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WildBrain Reports Q1 2021 Results

T.WILD | November 10, 2020

Revenue was $95.5 million in Q1 2021 vs $112.3 million in Q1 2020.
Net loss improved to $3.3 million in Q1 2021 vs a net loss of $16.0 million in Q1 2020.
Free Cash Flow was negative $2.7 million in Q1 2021 vs positive Free Cash Flow of $7.7 million in Q1 2020, partly due to timing of distributions to non-controlling interests in the current quarter.
Adjusted EBITDA in Q1 2021 was $17.5 million vs $19.6 million in Q1 2020.
Gross Margin improved to 45% from 44% in Q1 2020.
WildBrain Spark revenue was $8.9 million in Q1 2021, a sequential improvement from $6.5 million in the previous quarter. This compared to $22.1 million in Q1 2020.
WildBrain Spark continued to attract a highly engaged audience watching 64.2 billion minutes of videos in Q1 2021, up 14% from Q1 2020. The average view time was up 27% to approximately six minutes per view.
Paid down $5.0 million on the revolving facility in Q1 2021.
Post quarter-end, announced expanded partnership with Apple TV+ for the largest production commitment in WildBrain's history for a new slate of Peanuts originals and specials as well as licensing the current Peanuts library of classic specials. Deal provides significant multi-year production pipeline for our studio business.

HALIFAX, NS , Nov. 10, 2020 /CNW/ - WildBrain Ltd. ("WildBrain" or the "Company") (TSX: WILD), a global leader in kids and family entertainment, today reported its Fiscal 2021 first quarter results for the three-month period ended September 30, 2020 ("Q1 2021").

Eric Ellenbogen , WildBrain CEO, said: "We kicked off Fiscal 2021 with an expanded Apple TV+ partnership that will see a new generation of kids and families enjoying a full slate of new Peanuts originals plus the long-running classic specials on a leading global media platform. This multi-year, worldwide agreement is the largest production commitment in our company's history. It aligns with our strategy of creating premium content in long-term deals that will meaningfully grow our earnings base. We have and will continue to line up a book of production business that you'll see play out in our numbers in the coming quarters and years ahead. This Peanuts deal illustrates how we're maximizing the profitability of our key IP across the value chain by leveraging new production to also secure high-value library sales and consumer products opportunities. As we close more content deals and switch on key brands, we'll continue to build momentum, driving growth for years to come."

Ellenbogen continued: "In Q1, we delivered financial results that reflected strong production revenue and resilience in our consumer products and television businesses in the face of current macro-economic headwinds. We're also encouraged by the sequential improvement in Q1 revenue at WildBrain Spark. We're in a great position to benefit from the secular movement of advertising dollars to digital given our network scale, global reach, data insights and kid-safe, premium programming. We expect our direct advertising sales, as well as other initiatives designed to monetize the huge audiences on our AVOD network to help speed recovery and growth at WildBrain Spark as advertising demand returns."

Aaron Ames , WildBrain CFO, added: "During Q1, we continued to execute on our disciplined approach to content investments while managing working capital and controlling our costs. We also paid down $5.0 million on our revolving credit facility in Q1 and the outstanding balance of $5.0 million in October, subsequent to quarter-end. The recently expanded deal with Apple TV+ will begin to add to our EBITDA in Fiscal 2022 and is also a meaningful positive for our consumer products business. While we expect our Total Net Leverage Ratio 2 to increase moderately in Q2 2021 due to timing, based on our current expectations of how the pandemic will play out, coupled with the enhanced visibility we now have around our revenue, earnings and content pipeline over the next 18-plus months, we expect our Total Net Leverage Ratio 2 to be comfortably in the mid-4x level, or below, by the end of Fiscal 2022."

Q1 2021 Performance - Executing on Priorities

PRIORITIES	HIGHLIGHTS
Monetizing our Large Audience on WildBrain Spark	WildBrain Spark increased its audience engagement with 62.4 billion minutes of videos watched on our AVOD network in Q1 2021, up 14% from 56.3 billion minutes in Q1 2020. The average view time also rose by 27% to approximately six minutes per view. WildBrain Spark revenue was $8.9 million in Q1 2021 vs $22.1 million in Q1 2020, due to policy changes on YouTube and ongoing industry-wide pressures impacting advertising. Q1 2021 revenue reflected sequential growth, up 37% from the previous quarter.
Grow Key Brands	Production is underway on a second new Peanuts original series, The Snoopy Show , to premiere globally in February 2021, exclusively on Apple TV+ Apple TV+ has ordered a second season of Snoopy in Space - one of the most popular shows viewed across multi-generations on their streaming platform. Fresh Peanuts content is supporting a robust licensing program with new deals for apparel, housewares, appliances, collectibles, food and beverage, publishing and more. Many of the international deals were brokered by our licensing agency, WildBrain CPLG, highlighting the collaboration realized across our business units. A round of new global streaming and broadcast deals for the latest seasons of Fireman Sam and Polly Pocket including US and multi-territory rights to Netflix are driving exposure for these partner brands with Mattel where we share in back-end merchandising royalties.
Improve Cash Flow and Balance Sheet	Paid down $5.0 million on our revolving credit facility in Q1 2021, as well as the remaining $5.0 million in October, subsequent to quarter-end. The Total Net Leverage Ratio 2 was 5.70x at September 30, 2020 vs 5.66x at September 30, 2019. While we expect our Total Net Leverage Ratio 2 to increase moderately in Q2 2021 due to timing, based on our current expectations of how the pandemic will play out coupled with the enhanced visibility we have around our revenue, earnings and content pipeline over the next 18-plus months, we expect our Total Net Leverage Ratio 2 to be comfortably in the mid-4x level, or below, by the end of Fiscal 2022.

Q1 2021 Financial Highlights

Financial Highlights (in million of Cdn$)	Three Months ended September 30,
Financial Highlights (in million of Cdn$)	2020	2019
Revenue	$95.5	$112.3
Gross Margin	$43.3	$49.4
Gross Margin (%)	45%	44%
Adjusted EBITDA attributable to WildBrain	$17.5	$19.6
Net Loss attributable to WildBrain	$(3.3)	$(16.0)
Basic Loss per Share	$(0.02)	$(0.12)
Free Cash Flow	$(2.7)	$7.7

In Q1 2021, we reclassified our financial reporting to better reflect our 360° approach to IP management and the characteristics of the transactions that we are entering into with global streaming services ("SVODs") and across other distribution channels 3 . Growth in our production revenue reflects global SVODs investing heavily to deliver high-quality, exclusive programming. Under this model, typically the SVODs pay for the cost of production inclusive of production fees, while we retain ownership of the underlying IP as well as linear distribution rights (after a holdback of approximately 24 to 36 months) and all consumer products revenues. This differs from the traditional production/distribution model of covering production costs from multiple linear broadcasters, with margins realized over multi-year licensing cycles. Since our slate has become a combination of both these models, we have revised our reporting to aggregate production and distribution, which is consistent not only with the integrated management of our business, but also with industry practice.

Accordingly, we now report production and distribution in one revenue line under "Content Production and Distribution". We also consolidated reporting of all revenue streams related to consumer products, including our licensing agency WildBrain CPLG, under "Consumer Products". Our WildBrain Spark business, which generates revenues primarily from advertising and sponsorships, continues to be reported under "WildBrain Spark". Collectively, the three preceding revenue lines will now comprise our "Content Business" segment for reporting purposes. For clarity, our Canadian television business has been renamed "Canadian Television Broadcasting" and continues to be reported separately.

In Q1 2021, revenue was $95.5 million compared with $112.3 million in the prior year quarter. This decrease was primarily driven by WildBrain Spark, resulting from pressures on global advertising due to COVID-19 and policy changes on YouTube for "Made for Kids" content, partially offset by stability in our other businesses.

Content Production and Distribution revenue increased to $36.3 million in Q1 2021 vs. $35.1 million in Q1 2020, due to higher production revenue. Production revenue increased in Q1 2021, driven by premium proprietary projects including new Peanuts originals such as The Snoopy Show , a number of family specials and a second season of Snoopy in Space. The increase was also driven by new seasons of Johnny Test , Fireman Sam, Polly Pocket and Chip & Potato . The Peanuts library deal, which was signed after quarter-end, will be reflected in second quarter results.

While COVID-19 and YouTube's changes in targeted advertising policies continued to negatively impact advertising sales at WildBrain Spark, with revenue declining 60% to $8.9 million in Q1 2021 vs Q1 2020, we are encouraged by the sequential growth in revenue. Revenue improved sequentially month-over-month as we moved through the quarter, reflecting an increase of 37% compared with $6.5 million in Q4 2020. This trend has continued in October as digital advertising begins to show improvement and we continue to implement initiatives to monetize the significant viewership consuming content on our AVOD network. WildBrain Spark has one of the largest and most engaged global audiences in the kids and family space with 62.4 billion minutes of videos watched this quarter, up 14% vs Q1 2020. On average, the duration of each view amounted to approximately six minutes, an increase of 27% from Q1 2020. Viewership remained strong at 10.7 billion views in Q1 2021.

Excluding the expiring MetLife contract which represented $3.6 million in Q1 2020, Consumer Products revenues were stable at $38.8 million in Q1 2021, reflecting the continuation of strong licensing royalties from our Peanuts franchise and increased commissions from our licensing agency WildBrain CPLG.

Gross Margin increased to 45% in Q1 2021 vs 44% in Q1 2020, driven by growth in production revenue derived from a growing slate of higher-margin premium projects in our studio.

Positive operating cash flow 4 of $19.6 million in Q1 2021 vs $29.9 million in Q1 2020, due to timing of settlement of working capital balances. Free Cash Flow for Q1 2021 was negative $2.7 million , compared to positive Free Cash Flow of $7.7 million in Q1 2020, partly due to timing of distributions to non-controlling interests in the current quarter vs no payments in the prior year quarter.

Adjusted EBITDA was $17.5 million in Q1 2021 compared with $19.6 million in Q1 2020, principally related to the weakness in advertising revenue at WildBrain Spark.

Q1 2021 net loss was $3.3 million vs a net loss of $16.0 million in the same prior year quarter. This improvement was attributable to lower SG&A, lower reorganization and development costs and a higher non-cash foreign exchange gain in Q1 2021 compared to Q1 2020.

1.	Free Cash Flow, Gross Margin, Adjusted EBITDA and Adjusted EBITDA attributable to WildBrain are non-GAAP 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 our long-term debt, bank indebtedness and lease liabilities and principal repayments on our 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 Q1 2021 MD&A.

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 at www.sedar.com .

3.	For more details, refer to the "Revenue Model" section of WildBrain's Q1 2021 MD&A.

4.	In Q1 2021, we reclassified cash interest paid on our long-term debt, bank indebtedness, and lease liabilities that were previously included as cash flows used in operating activities, to be reported in the current quarter as part of cash flows used in financing activities with a corresponding reclassification to Q1 2020, as these interest charges do not form part of our ongoing operating activities, performance and results. Refer to the "Liquidity and Capital Resources" section of the Company's Q1 2021 MD&A.

Q1 2021 Conference Call

The Company will hold a conference call on November 11, 2020 at 10:00 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 9703649. 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 9703649, until November 18, 2020 .

The audio and transcript will also be archived on our 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

Media: Shaun Smith - Director, Corporate & Trade Communications, WildBrain
shaun.smith@wildbrain.com
+1 416-977-7230

About WildBrain

At WildBrain we inspire imaginations to run wild, engaging kids and families everywhere with great content across all media. 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 . At our 75,000-square-foot state-of-the-art animation studio in Vancouver, BC , we produce such fan-favourite series as Snoopy in Space , Chip & Potato , Carmen Sandiego and more. Our shows are enjoyed worldwide in more than 150 countries on over 500 streaming platforms and telecasters, and our AVOD business - WildBrain Spark - offers one of the largest networks of kids' channels on YouTube, garnering approximately four billion views per month from over 200 million subscribers. We also license consumer products and location-based entertainment in every major territory for our own properties as well as 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 productions in development, advertising rates and revenue of WildBrain Spark, investments by the Company and expected benefits from such investments, future growth and financial and operating performance of WildBrain Spark, impacts of YouTube's changes to targeted advertising, impacts of the Peanuts deal with Apple, the markets and industries in which the Company and its subsidiaries operate, impacts of COVID-19 on the Company, its business, the markets and industries in which it operates, the future financial and operating results of the Company (including leverage), changes to financial reporting classifications, and the business strategies and operational activities of the Company and its growth and long-term prospects. 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 the availability of investment opportunities and at acceptable valuations, 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 and investment opportunities, the ability of the Company to realize expected operating cost savings, consumer preferences, market factors, conditions in the AVOD, entertainment and brands industries, the ability of the Company to execute on production and licensing arrangements, 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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