Wow Unlimited Media Inc

XTSX:WOW

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the WOW! Unlimited Media Inc. Second Quarter 2020 Financial Results Conference Call. [Operator Instructions]I would now like to hand the conference over to your speaker today, Bill Mitoulas. Thank you. Please go ahead, sir.

[Bill Mitoulas, Investor Relations Officer]

Thank you, Stephanie, and good morning, everyone. Welcome to the WOW! Unlimited Media Inc. conference call to discuss the financial results for the second quarter ending June 30, 2020. Before we begin, please let me remind you that during the course of this conference call, WOW! Unlimited Media's management may make forward-looking statements. These forward-looking statements are based on current expectations that are subject to risks and uncertainties that may cause actual results to differ materially from expectations. These risks are outlined in the Risk Factors section of our listing statement filed on SEDAR. Any forward-looking statements should be considered in light of these factors. Please also note that any outlook we present is as of today and management does not undertake any obligation to revise any forward-looking statements in the future. With us on the call today are Chairman and Chief Executive Officer, Michael Hirsh; President and Chief Operating Officer, Neil Chakravarti; and Executive Vice President and Chief Financial Officer, John Vandervelde. Michael will provide us with a brief summary of the company's financial results and also discuss some operational initiatives that were underway during the quarter. The Q&A portion of this call will be open to analyst questions to further provide insight into the company's performance, its operations and go-forward strategy. For those of you who may happen to leave our call before its conclusion, please be advised that this conference call will be recorded and archived on the WOW! Unlimited Investor Relations website page. It will also be available for on-call replay where dial-in instructions were provided in the news release that was disseminated yesterday. With that, I'll turn the call over to Michael. Michael, please go ahead.

[Michael Hirsh, CEO & Executive Chairman]

Yes. Thank you, Bill, and good morning to everyone on this bright August morning. And I want to thank you all for joining us this morning to discuss WOW! Unlimited Media's results for the second quarter and the 6 months ending June 2020. For the second quarter of 2020, WOW!'s revenue was 1 point -- was $11.5 million, let me correct, $11.5 million, and our EBITDA was negative $0.7 million. For the 6 months ended June 2020, revenue was $25.2 million, and EBITDA was negative $0.6 million. Our animation backlog continues to be strong. As of June 30, the backlog was $64.3 million. The other highlights for this quarter include the following. Over 200 half hours of episodic animation and 7 animated movie specials are currently in production or contracted. Barbie Princess Adventure for our partners, Mattel, is expected to drop on Netflix beginning September 2020. As you all know, we've been producing Barbie since Mattel started animating about 25 years ago and we're looking forward to the continued relationship. We are happy to announce that a prominent global streaming platform has picked up our highly popular Bee & PuppyCat series. We expect to share more details in the near future. Bee & PuppyCat is a promising property that we intend to build as a brand for Frederator. Given the ongoing pandemic, we continue to focus on the well-being of our employees, working more closely with our clients and partners and executing on our production pipeline. As we had mentioned on our Q1 call, we did a comprehensive review of our business through a crisis lens due to the pandemic. As a result, we have implemented a restructuring and reorganization project in order to reduce the headcount at Frederator and to implement overhead and cost-saving initiatives, which are expected to provide potential EBITDA savings in excess of $2 million on an annualized basis. Finally, as all of you know, Fred Seibert has decided to leave the company and return to his roots as an independent producer. Fred has been a valued partner since the inception of WOW! And while we are sorry to see him leave, Fred will continue to partner with the company on current and future projects independently. The Frederator team, which he had built over the years, continues to look forward to provide fans with beloved animation franchises, alongside new and exciting content from the over 3,000 strong Channel Frederator Network. We continue to believe in the growth of the animation business and look forward to deliver that growth in the years to come. With that, I'd like to thank all of you once again and hand it back to Bill for your questions.

[Bill Mitoulas, Investor Relations Officer]

Stephanie, feel free.

[Operator]

[Operator Instructions] Your first question comes from the line of Rob Goff with Echelon.

[Robert Goff, MD & Head of Research]

Glad to see that you will be continuing to work with Fred in the future. Could I ask if Fred will maintain his shares in WOW!?

[Michael Hirsh, CEO & Executive Chairman]

Yes. Fred has agreed to maintain his shares in WOW! and has agreed to do that for a period of, I believe, 1.5 years.

[Robert Goff, MD & Head of Research]

Okay. And could you perhaps give us a bit of an update with respect to Castlevania in terms of the traction there, your plans there?

[Michael Hirsh, CEO & Executive Chairman]

Yes. So we're currently producing cycle 4 of Castlevania. At this moment, we believe that the story line that is -- that this series tells comes to a conclusion with this cycle, but that's not a definite decision. And so we will continue to talk to our partners in Castlevania, the other underlying rights holders and the networks to make a determination on what happens with Castlevania in the future.

[Robert Goff, MD & Head of Research]

Okay. And with respect to your backlog, could you perhaps talk to any potential prospects to add to your pipeline or your backlog?

[Michael Hirsh, CEO & Executive Chairman]

Yes. We're currently -- we're constantly working on adding to the pipeline, and we believe that we will have some very good announcements to make within the next couple of months of adding to that backlog. We are definitely seeing the kind of expansion for demand that we expected. And with the scalability that we have experienced through the work-at-home remotely process that we had to put in place with the pandemic, the scalability of our studio is dramatic. So whereas we have physical premises that hold 400 people because everybody is working at home, we currently have more than that working for us and we expect that number of animators to grow. And therefore, we're experiencing that scalability that I was just talking about.

[Robert Goff, MD & Head of Research]

Okay. And without naming names, can you give us perhaps a bit more insights into your plans for Bee & PuppyCat?

[Michael Hirsh, CEO & Executive Chairman]

So Bee & PuppyCat, I think, is a key brand for us. It's -- if anybody has seen it, it's been on our Cartoon Hangover channel as well as Cartoon Hangover Select. And it's very popular with its fans. It's got a cult following and I believe that this is a property that will grow. I think that particularly young teenage girls will find this an attractive property. So we hope to roll out, with the launch on a streaming platform, we will work to launch some merchandising lines as well.

[Operator]

Your next question comes from the line of David McFadgen with Cormark.

[David John McFadgen, Director of Institutional Equity Research]

So just a couple of questions on Frederator. That business in New York City, the office is kind of small to begin with. So I'm just kind of wondering what it's going to look like going forward now that Fred's leaving. And I was just wondering how you would expect to generate $2 million of EBITDA savings as a result because it was already fairly small to begin with.

[Michael Hirsh, CEO & Executive Chairman]

Okay. So I'm going to turn this over to Neil. Neil, would you like to answer that question?

[Indranil Chakravarti, President & COO]

Yes. Sure. David, the restructuring at Frederator is, in particular, in New York, as you correctly pointed out. What we're looking at are 2 things: One, the O&O side of the business; and two, the corporate overheads. And the O&O side of the business is something we're working on to redefine our strategy, and that's where all the headcount reductions were, and then there were additional headcount reductions on the corporate overhead side. So when we talk about the $2 million savings, it's as a result of both the O&O side and the overhead headcount reduction as well as the overhead cost reduction. You made a point -- you made a reference to our smaller offices. Yes, it was a small group of people. But now we are, at this point, contemplating the use of space as well going into the future. Whether we're going to need a proper office or a virtual office, that's another thing we're looking at. But like Michael said, we looked at the business through a crisis lens. We wanted to focus on business units that are more EBITDA cash-generating business units like the MCN. And we wanted to step back on the O&O side and reevaluate our options before we come back with more strategy. Hope that helps.

[David John McFadgen, Director of Institutional Equity Research]

Okay. So it's possible that the New York City office may not exist in the future and everybody just works from home and they'll just be reporting into you? Is that way it would work?

[Indranil Chakravarti, President & COO]

In New York, the core team now is the MCN team. And as you know, we have always operated with a very small crew for the MCN. We have office space now. We are evaluating our options on whether we want to continue having physical office space or a blend -- or a virtual office space.

[David John McFadgen, Director of Institutional Equity Research]

Okay. And what about the L.A. business, the Frederator, is that on the plan, too?

[Michael Hirsh, CEO & Executive Chairman]

Yes. In terms of L.A., we have a very small premise there. But again, we find ourselves not using it. So we're evaluating exiting from that space given the current circumstance with the virus crisis. In terms of the staff, there are 2 key people, the Head of Development and our Head of Production. And we're working with them to build the business and the team.

[David John McFadgen, Director of Institutional Equity Research]

Okay. Okay. And then just outside of what's happening on the MCN and Frederator and with the loss of ADME, do you still expect the other parts of the business to grow this year? Can you comment on that?

[Michael Hirsh, CEO & Executive Chairman]

Do you mean -- so Mainframe? Is that what you said?

[David John McFadgen, Director of Institutional Equity Research]

Yes. Yes, maybe if you could...

[Michael Hirsh, CEO & Executive Chairman]

Yes. We're expecting to see Mainframe -- so we expect to see Mainframe add to the backlog and add some additional projects. We do see an excellent opportunity for growth both on the service side and the IT side of the business at Mainframe. Our team there that's been there for many years, Michael Hefferon and Kim Dent Wilder are leading the team, are doing an excellent job. And we're seeing a lot of repeat business from clients, and we're adding new clients. So very positive outlook coming up.

[David John McFadgen, Director of Institutional Equity Research]

Okay. Well, maybe I can just be a little specific. Do you expect it to grow in 2020 versus 2019? Do you still expect that?

[Michael Hirsh, CEO & Executive Chairman]

Neil, do you want take that on?

[Indranil Chakravarti, President & COO]

David, the -- right now, the production pipeline is what is guiding the revenues for the year. The work for higher revenues are moving at the right cadence right now, and we would expect that work for higher revenue this year at Mainframe will be higher than last year. With regard to IP, it comes down to delivery. And one of the things we mentioned on this Q2 release is that there are some delays in delivery in terms of third-party providers providing us content. And to that extent, as far as IP billings, we are not 100% sure on whether everything as planned gets billed for Q4 or some moves over to Q1. But if there is any delay, it will be fractional, as in fractional parts of the IP deliveries. You know the IPs we're working on. And one is for a key partner that we haven't mentioned, and then one is the Castlevania on Netflix. They may flip over -- parts of them may flip over from Q4 to Q1. But on the work from -- on the service work, we're not seeing any disruption and the service work is happening ahead of schedule and ahead of run rate last year.

[Operator]

At this time, I would like to turn it back over to management for closing.

[Michael Hirsh, CEO & Executive Chairman]

So I'd like to thank everybody for joining us today for this call. We look forward to our Q3 call in a few months and wish everybody a good end of summer, and keep well.

[Operator]

Thank you. This concludes today's conference call. You may now disconnect.