SOURCE: WOW! Unlimited Media Inc.

WOW! Unlimited Media Inc.

April 26, 2017 09:00 ET

Wow Unlimited Media Announces Financial Results for Fiscal Year End 2016

VANCOUVER, BC--(Marketwired - April 26, 2017) - Wow Unlimited Media Inc. (formerly Rainmaker Entertainment Inc. ("Wow" or the "Company") (TSX VENTURE: RNK.A)(TSX VENTURE: RNK.B) today announced its fourth quarter and fiscal year‐end results for the period ended December 31, 2016. The fourth quarter results incorporate items relating to the completion of the previously announced Frederator Networks and Ezrin Hirsh acquisitions, along with the $11 million private placement and retirement of the Company's outstanding convertible debentures. The results reported include the results of operations from the acquired companies from December 15th, 2016 the date of acquisition, through December 31st, 2016.

The Company reported the following highlights from the year ended December 31st, 2016:

            
    For the three months ended    For the year ended  
$000's except per share amounts   31-Dec-16    31-Dec-15    31-Dec-16    31-Dec-15  
Revenue $ 3,454  $ 3,548  $ 17,660  $ 15,902  
Operating EBITDA   (445 )  59    1,338    1,301  
Operating loss   (849 )  (490 )  (725 )  (918 )
Loss   (6,426 )  (1,304 )  (15,025 )$ (2,200 )
Loss per share                     
 - basic and diluted $ (2.30 )$ (0.75 )$ (5.37 )$ (1.26 )
             

1 See section "Non-GAAP Financial Measures" in this earnings release.
2 All earnings per share data for comparative periods have been adjusted to reflect a 10:1 share consolidation completed during the year-ended December 31, 2016

FINANCIAL HIGHLIGHTS

  • For Fiscal 2016, full year revenue grew 11% to $17.7 million, with Operating EBITDA up 3% to $1.3 million. The Operating Loss continued to decrease to $0.7 million. The total Comprehensive Loss was $15.4 million, relating to the previously disclosed charges for the impairment of Ratchet & Clank ($8.8 million), and various transaction costs relating to the Frederator Networks and Ezrin Hirsh acquisitions ($5.8 million).
  • For Q4, despite the relatively stable revenues from the three months ended December 31, 2016th compared to the three months ended December 31, 2015, Operating EBITDA decreased by $0.5 million. The decrease was the result of a combination of a lower margin project commencing in Q4, below average production volumes due to projects starting later in Q4, and the incorporation of the revenue and operating expenses of Frederator. The net loss in Q4 was $6.4 million and was primarily related to the Q4 related acquisition costs.

TRANSACTION HIGHLIGHTS

In Q4, the Company concluded a series of reorganizations and transactions that resulted in a significant change in operations, size, and capitalization of the Company. A summary of the transactions completed during the year is as follows:

  • Completed various corporate restructuring changes (the "Reorganization") including:
    • Changed the operating name of the Company to Wow Unlimited Media Inc.
    • Consolidated its outstanding common shares at a 10:1 ratio
    • Created a new class of variable voting shares
    • Created a new class of non-voting shares
    • Adopted a 10% rolling stock option plan
  • Completed a private-placement for total gross proceeds of $11,000,160
  • Acquired 100% of the outstanding stock of Frederator Networks Inc. ("Frederator")
  • Acquired 100% of the outstanding stock of Ezrin Hirsh Entertainment Inc. ("EH Entertainment")
  • Redeemed 100% of the outstanding convertible debentures

Michael Hirsh, Chairman and CEO, commented: "The future is bright for Wow Unlimited. We are off to a great start building the next generation kids and youth entertainment business. Frederator and Rainmaker are working closely together to maximize synergies and we expect that to drive significant value for our animation projects going forward. We have recently made a series of announcements in our 100 Day round-up providing great momentum for the year ahead."

OPERATIONAL UPDATE

The combined Company has already made a strong impact in the kids and youth animation marketplace. Following completion of the transaction, the Company announced multiple production deals including Costume Quest with Amazon Studios, Castlevania with Netflix, Spy Kids: Mission Critical with The Weinstein Company and Barbie Dolphin Magic with Mattel.

The Frederator Network in aggregate had its best month by viewership ever in March 2017. Across the Channel Frederator Network views crossed the 600,000,000 threshold in the month of March. In addition, the network channel partner count is steadily increasing and is approaching the 3,000 channel partner threshold.

The Company is also announcing the forthcoming departure of the Company's Chief Financial Officer, Bryant Pike, who will be leaving the Company to pursue other opportunities. Mr. Pike will remain with the Company in a consulting capacity to assist with a smooth transition to a successor CFO until May 31st, 2017.

Chairman and CEO, Michael Hirsh, states, "On behalf of the board of directors and our teams at Rainmaker and Frederator, I would like to thank Bryant for his contribution to the Company during his tenure. We wish him well in his future endeavors."

The Company is also announcing the appointment of Wow's VP of Finance, Christine Read, to the position of interim CFO effective immediately. Ms. Read first joined Wow in October 2013, after working as a senior manager with Deloitte Canada.

 
YEAR END CONSOLIDATED RESULTS         
   
   
$000's, except per share amounts   2016    2015    2014  
Revenue $ 17,660  $ 15,902  $ 10,169  
Operating EBITDA   1,338    1,301    (697 )
Operating loss   (725 )  (918 )  (2,034 )
Operating loss per share                
 - basic and diluted $ (0.26 )$ (0.52 )$ (1.16 )
Net loss $ (15,025 )$ (2,200 )$ (1,956 )
Net loss per share                
 - basic and diluted $ (5.37 )$ (1.26 )$ (1.12 )
Weighted average number of shares outstanding                
 - basic and diluted   2,798,249    1,748,514    1,748,514  
   
   
$000's   2016    2015    2014  
Consolidated Statement of Comprehensive Loss                
Revenue $ 17,660  $ 15,902    10,169  
Expenses                
 Operating   14,222    11,985    8,933  
 General and administration   2,742    3,402    2,690  
 Loss on sale of property, plant and equipment   -    -    42  
 Impairments   867    -    -  
 Acquisition costs   5,760    -    -  
 Other expenses 1   1,421    2,068    569  
Loss before impact of equity investments   (7,352 )  (1,553 )  (2,066 )
Share of loss of Ratchet Productions, LLC   (8,839 )  (647 )  -  
Revenue share of Ratchet Productions, LLC   1,166    -    -  
Net loss   (15,025 )  (2,200 )  (2,066 )
Deferred income tax recovery   -    -    (110 )
Net loss   (15,025 )  (2,200 )  (1,956 )
Other comprehensive loss                
 Currency translation adjustment   413    (608 )  -  
Total comprehensive loss $ (15,438 )$ (1,592 )$ (1,956 )
Loss per share                
 - basic and diluted $ (5.37 )$ (1.26 )$ (1.12 )
           

1 Other expenses include finance expense, finance income, and other (gains) losses.

Revenue & Operating EBITDA

Revenue earned during 2016 was $17.7 million compared to $15.9 million in 2015. The majority of the $1.8 million increase is as a result of increased production services projects delivering through the first nine months of the year.

The Operating EBITDA as a percentage of revenue was lower in 2016 than 2015. This was the result of one new project which commenced during the year at a much lower project margin to revenue ratio. A total of $0.4 million (2015 - $nil) of revenue is included in the statement of comprehensive loss which relates to the revenue of Frederator from the acquisition date of December 15, 2016 to December 31, 2016.

Operating expenses

Operating expenses incurred before amounts capitalized to investment in film and television for the year ended December 31, 2016 was $15.9 million compared with $12.4 million for the same period in 2015. During the year, the Company capitalized $1.7 million net of refundable tax credits to investment in film and television compared with $0.4 million for the comparative period in 2015.

Although substantially complete by March 31, 2015, the Company's latest feature film, Ratchet & Clank, continued to incur minor costs and earn refundable tax credits during the second quarter of 2015. The full amount of operating expenses capitalized during the year ended December 31, 2016 was incurred in the production of the Company's new IP production, ReBoot. Comparatively, the large majority of amounts capitalized in 2015 were costs incurred in the production of Ratchet & Clank.

Operating expenses as a percentage of revenue earned increased from 75% to 81% in the year ended December 31, 2016 as compared to 2015, reflecting lower margin projects for 2016.

General and administration expenses

The main driver of the 19% reduction in general and administrative expenses for the year was as a result of professional services rendered for various aspects of an unconsummated acquisition in 2015. These costs were classified as general legal and accounting as the transaction was not completed. The professional fees associated with the 2016 reorganization and acquisitions are presented within acquisition costs.

Impairments

An impairment loss of $0.9 million was recorded in 2016 compared to $nil in 2015. The impairment was a result of the write-off of trade receivables owed by Ratchet Productions LLC ('RPLLC") to the Company of $0.6 million and the impairment of a project option of $0.3 million.

Acquisition costs

Acquisition costs incurred of $5.8 million in 2016 relate to the full value of shares issued in exchange for the acquisition of EH Entertainment of $4.7 million and an additional $1.1 million of acquisition costs incurred relating to legal, consulting, regulatory and accounting fees associated with the Reorganization. In 2015, the Company's acquisition costs of $0.6 million incurred in connection with its potential acquisition of Shaftesbury Films Inc. were recorded under general and administration costs as the acquisition was not completed.

Other expenses

Other expenses incurred in 2016 were $1.4 million compared to $2.1 million in 2015. The decrease in other expenses primarily relate to a decrease in interest and accretion on convertible debentures of $1.2 million in 2016 compared to $1.6 million in 2015 as a result of the maturity and early redemption of the loans in conjunction with the Reorganization. In addition, the Company incurred a net foreign exchange gain on forward contracts of $0.1 million in 2016 compared to a net loss on forward contracts of $0.5 million in 2015.

Share of Loss in Ratchet Productions LLC - Ratchet & Clank

The Company recognized $8.8 million of its share of RPLLC's losses during the year-ended December 31, 2016, together with translation adjustment of $0.4 million and the reversal of the unrealised profit on services provided to RPLLC of $0.2 million, these adjustments reduced the Company's investment in RPLLC to $nil at December 31, 2016, from $9.4 million at December 31, 2015. Further, the Company believes that the amount of $0.6 million owed by RPLLC to Wow Unlimited is not recoverable, and as a result, the amount has been fully provided for in the year-ended ended December 31, 2016.

The Company continues to hold certain perpetual distribution rights with respect to the international sales of the film. For the year ended December 31st, 2016, the Company recognized $1.2 million in distribution receipts on the international release of the film from RPLLC as a revenue share from Ratchet Productions LLC.

Q4 CONSOLIDATED RESULTS

Selected financial information for the three months ended December 31, 2016 and 2015 is as follows:

            
$000's   Q4 2016    Q4 2015  
Revenue $ 3,454  $ 3,548  
Operating EBITDA   (445 )  59  
Finance costs 1   305    521  
Depreciation and amortization2   142    155  
Service credits   (43 )  (127 )
Operating loss   (849 )  (490 )
Items affecting comparability:           
 Acquisition costs   5,760    167  
 Revenue share of Ratchet Productions, LLC   (183 )  -  
 Share of loss of Ratchet Productions, LLC   -    647  
    5,577    814  
Net loss $ (6,426 )$ (1,304 )
Items affecting comparability:           
 Currency translation adjustment   (3 )  (608 )
Total comprehensive loss $ (6,423 )$ (696 )
       

1 Included in finance income and finance expense
2 Excludes amortization of investment in film and television properties

Despite the relatively stable revenues from the three months ended December 31, 2016 compared to the three months ended December 31, 2015, Operating EBITDA decreased by $0.5 million. This decrease was driven by several factors:

  • One new project which commenced during the year at much lower project margins to revenue ratio.
  • Production volumes in the fourth quarter were below the comparative period due timing differences in the start dates for newly announced projects. This resulted in higher than average excess capacity.
  • The incorporation of Frederator revenue and expenses into the Company for the fourth quarter contributed to the decrease in Operating EBITDA.

The decrease in finance costs is largely attributable to interest and accretion costs not incurred on the convertible debentures following the Reorganization and costs capitalized in 2015 towards the completion of Ratchet & Clank.

Depreciation and amortization charge to operations for the fourth quarter remained relatively stable between 2016 and 2015.

Service credits utilized in the fourth quarter of 2016 were slightly lower than those used in 2015. Their usage is largely dependent on the type of productions in the studio and their stage of completion, as the credits are generally used in the final stages of production.

Acquisition costs increased by $5.8 million and are solely tied to the Reorganization and acquisition of EH Entertainment as previously discussed.

During the period the Company recorded a $3,000 gain on currency translation in relation to Ratchet Productions LLC (2015: $0.6 million) The Company recognized $0.2 million in distribution receipts on the international release of the film from Ratchet & Clank as a revenue share from Ratchet Productions LLC.

NON-IFRS FINANCIAL MEASURES

The Company reports using certain non-IFRS measures, in addition to results reported in accordance with IFRS. These non-IFRS financial measures are considered supplemental indicators of the Company's financial and operating performance. They include operating earnings, operating earnings per share and operating EBITDA. The Company believes these supplemental financial measures reflect the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in its business.

The Company defines operating earnings as net profit or loss excluding the impact of specified items affecting comparability, including, where applicable, share of loss of equity accounted investees, other non-operational income and expenses, deferred taxes and other gains or losses. The use of the term "non-operational income and expenses" is defined by the Company as those that do not impact operating decisions taken by the Company's management and is based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal management reports. Operating earnings per share is calculated using diluted weighted average shares outstanding and does not represent actual earnings per share attributable to shareholders. The Company believes that the disclosure of operating earnings and operating earnings per share allows investors to evaluate the operational and financial performance of the Company's ongoing business using the same evaluation measures that management uses, and is therefore a useful indicator of the Company's performance or expected performance of recurring operations.

The Company defines operating EBITDA as earnings before interest, taxes, depreciation and amortization (excluding amortization of Investments in film and television properties), adjusted for certain corporate expenses and items affecting comparability as specified in the calculation of operating earnings. Operating EBITDA is presented on a basis consistent with the Company's internal segmented management reports. The Company discloses operating EBITDA to capture the profitability of its business before the impact of items not considered in management's evaluation of operating performance. Unless otherwise stated, the Company includes the amortization of Investment in film and television in the calculation of EBITDA.

Operating earnings, operating earnings per share and operating EBITDA do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. The Company cautions readers to consider these non-IFRS financial measures in addition to, and not as an alternative for, measures calculated in accordance with IFRS.

Forward-Looking Statements

Certain information set forth in this press release contains "forward-looking statements", and "forward-looking information" under applicable securities laws. These statements relate to future events or future performance and include, but are not limited to, statements regarding our future plans and financial performance. The words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and similar expressions are often used to identify forward-looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific. In evaluating these statements, readers should specifically consider risks which may cause actual results to differ materially from any forward-looking statement. The forward-looking statements contained herein are based upon certain assumptions considered reasonable at the time they were prepared. Such assumptions include, but are not limited to, assumptions regarding: (i) general economic conditions, (ii) Wow's future business prospects and opportunities, and (iii) Wow's ability to complete any or all of its proposed production work. Should one or more of the risks or uncertainties identified herein materialize, or should the assumptions underlying the forward-looking statements prove to be incorrect, then actual results may vary materially from those described herein. In respect of Wow's business generally, readers should also refer to Forward-looking Statements in the Management Discussion & Analysis for year ended December 31, 2016. Readers are cautioned not to place undue reliance on forward-looking statements. Except as required by applicable securities laws, Wow does not assume any obligation to update the forward-looking statements contained herein.

About Wow Unlimited Media Inc.

Wow Unlimited Media, (formerly Rainmaker Entertainment Inc.), is creating a leading next-generation kids and youth animation business by focusing on digital platforms and content. The company's key assets include: the world's No. 1 digital animation network, Frederator Networks, which consists of an animation production company Frederator Studios, as well as VOD channels on digital platforms; the world's first Hispanic animation network, Atomo Network, a joint venture with Anima Estudios; and one of Canada's largest, multifaceted animation production studios, Rainmaker Entertainment, which consists of Mainframe Studios that produces CGI animated television series, and Rainmaker Studios that produces long-form animated features.

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