Mr. Eric Ellenbogen reports
WILDBRAIN REPORTS Q2 2021 RESULTS
Wildbrain Ltd. has released its fiscal 2021 second-quarter (Q2 2021) and six-month (H1 2021) results for the periods ended Dec. 31, 2020.
Eric Ellenbogen, Wildbrain chief executive officer, said: "We recently announced yet another major deal that capitalizes on our capabilities to manage, monetize and grow brands across content and licensing. In partnership with Sega, we're producing a new original series for Netflix's global audience based on the highly popular Sonic the Hedgehog gaming franchise. Wildbrain and Sega will jointly participate in production, distribution and licensing revenues generated from the new animated series, titled Sonic Prime. Our new content is expected to extend the fan base for the Sonic franchise and builds on the success that our agency, Wildbrain CPLG, is already having with consumer products licensing for Sega across continental Europe. These multiyear, exclusive agreements with two of the world's leading entertainment companies add another premium project to our creative pipeline and gives us excellent visibility into even more contracted, high-quality earning streams for years to come."
Mr. Ellenbogen continued: "We're also realizing positive momentum across every part of our business, evidenced by our Q2 financial results, led by strength in our content and distribution segment. We're further encouraged by quarter-over-quarter sequential improvement at Wildbrain Spark as advertising revenues continued to rebound from the pressures of COVID-19 and YouTube policy changes. Wildbrain Spark is also successfully building new revenue streams, including direct ad sales, paid media and digital production fees, with these nascent revenues growing by 365 per cent in the current quarter. Over all, we're delivering meaningful progress on our plans to provide 360-degree support to grow our own and partners' brands by leveraging the strength Wildbrain has in development, production, distribution, licensing and audience delivery."
Aaron Ames, Wildbrain chief financial officer, added: "During Q2, we continued our disciplined approach to content investments, and the management of costs and working capital, as reflected in our positive free cash flow. We are also making significant investments to support our growth in premium production, licensing and further building our development pipeline. In Q2, we further accelerated buildout of our proprietary data analysis and ad sales teams at Wildbrain Spark to support growth in our own and partners' brands. Our leverage ratio remained steady from Q1, and we remain on track to be in the mid-four-time level, or below, by the end of our fiscal 2022."
Q2 2021 performance -- executing on priorities
- Monetizing large audience on Wildbrain Spark:
- Wildbrain Spark increased its audience engagement with 59.7 billion minutes of videos watched on the company's ad-supported video-on-demand (AVOD) network in Q2 2021, up 15 per cent from Q2 2020;
- Wildbrain Spark revenue was $15.5-million in Q2 2021 versus $8.9-million in Q1 2021, reflecting sequential growth, up 74 per cent from the previous quarter as the company saw continued recovery in advertising rates. The company also continued to grow other AVOD revenue streams from direct ad sales, paid media and digital production;
Grow key brands:
- Continued delivery of The Snoopy Show to Apple TV Plus. Continuing production on more original Peanuts content for Apple TV Plus, including multiple family specials and season 2 of Snoopy in Space;
- Continued delivery of the brand-new series Go, Dog. Go!, a top 10 show now streaming on Netflix;
- Acquired additional rights, which the company did not own previously, in the Caillou series from PBS for $6.4-million (U.S.). This investment consolidated the company's rights ownership, allowing it to extend this well-known brand to a broader U.S. audience and increase exploitation across various business areas;
- Subsequent to quarter-end, signed multiyear exclusive partnerships with Sega and Netflix to produce a new animated Netflix Original series based on Sonic the Hedgehog, in which the company will participate across multiple revenue streams;
Improve cash flow and balance sheet:
- Generated $23.5-million in positive free cash flow in Q2 2021 versus $13.3-million in Q2 2020;
- Paid down the remaining $5.0-million on the company's revolving credit facility in Q2 2021;
- Total net leverage ratio (2) remained steady at 5.78 times from Q1 2021. This compared with 5.4 times at June 30, 2020. The company remains on track to be in the mid-four-time level, or below, by the end of fiscal 2022.
Q2 2021 FINANCIAL HIGHLIGHTS
(in millions of dollars)
Three months ended Six months ended
Dec. 31, Dec. 31,
2020 2019 2020 2019
Revenue $142.3 $122.1 $237.7 $234.4
Gross margin $61.8 $54.5 $105.0 $103.9
Gross margin (%) 43% 45% 43% 44%
Adjusted EBITDA attributable to Wildbrain $29.1 $25.6 $46.7 $45.2
Net income (loss) attributable to Wildbrain $11.3 $(2.3) $8.0 $(18.3)
Basic earnings (loss) per share $0.07 $(0.02) $0.05 $(0.13)
Free cash flow $23.5 $13.3 $20.9 $20.9
In Q2 2021, revenue grew 17 per cent to $142.3-million compared with $122.1-million in the prior-year quarter, driven primarily by the large deal for the Peanuts library. H1 2021 revenue increased to $237.7-million versus $234.4-million in H1 2020.
Content production and distribution revenue increased 101 per cent to $68.5-million in Q2 2021 versus $34.1-million in Q2 2020. Higher revenue was driven by a growing roster of premium projects in production, including an expanding slate of new Peanuts content as well as the licensing of the Peanuts library of classic specials to Apple TV Plus. H1 2021 revenue rose 52 per cent to $104.9-million versus $69.2-million in H1 2020.
Wildbrain Spark saw continued recovery in advertising revenue from the impact of COVID-19 and YouTube's policy changes on made-for-kids content. Q2 2021 revenue improved sequentially by 74 per cent from $8.9-million in Q1 2021, reflecting the buildout of the company's proprietary data analysis tools, which is driving growth in revenue streams, including direct advertising sales on the company's own network; paid media and digital production fees; and some seasonality. These nascent revenues grew by 365 per cent in Q2 2021 versus Q2 2020. Owing to the previously identified COVID-19 and made-for-kids factors, Q2 2021 revenue was down 36 per cent to $15.5-million in Q2 2021 versus $24.2-million in Q2 2020. H1 2021 revenue on Wildbrain Spark was $24.4-million versus $46.3-million in H1 2020.
The company is confident that monetization of its highly engaged audience on Wildbrain Spark will continue to grow meaningfully. Watch time was 59.7 billion minutes of videos in Q2 2021, up 15 per cent from 52.0 billion minutes in Q2 2020. Kids on the company's platform spent six minutes and 16 seconds on average per view, up 20 per cent from Q2 2020. Viewership remained strong at 9.5 billion views in Q2 2021.
Consumer products revenue was $46.4-million in Q2 2021 compared with $51.5-million in Q2 2020. For H1 2021, revenue was $85.3-million versus $94.4-million in the same prior-year period. The declines in both the current quarter and year to date reflected the expiry of the MetLife contract for Peanuts in December, 2019. Excluding MetLife, revenue declined 3 per cent in Q2 2021 and 2 per cent in H1 2021 versus the prior-year periods, reflecting the strength of the company's consumer products business despite the impact of COVID-19 on the global retail sector.
Gross margin was relatively steady at 43 per cent in Q2 2021 versus 45 per cent in Q2 2020, reflecting a strong slate of premium projects in the company's studio and the Peanuts library deal in the current quarter. Gross margin for H1 2021 was 43 per cent versus 44 per cent in the same prior-year period.
Positive free cash flow for Q2 2021 increased to $23.5-million compared with positive free cash flow of $13.3-million in Q2 2020. The increase was partly driven by improvements in collection of production financing, other income earned in Q2 2021 and lower distributions to non-controlling interests in the current quarter. In H1 2021, the company generated positive free cash flow of $20.9-million, consistent with $20.9-million in H1 2020.
Adjusted EBITDA increased 14 per cent to $29.1-million in Q2 2021 compared with $25.6-million in Q2 2020, principally driven by the Peanuts library licensing deal, continued strength in the company's content production and distribution business, and other income of $4.4-million from a litigation settlement. Funds from this settlement were used to materially accelerate investments across growth areas, principally in the company's proprietary data analysis tools, direct ad sales and its licensing capabilities. In H1 2021, adjusted EBITDA increased 3 per cent to $46.7-million versus $45.2-million in H1 2020.
Q2 2021 net income increased to $11.3-million versus a net loss of $2.3-million in the same prior-year quarter. H1 2021 saw net income of $8.0-million versus a net loss of $18.3-million in the same six-month period in fiscal 2020. These increases were primarily attributable to higher gross margin, a higher non-cash foreign exchange gain and other income, together with lower expenses related to reorganization, development and finance costs in Q2 2021 versus Q2 2020.
(1) Free cash flow, gross margin, adjusted EBITDA and adjusted EBITDA attributable to Wildbrain are non-GAAP (generally accepted accounting principles) financial measures. Free cash flow is defined as operating cash flow less distributions to non-controlling interests, changes in interim production financing, cash interest paid on long-term debt, bank indebtedness and lease liabilities, and principal repayments on lease liabilities. Gross margin means revenue less direct production costs and expense of film and television programs produced (per the financial statements). Adjusted EBITDA represents income of the company before amortization, finance income (expense), taxes, reorganization and development expenses, impairments, equity-settled share-based compensation expense, and adjustments for other identified charges. Adjusted EBITDA attributable to Wildbrain means adjusted EBITDA excluding the portion of adjusted EBITDA attributable to non-controlling interests. Further details on the definitions of and reconciliation to free cash flow, gross margin, adjusted EBITDA and adjusted EBITDA attributable to Wildbrain can be found in the non-GAAP financial measures section of the company's Q2 2021 management discussion and analysis.
(2) Net debt includes long-term debt 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.
Q2 2021 conference call
The company will hold a conference call on Feb. 10, 2021, at 10 a.m. ET to discuss the results.
To listen, call 1-888-231-8191 toll-free or 1-647-427-7450 internationally, and reference conference ID 6197294. 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 or 1-416-849-0833, under passcode 6197294, until Feb. 17, 2021.
The audio and transcript will also be archived on the company's website approximately two days after the event.
Wildbrain inspires imaginations to run wild, engaging kids and families everywhere with great content across all media. With approximately 13,000 one-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. At the company's 75,000-square-foot, state-of-the-art animation studio in Vancouver, B.C., it produces such fan-favourite series as The Snoopy Show, Snoopy in Space, Chip & Potato, Carmen Sandiego, Go, Dog. Go! and more. Wildbrain shows are enjoyed worldwide in more than 150 countries on over 500 streaming platforms and telecasters, and its AVOD business, Wildbrain Spark, offers one of the largest networks of kids' channels on YouTube, garnering billions of views per month from over 150 million subscribers. The company 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. Wildbrain 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.
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