Pre-emptive measures taken to safeguard our
business for the long-term
Notice of Q3 2020 earnings call
HALIFAX, April 29, 2020 /CNW/ - 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:
|
Q3
2020
|
Q3
2019
|
YTD
2020
|
YTD
2019
|
Revenue
|
$96.0 million to
$100.0 million
|
$110.0
million
|
$331.0 million to
$335.0 million
|
$331.0
million
|
Loss before
Income
Taxes1
|
($205.0 million)
to
($215.0 million)
|
($19.1
million)
|
($210.0 million)
to
($220.0 million)
|
($30.7
million)
|
Adjusted EBITDA
attributable to
WildBrain2
|
$17.0 million to
$19.0 million
|
$20.1
million
|
$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 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.
Business Update
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.
1.
|
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.
|
|
|
2.
|
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.
|
|
|
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 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.
|
|
|
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).
|
Table 1: Reconciliation of preliminary results to Adjusted
EBITDA
(in $
millions)
|
Q3 2020
5
|
Q3
2019
|
YTD 2020
5
|
YTD
2019
|
|
|
|
|
|
Loss before income
taxes
|
(210.0)
|
(19.1)
|
(215.0)
|
(30.7)
|
Add
back:
|
|
|
|
|
Finance cost,
net
|
10.0
|
10.2
|
40.0
|
40.5
|
Change in fair
value of embedded derivative
|
(2.0)
|
(1.6)
|
(4.0)
|
(3.5)
|
Foreign
exchange
|
26.0
|
(7.6)
|
25.0
|
5.5
|
Amortization of
property and equipment and
intangible assets
|
7.0
|
5.6
|
18.0
|
17.1
|
Amortization of
acquired and library content
|
3.0
|
3.9
|
9.0
|
11.0
|
Write-down of
investment in film and television
programs, acquired and library content, intangible
assets and goodwill
|
187.0
|
34.2
|
194.0
|
36.2
|
Share-based
compensation
|
1.0
|
0.7
|
4.0
|
0.7
|
Reorganization,
development and other
|
2.0
|
1.4
|
16.0
|
4.1
|
Adjusted
EBITDA
|
24.0
|
27.7
|
87.0
|
80.9
|
Portion of
Adjusted EBITDA attributable to non-
controlling interests
|
(6.0)
|
(7.6)
|
(24.0)
|
(21.5)
|
Adjusted EBITDA
attributable to WildBrain
|
18.0
|
20.1
|
63.0
|
59.4
|
|
|
5.
|
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.
For more information, please contact:
Investor Relations: Nancy
Chan-Palmateer - Director, Investor Relations, WildBrain
nancy.chanpalmateer@wildbrain.com
+1 416-977-7358
About WildBrain
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.
Forward-Looking Statements
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.
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SOURCE WildBrain Ltd.