to-date 2020

Wildbrain announces the following preliminary financial results for its fiscal 2020 third quarter and nine months ended March 31, 2020.

                                PRELIMINARY FINANCIAL RESULTS  
                                                                          Q3 2020            Q3 2019                  

Revenue                                           $96.0-million to $100.0-million     $110.0-million   
(Loss) before income taxes (1)                ($205.0-million) to ($215.0-million)    ($19.1-million)
Adjusted EBITDA attributable to Wildbrain (2)      $17.0-million to $19.0-million      $20.1-million 

                                                                         YTD 2020           YTD 2019    

Revenue                                          $331.0-million to $335.0-million     $331.0-million 
(Loss) before income taxes (1)                ($210.0-million) to ($220.0-million)    ($30.7-million)
Adjusted EBITDA attributable to Wildbrain (2)      $62.0-million to $64.0-million      $59.4-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 ratio (3) in the range of 5.25 to 5.45 times versus a covenant requirement of 6.75 times;
  • 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;
  • A non-cash goodwill impairment charge of $185.0-million in third quarter 2020 (4). 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, the company expects to record this non-cash charge. This impairment does not affect the company's operations, cash flows or 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.

Business update

The company is taking appropriate measures and has implemented business continuity plans to enable it to keep its people safe while managing its global operations. These have included temporarily closing all of the company's offices and facilities, and implementing work-from-home measures for all the company's employees across the global organization. Fortunately, the company is able to conduct much of its business remotely.

Premium content production continues:

  • The company was able to expeditiously transition its animation studio of approximately 700 team members to work-at-home solutions. The studio is currently operating at nearly 95-per-cent productivity and is expected to deliver shows on budget and with only minimal delays.
  • The company's current production slate remains healthy, with a robust pipeline. Production is in progress on new Wildbrain proprietary content, as well as content for partners such as Lego, DreamWorks, Netflix, Mattel and Apple TV.
  • The company has currently experienced no disruption in its live-action projects, currently scheduled to start in late summer.
  • Rising demand across all platforms for kids and family content has opened up new market opportunities. The company expects to increase its pipeline in the coming quarters.

Content distribution across all media platforms:

  • The company's Canadian television channel business continues to deliver consistent cash flow with subscriber fees comprising approximately 90 per cent of segment revenue. Family Channel is seeing strong viewership in April to date, with ratings up more than 17 per cent across kids and family demos.
  • Revenue in the company's distribution business (excluding Wildbrain Spark) fluctuates quarter to quarter based on when deals are closed and the timing of content deliveries. The current environment is creating increased demand for the company's expansive library.
  • Wildbrain Spark continues to enjoy strong audience growth with views up 34 per cent and watch times up 69 per cent in the last 30 days versus the same period last year, averaging more than 3.5 billion views each month on the company's premium network. Consistent with a broad pullback in media advertising and YouTube data collection policies implemented in January, Wildbrain Spark has seen its revenue decline approximately 60 per cent in April to date, compared with the same period a year ago. The company is taking mitigating actions by reducing costs and reallocating resources to growth areas. Over the longer term, it believes it is in a favourable position to capitalize on the growing trends of viewership and advertising, moving on-line given its 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:

  • The company's 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 the company's consumer products owned business, as market demand recovers, the company expects the resilient Peanuts franchise -- a top-10 character brand at retail -- to perform well supported by its new content rolling out on Apple TV.

The company continues to regularly assess the COVID-19 situation and evaluate the potential impacts on its business. The company continues to strongly believe in the long-term prospects and opportunities for its kids content and brands. Its strategy remains focused on expanding the business by creating content that drives brand awareness and engages audiences on all the platforms where kids and families are watching and selling consumer products inspired by these shows and brands.

Business protection measures

The company has initiated a further $2.0-million in quarterly operating expense savings to safeguard its financial position and preserve cash, including:

  • Implementation across the global organization of a temporary 20-per-cent reduction in salaries for senior management members, 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 United Kingdom government's financing 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;
  • Evaluating and applying for government programs, where applicable.

(1) Loss before income taxes in third quarter 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 U.S. dollars, and also by the goodwill impairment.

(2) Adjusted EBITDA (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) is a non-generally accepted accounting principle financial measure and does not have a standardized meaning prescribed by GAAP. 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 second quarter 2020 management's discussion and analysis.

(3) 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. The adoption of international financial reporting standard 16 in first quarter 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.

(4) The non-cash goodwill impairment charge of $185.0-million excludes goodwill held in the company's Peanuts and television cash-generating units (CGUs).

Third quarter 2020 conference call

The company will report its third quarter fiscal 2020 results after market close on May 13, 2020, and hold a conference call at 9:30 a.m. ET on 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 on May 22, 2020.

The audio and transcript will also be archived on the company's website approximately two days after the event.

About Wildbrain Ltd.

At Wildbrain, it makes great content for kids and families. With approximately 13,000 half-hours of filmed entertainment in its library, one of the world's most extensive, the company is home to such brands as Peanuts, Teletubbies, Strawberry Shortcake, Caillou, Inspector Gadget, Johnny Test and Degrassi. Its shows are seen in more than 150 countries on over 500 telecasters and streaming platforms. It also licenses consumer products and location-based entertainment in every major territory for its own properties, as well as for its clients and content partners.

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