WildBrain Ltd. (WILD) Earnings Call Transcript & Summary

Hello, and welcome to WildBrain's Fiscal 2023 Q4 and Full Year Earnings Call. Today's conference is being recorded. [Operator Instructions] I'd now like to turn the call over to Kathleen Persaud, Vice President, Investor Relations at WildBrain. You may begin your conference.

Thank you, operator, and thank you, everyone, for joining us today for WildBrain's Fourth Quarter 2023 Earnings Call. Joining me today are Josh Scherba, our President and CEO; and Aaron Ames, our CFO. Also with us and available during the question-and-answer session is Danielle Neath, our EVP of Finance and Chief Accounting Officer. Before we begin, please note the matters discussed on this call include forward-looking statements under applicable securities laws with respect to WildBrain, including, but not limited to, statements regarding investments and acquisitions by the company, commercial arrangements of the company, the business strategies and operational activities of the company, the markets, industries in which the company operates, cost and expense management, the company's leverage and plans for debt and leverage reduction, refinancing of the company's indebtedness, the value of the company's assets and the future growth, objectives, targets, and financial and operating performance of the company and its businesses. Such statements are based on factors and assumptions that management believes are reasonable at the time they were made and information currently available. Forward-looking statements are subject to a number of risks and uncertainties. Actual results or events in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the risk factors set out in the company's most recent MD&A and annual information form, which are available on the Investor Relations section of our website at wildbrain.com. Please note that all currency numbers are in Canadian dollars, unless otherwise stated. After our remarks, we will open the call for questions. I will now turn the call over to our President and CEO, Josh Scherba.

Thanks, Kathleen, and thanks to everyone for joining us today. I just wrapped up my first 100 days on the job a few weeks ago. And in that time, across the company, we have focused our strategic vision, executed cost reductions and rightsizing to ensure we have the right resources in the right places to drive our refined strategy, built out our 3-year long-range plan, enhanced and rebuilt our budgeting process and initiated a process to improve our balance sheet. Before I go into detail on our results and outlook, let me start by thanking all of the incredible employees at WildBrain who have been working so diligently during this period to optimize and streamline our business. In our first all-company meeting as CEO, I shared a quote I love from management Guru, Peter Drucker, culture eats strategy for breakfast. A company's vision articulates its purpose, but it's our values and our culture that drive us. At WildBrain, we're investing heavily to strengthen our culture. It's our culture that defines our shared commitment to solve problems, share information, serve customers, deliver experiences and drive growth. We have incredible assets, but it's because of our culture that we will win. When I took over on May 9, I was in a lucky position of inheriting a healthy organization with a strong pipeline for growth. This allowed me to devote my energy over the past few months to working with the team to refine our vision and define who we are and where we want to go. Over the last 3 years, we have built a platform that consistently delivers creative excellence. This is the core engine of what we do. Without sacrificing a stitch of that creative excellence, I wanted to enhance our focus, urgency and accountability across the business to better direct our internal investment, maximize our ROI, make sure we're going after the largest profit opportunities and really clarify, both internally and externally, who we are and what we can be. While our results have shown growth, results also haven't lived up to our potential. We can do better, particularly on the cost side. We needed more focus to remove excess cost and focus is a key change I'll be bringing to our company. Meaning focus on our core competencies of content creation, audience engagement and global licensing, both at the operational level as well as in our approach to capital allocation. So I'd like to walk you through where this work has taken us. Starting on the operating side with our strategic vision. While what we built is so valuable in today's landscape and how we're positioned to take advantage of the significant opportunities ahead. At WildBrain, our vision is to inspire imaginations through the wonder of storytelling. As we've discussed over the past few years, we built 3 strategic pillars across our business that we believe uniquely position us in today's market and have set us up for years of strong growth. These pillars are: first, a premium content creation engine; second, a scaled global audience engagement; and third, a global consumer products licensing platform. Through these pillars, we cultivate and create exceptional entertainment experiences for our owned and partner brands that captivate and delight fans new and old. We commonly refer to these strategic pillars as our 360-degree capabilities. As a team, we spent the last 3 months really digging into our largest opportunity sets, and we determined that to fully unlock significant growth across these pillars, we required a higher degree of focus. While in the past, we sometimes diluted our resources across too many projects, going forward with clear focus on our key opportunities, we will be able to execute to unlock that growth. Confining these opportunities has allowed us to put all our energy into executing against the potential we see in the successful monetization of a few key brands across our global platform, both for owned and partner brands. We will center the company around a handful of owned brands and global partnerships, all of which are monetized across the full spectrum of our 3 strategic pillars. In the Owned Brands category, today, we're including Peanuts, Teletubbies and Strawberry Shortcake. We intend to add to this group with a very small number of other proprietary IP that could come from our vast library or through acquisition or be a completely new brand we create in-house. We see opportunity in focusing our energy to diligently grow these IPs in meaningful ways. On a larger scale, we're beginning to see the results of this focus at Peanuts, where we have a steady output of new content, strong audience engagement and global licensing. We see a long runway ahead for growth. Recently, our Peanuts worldwide team signed a partnership with Apple for a new Apple Watch face featuring exclusive Snoopy and Woodstock animations. WildBrain CPLG meanwhile inked a new relationship with retailer MINISO for extensive lines of toys and other products for Peanuts, Teletubbies and Strawberry Shortcake to launching over 5,000 stores this fall. By focusing our efforts on a few brands, we can leverage our full capabilities to build brand awareness and affinity, which ultimately drives monetization. We believe Teletubbies and Strawberry Shortcake have a lot of value to unlock, and we're taking steps to ensure we set them on the right path to do so. We're seeing double-digit increases in franchise activations, digital watch time and social media engagement. And that is translating into double-digit gains in new licensee growth. We're starting from a small base, but by aligning our resources to drive growth we see a clear path for these IPs to continue to grow these brands worldwide. In the global partnership category, SEGA is a prime example of the type of global partnership we're establishing. The premium series Sonic Prime dropped its second season on Netflix in July and just as with the first zoomed to the top 10. This IP, through the strong execution of our global licensing platform, WildBrain CPLG, continues to generate traction in Sonic licensing. We've seen double-digit increases in both royalty revenues and expansion of our licensee base. We will look to replicate this type of global partnership, leveraging our 360 capabilities and world-class support for our brands and partner brands. With our core capability of built, it's important we remain agile and continue to adapt WildBrain to thrive in today's evolving marketplace. Today, there is an important reframing of how content is being consumed by kids and families. Driven by YouTube, kids are curating their own personal viewing experiences from influencers to sports to music to low-cost narrative content, kids have never had the level of choice that they have today. We're also seeing parents and kids co-viewing more than ever. Shared viewing is not a new concept, but it's rising in importance as families connect together. Increasingly, streamers are gravitating towards making fewer, but higher-quality premium series and movies across all genres with an emphasis on opportunities for hit content that appeals to the whole family. They will typically pay a premium price for exclusive rights on such content. This strategy has been focusing on a few key areas: known IP, movies and serialized shows like Sonic Prime. In that vein, after the quarter end, we closed on the House of Cool transaction. This highly complementary acquisition meaningfully broadens and deepens our capabilities, including expanding into full length movies and features as we refer to them in the industry. It also enhances our IP funnel, leading to significant new partner or purchase opportunities. In addition to premium content for SVODs, what I'm calling omni platform content is a critical second category of the content ecosystem. This is nonexclusive, audience-led content, typically made at a lower budget that can distribute and license across a multitude of platforms. It represents the largest amount of consumption in today's kids market. YouTube accounts for the vast majority of this viewership, but we also engage on a myriad of AVOD services as well as linear TV and nonpremium content on SVODs. In addition, such content can feed into large, nascent distribution platforms like roadblocks that experiment with video and, of course, into social media platforms. We are and need to be everywhere kids and families are watching. Omni platform is all about discovery and engagement and being experts in this space is a critical component of the 360-degree capabilities for our owned and partner brands. We have a huge advantage in owning the Spark Network with its scaled engagement and deep insights into how kids consume content on YouTube. Taking these insights, we continue to iterate and innovate, which has led to higher quality engagement across the platform. Over the past year, our average duration of viewing increased 50%, with an engaged audience, we see how quickly a brand can pick up speed. We saw one series recently shoot up to over 1 billion minutes viewed in just 90 days. A high-quality engaged audience will drive the monetization into other areas of our business, namely consumer products. All that said, we could be doing more to monetize that engagement. We see this not only as a critical tool to drive consumer products revenue for our owned IP, but also to drive awareness and engagement to unlock licensing opportunities across our partner brands as well. WildBrain team heard over these last few months to look at this evolved media landscape to best position our 360-degree capabilities. We have clearly defined where WildBrain needs to be with respect to the performance of each of these strategic pillars in order to optimize the entire structure as a holistic machine to drive significant earnings and shareholder value. Diving into specifics to where we landed. We are driven by content creation, where we will focus on producing premium and omni platform content, expand into features and reduce the development slate. Secondly, in audience engagement, we will build our franchise strategy for each -- for reach, relevance and revenue for our owned IP will deliver value of data analytics and insights across the organization and continue to enhance digital marketing capabilities. And lastly, in global licensing, we are hyper focused on global partnerships like SEGA, PLAYMOBIL and Supersoft. We are also hyper focused on maximizing the value of our owned IP and building location-based entertainment or LBE strategies and expertise. The LBE market is valued at over $4 billion and growing. As consumers look for interactive experiences with their favorite brands, we can provide this expertise as a natural extension of our capabilities. As we refined our focus on key brands, we had an opportunity to reevaluate our cost base as well as how we're investing across the organization to ensure we're prioritizing high ROI opportunities. To that end, we did execute cost reductions and rightsizing this summer. While we're managing our expenses more prudently, we're still making targeted investments to drive growth, and are very confident in our ability to deliver that growth. We're making our library work harder for us, and we're beginning to realize the investments in the CPLG expansion in APAC and location-based entertainment as well as enhancing our technology platform at Spark. In success, we aim to become key choice for independent IP owners, including gaming and toy companies to partner with on their IP. We believe we are the only independent company in today's market that can offer all of these capabilities under one umbrella in the kids and family space, and this will give us the ability to become highly selective of who we partner with. Turning to our capital structure. We are intent on simplifying our capital allocation framework. Starting with our balance sheet. We're actively working on further reducing our leverage with a target of under 4 by the end of fiscal 2024. We have $140 million of convertible debentures maturing in September 2024, and we're exploring several options to refinance or pay off these notes. One of several options for reducing our leverage is through the sale of noncore assets. As we are now laser-focused on growing our key brands and global partnerships, there is an opportunity to review potential divestments from our deep asset base, including our vast library of IP that we would view as noncore. Selling one or a few of those noncore assets will help streamline and enhance our capital structure in a manner we view as accretive, both to our leverage profile and to shareholders. The market for premium IP remains strong. While it's still early, we're very pleased with the feedback and interest we've received today. Over the last 12 months or so -- or sorry, over the next 12 months or so, we're a range of between $100 million and $300 million in asset sales, subject to market conditions. Said another way, we will only pursue asset sales that we believe enhance our value per share. Given our large portfolio of assets, we're confident that through this process, we can accomplish 3 core objectives: first, simplify and focus our business, second, improve our balance sheet; and three, drive shareholder value. Looking ahead to our long-term capital allocation framework, first and foremost, we will deleverage the balance sheet and maintain the ability to invest in our key brands for sustainable growth. Over time, once our balance sheet has appropriate flexibility, we will look to allocate capital to the best and most accretive use. This could include IP acquisitions, investing in our existing IP or through repurchasing our shares. We see this as a tremendous opportunity to create significant value for our stakeholders and our intent on putting WildBrain in a position to execute against these value-accretive opportunities. Last quarter, I talked about our diversification as one of our differentiators. With approximately 40% of our revenue from content and now approximately 40% from consumer products, we are less tied to sector-specific impacts. That diversification is benefiting us as we look to fiscal '24 given the current state of the content market. While the content industry has gone through some changes over the last 12 months, the recent dual strikes in the labor unions have led to a slowdown in activity, which is leading to a delay in project green lights. While we were initially expecting EBITDA growth from our studio, we now expect a timing delay from the impact of the strikes on the content market of approximately $10 million to $15 million in fiscal '24. I want to reiterate, this is simply a timing shift, not a missed revenue opportunity. We believe we are being conservative in our outlook for the studio amidst the direct and indirect impacts of the ongoing strikes. There is tightened volatility in the near term as the industry tries to come together to find amenable solution for all parties involved, but the content business will rebuild as everyone gets back to work. Our pipeline is strong, and we continue to work to add more quality owned and partner content in our studio. We expect television to follow its prior year trend, consistent with broader linear market. And excluding the studio and TV, all other businesses combined are expected to grow EBITDA between 15% and 20% year-over-year. On a consolidated level in fiscal '24, we expect revenue to be down moderately year-over-year and adjusted EBITDA to be slightly higher. With less live action expected, gross margins will be higher, and we will efficiently manage our expenses, both of which will benefit EBITDA. Before I turn it over to Aaron, I want to take a step back to our Investor Day in 2021. At that time, we provided growth objectives for a 2-year CAGR of 12% to 17% for revenue and 15% to 20% for EBITDA in fiscal '24. While the difficult macro environment has shifted our timing, we are still targeting strong double-digit growth in 2025 and beyond. As our guidance implies, after a few years of investment, we are seeing growth take hold in our business outside the studio. As the studio profit rebuilds once the industry normalizes, this will further add to our profit growth going forward. This growth, coupled with greater balance sheet flexibility through the sale of noncore assets will lead to materially reduced leverage. We expect strong growth across our business outside of the studio and television in 2024. And when we look to 2025 and beyond, our confident is strong as we expect continued growth in our core business. I will now turn it over to Aaron to review the results in the quarter.

Thanks, Josh. Fiscal 2023 consolidated revenue was $533 million, up 5% year-over-year. Revenue for the year was driven by strength in content production and distribution with 13% growth. Consumer Products revenue grew 4% for the full fiscal year with a continuation of sequential improvements after the inventory overstocking challenges we saw in the second quarter. Spark revenue was down 15% for the full fiscal year, but with a sequential improvement in the fourth quarter. Television revenue was $40 million, down 4% year-over-year. Fourth quarter consolidated revenue of $125 million reflected an increase of 11% year-over-year. Content production and distribution revenue was $53 million, was up 6% in the quarter. Consumer Products revenue of $52 million was up 24% versus the prior year. Spark revenue was down 9% in the quarter. I reiterate the real value of Spark is in the engagement it brings to our owned and partner brands and the insights it provides to all aspects of our business. Lastly, Television revenue was $9 million in the quarter. Gross margins in fiscal 2023 were up over 160 basis points and dollars grew 9% as we benefited from the consolidation of the Peanuts representation rights. Gross margin in the fourth quarter was up over 750 basis points, and dollars were up 35% year-over-year. We recorded a net loss of $46 million in fiscal 2023, driven by a noncash impairment charge of $33 million related to our television business. SG&A expenses were $31 million in the fourth quarter and up 7% for the full fiscal year. The increase in SG&A over the past year relates primarily to additional headcount in APAC, which is already yielding benefits, the far-reaching direct-to-retailer partnership, we just inked with international lifestyle retailer MINISO. We will continue to moderate expenses and harvest the investments we've made. Fiscal year '23 adjusted EBITDA of $98 million was up 10% year-over-year. Fourth quarter adjusted EBITDA was $19 million. Free cash flow for the fiscal year was strong at $30 million, free cash flow in the fourth quarter was positive $17 million compared with negative free cash flow of $5 million in the prior year quarter. Fourth quarter free cash flow reflects the benefit of improved collections and working capital timing. Our leverage at the end of the quarter was 4.16x. Leverage may fluctuate quarter-over-quarter. But as Josh mentioned, we are focused on deleveraging our balance sheet. We're exploring several options to refinance or repay down the 2024 convertible debentures and are very confident we will make meaningful strides in deleveraging in the near term. With strong revenue growth, focusing on our most profitable brands, consistent free cash flow generation and prudent expense management and an improved balance sheet, we are positioned for sustainable long-term growth. I'll turn it back to Josh.

Thank you, Aaron. Sharpening our focus on key brands and partnerships. We will execute across the full spectrum of our capabilities. As we look at our financial model over the next 3-plus years, there are several areas of growth. First, our owned IP remains priority, as the economics are advantageous. In Premium Content, known IP will continue driving family co-viewing. And with the addition of House of Cool, we have the ability to expand into features with our owned IP, opening another profit stream. AVOD and fast channels are a growing industry opportunity, and we are well positioned to capitalize on that growth with our full range of content and expansion to new platforms. And CPLG remains a hugely important driver of our growth. As CPLG grows faster than the consolidated business, we will see that flow through in the form of expanding EBITDA margins. Additionally, with new geographies and new capabilities like the recently announced LBE expansion, that dovetails very nicely with our IP, so we see several years of growth ahead. We're in process to improve our balance sheet and are taking the necessary steps to ensure we continue to grow, while maintaining financial discipline. The actions we're taking will strengthen our business and build on our foundation for sustainable and profitable growth. With that, let's open the call to questions. Operator?

[Operator Instructions] Your first question comes Drew McReynolds with RBC.

Thanks for all the added kind of granular on all the moving parts and the update. So a couple of just clarifications for me to start here. The $10 million to $15 million in strike-related impacts expected for fiscal 2024, that was revenue, I'm assuming. And just in terms of kind of the last commentary on strike impacts, it wasn't expected to be much even in a kind of prolonged strike. So just wondering how exactly this is impacting your business? And when you think about fiscal 2024 guidance being conservative, what's the context around that? And is it related to strike resolution or perhaps something else? And just a couple of follow-ups after that.

Okay. Thanks, Drew. So first of all, to clarify, that $10 million to $15 million was, in fact, EBITDA, not revenue. So I think when you take into context that level of really timing shift from this coming fiscal to the next, I think it does ultimately speak to what a diverse set of assets we've built and how we are going to be seeing 15% to 20% growth in everything outside of content and TV, which is ultimately getting us to a place of a slight growth overall for EBITDA. As it relates directly to the strike, I think, there's a couple of issues. First of all, we've had a few projects that have been specifically impacted. But it's also created this knock-on effect in the industry of really through this cooling where there's been a slowdown in green lights. And we feel really good about our slate. We feel how -- we feel really good about how we're positioned with the streamers. We're coming off the success of Sonic Prime, in a great place with Netflix. We continue to be in a great place with Apple. So we feel our slate is there. But really in this climate, green lights have been -- have slowed down. So we've -- when we've been forecasting out our slate, we've gone on a title-by-title basis, and we've really pushed out the beginning of these projects to earlier than we had originally anticipated. So that's really the context for where we're at.

Okay. Okay, super. And just a follow-up here on the consumer products side. You had a strong Q4. And clearly, the outlook remains positive. Can you just give us an update on kind of the inventory impact or headwind that may still persist? Are you seeing any kind of broader macro impacts in this segment?

So we're feeling really great about our Consumer Products business. You could see the growth in the quarter. I think that helps alleviate any inventory concerns that we would have had. And as we move forward, really, what we've built out is this global infrastructure that we're starting to see the benefits of. We've rolled in Asia Pacific, we also have expanded into LBE capabilities. And all of this is helping our own IP. We announced the MINISO deal, which was brokered by our China team, and that is a benefit to Peanuts, but also benefit to Strawberry Shortcake and Teletubbies. We've also recently announced our first location-based entertainment deals. And really, these tools beyond our own IP are really allowing us to be more attractive to meaningful IP owners and it really does create this cumulative virtuous cycle that we've got with all of our capabilities. So yes, we're feeling really good about the growth ahead for our Consumer Products business.

Okay. So one last one quick one for me. On free cash flow outlook for fiscal 2024. Just wondering what you're expecting there? And obviously, for modeling purposes, mainly just so we can kind of square up all the moving parts?

I'll hand over to Aaron for that one.

Thanks, Josh. So on free cash flow, as Josh mentioned, we're seeing growth in our consumer products. So that actually improves our cash flow profile because the working capital timing is better on consumer products for us, especially owned consumer products. And so that's a benefit. There is a bit of an offset related to interest expense, which is higher this year, but we see free cash flow about flat with this year, given those -- given both those things.

Your next question comes from Adam Shine with National Bank Financial.

So Josh, just going back to the Hollywood strikes. More of a postponement dynamic than necessarily more aggressive cancellations? Maybe we'll just start there.

Yes. I think that's a good way to categorize it. I mean -- and again, it's just kind of this general cooling effect where -- I think it's a moment for the streamers to kind of take a breath, probably select some cash before they get back into greenlighting anything, whether it's directly impacted by the strike or not. And I also don't want to -- I don't want to see that green lights have entirely stopped. Like we're in active conversation, slates building up fine. It's just taking longer than it typically would. So we've had to work that into our outlook for this year because it's just a reality of what we're seeing.

Okay. And just when we think about some of the noncore assets in the library, is there anything that particularly jumps out as key IP that perhaps you've attempted to shop in the past and weren't necessarily successful in doing so? Or is this more of a doer, fresher approach to lining the library and looking for some potential monetization opportunities?

Yes. So what I would say is it started with the refinement of our strategy. So we're -- we've been leaning into our 3 core capabilities of content creation, audience engagement, global licensing and acknowledging that we can really leverage those on a handful of our owned IP. And we've noted Peanuts, Teletubbies and Strawberry as the 3 priorities IP. But outside of that, we have a vast amount of known IP. And the reality is it's a scarce resource. And these past several years have done nothing but improve the value of that as the audiences fragment, having something that is known and people have heard of before is a huge advantage. And so when I look at like what we're actually taking advantage of, it's a small portion of our IP. And so if we really can find a way to meet 3 key objectives. So it's a simplification of our business, its ability to deleverage our balance sheet, and third, drive shareholder value that seems like a tremendous opportunity in front of us. And I feel really confident from the early conversations we're having around this process that we're going to be able to do all 3. Now we left a relatively wide range there in terms of what we could raise between $100 million to $300 million, and that's really -- because we don't actually have to sell any of these assets, and we need to make sure that all 3 of these objectives are being met. But we feel confident that we've got a path in front of us that is going to be a good outcome for WildBrain.

I'll push you a little bit just on the context of when we think about the monetization of that $100 million to $300 million. Is there revenue/EBITDA associated with that, that you can help a little bit? Or are these just IPs that have greater potential potentially in other's hands that are not being successfully exploited or at least not optimally exploited by you guys?

So again, I think it bring it back to those 3 goals that we're looking to accomplish. And that -- and when we look across our portfolio, so again, it's back to simplification, it's back to deleveraging and driving shareholder value. Some may be delivering current revenue and EBITDA, others might not be. But if we're accomplishing those 3 objectives, that's what we're focused on.

Okay. And a last quick one for you or for Aaron. Just related to leverage. Clearly, you're trying to get sub for this year and then to the extent that there are some Dodd core asset sales you could perhaps go further into this year or next year. But is there a long-term leverage objective? Is it, let's say, ultimately 2.5x or can you help us a little bit there?

I'll hand over to Aaron for this one.

Yes. So we were seeing -- we want to be -- we want us to, in the near term, get below 4. And then, of course, to continue to gradually improve our EBITDA and with the asset sales -- not more asset sales continue to improve our leverage from there.

Okay. All right. I will push you further. But obviously, many of the companies that we cover within your sphere little of specifically Canadian, that names. That bogey tends to be sub-3% and somewhere closer to 2.5x. So blink, blink, blink, is that likely where you're headed or attempting to? Or are you perfectly happy with something in the 3, 4 range?

Okay. Look, I think in the near term, we're going to focus on being below 4 and then continue to improve it from there for sure.

Your next question comes from Dan Kurnos with The Benchmark Company.

Josh, look, I'll be keep going on with the strikes, but I just want to understand kind of 2 concepts here based on the commentary that you've made this morning. On the one hand, yes, obviously, we know all of the streamers right now are tired of earning billions of dollars, maybe they're not tired of it, but that's [what you're putting they're ] tired of it and are having to pull back a little bit on their content spend. But on the flip side, because of the strikes, there's a huge dearth of content available in the marketplace. And so I just want to get a sense of like, do you feel like you're being too precious with your content? Is it all wrapped up in contract or subsequently, you've made it very clear that you're streamlining the company and focusing on like kind of core IP. Does that mean that this is also giving you an opportunity to reevaluate where you're putting your dollars and that's the -- starting revenue base is maybe a little bit lower as you focus on a more profitable business units going forward? Or am I reading too much there?

So I would say, first of all, Dan, we're always looking to maximize the value of our library. One thing that has historically happened when you go through labor disruption in Hollywood is that there does seem to be an opportunity for library content to kind of refresh services. I would say to date, we haven't really seen that as a trend. And I think it kind of speaks to the overall cooling of the climate. But that could change. It's not built into our numbers, but it certainly could change. If you get resolution of the strikes, sentiment starts to improve, there's going to be a lag between when new content can hit the services from that resolution by the time it's developed and produced. So does there end up being more opportunity for library in that moment? It's entirely possible. But we don't have a crystal ball, so we'll just have to let that play out.

And then on the cost side, it sounds like you took some pretty aggressive moves this summer. Obviously, a lot of it makes sense just given the environment that you just kind of laid out. Is there any way to -- for us to get a sense of how we should be thinking in general about OpEx from here?

Well, I think, look, we've certainly seen a moderation in our SG&A. And over time, even though we will continue to invest in our growth areas of the business, over time, you're going to continue to see that moderate and come down as we really sharpen our pencils and make sure that we're spending on the right areas of the business. And again, that also comes back to our refined strategy. So we know where we're going. And so we're spending according to where we're going. Not perhaps trying as many things as we have in the past.

Got it. That's helpful. And Josh, just you mentioned LBE. I know that's something I think that you guys started a year or 2 ago. I just -- APAC in general, sounds like you're expanding there. And I'd love to kind of hear what you think the TAM is? And how much that can be a contributor, both to the top and the bottom line? I know it's small, but just in terms of expansion going after that kind of segment of opportunity.

Yes. So first of all, I would say that we've been having -- it's been about a year since we've hired some experts in the LBE field to work with us, and we've been having a really good reaction out in the market to our own IP, whether it be Peanut, Strawberry or Teletubbies. But we're also seeing an opportunity for third-party owners that this is a skill set that -- it doesn't make sense for most IP owners to have in-house given our nature, it certainly makes sense for us as a value add. In terms of the economics, these deals do take time and you're just now starting to see them come through. If you're counting on them as well, these are long-term projects, where the revenue is streamlined across a significant term. So you don't get quick hits. But as we layer these deals one on top of each other, we're going to have repeatable long-term revenue associated, which again is another stabilizing force to our business and something that we can -- when we look to fiscal '25 and the growth outlook that we have, that gives us tremendous confidence. We're really building out these repeatable revenue streams. And we're in a moment where we've got a timing issue with content. But when we talk about our outlook for '25, I get really optimistic because we're confident that it's going to come back and then it's going to lay around to these repeatable opportunities. And that, of course, dovetails your question about Asia Pacific. I mean we are starting to see some contribution from that region. We highlighted the MINISO global retail deal. And it takes a little bit of time to make sure that we've got the right licensees onboard in those markets. And because we're looking for not short-term MGs, but long-term growth in partnerships and royalties. And we're feeling really good directionally about that, where that's going. And that's driven primarily by Peanuts and our own brands, but again, a tremendous opportunity for us on some of these global partnerships where we're having deeper relationships.

Got it. That's really helpful. Last housekeeping, and I'll step aside. Aaron, given the dynamics you talked about on free cash. And given the delay in some of the projects, [ because we're not seeing ] some improvements in working cap this year that might not be a tailwind for you on free cash relative to last year?

I'm sorry, it's a little bit hard to hear you. But can you just repeat that question again?

Yes, sorry. Hopefully, you could hear. I always say thing, just given the delay in some of the projects on the TV side and given the positive development or the contribution from CPLG and CP is that ramp for free cash. Did you not have some positive other working cap improvements? I know there's some interest noise in there, but I would think free cash might actually, from a timing perspective, benefit a little bit.

Yes. And that's what I was saying. I agree. That's what I was saying before, we are getting some benefits because of the cash flow profile of consumer products is better, and we're seeing a shift to more of those revenues, but it's a little bit offset by higher interest costs. So we're about flat year-over-year because of that.

Your next question comes from David McFadgen with Cormark Securities .

A couple of questions. So does the strength really just impact your live action business? Or is there also an impact on the animation business? So I'll just start with that one.

So it has impacted a few projects, specifically. Yes, some live action, some animation because there are WGA writers involved in some of our animated projects. So yes, it has had an impact on both. But again, though, I would reiterate, David, that the larger impact in terms of delays is just around kind of the cooling environment around green lights. . It's just taking longer to move projects forward. They continue to be in a good place with all of these streamers, and we feel positive about our overall discussions. It's just really a shifting of our slate where more of it's going to hit '25 than '24.

Okay. And then you mentioned earlier that you've targeted some cost reductions. Do you have a target for quarterly SG&A that we could use in our model?

I'll hand over to Aaron for that.

Yes. So looking at our SG&A that stays around flat or dropping over time. And because we are having also the impact of APAC, which increased our SG&A. However, the cost cutting is going to keep it above flat and start to let it drop and level up and then drop.

Okay. And then I don't know if you can share this, but have you thought about how much the leverage ratio could be reduced if you execute some of these asset sales?

So we take the target for what our target is on those asset sales, that $100 million to $300 million. So that would be a benefit for leverage. And again, as we discussed before, we expect that leverage to -- target the leverage to be below 4 and continuing to drop from there.

Your next question comes from Aravinda Galappatthige with Canaccord Genuity.

Just to go back to the noncore asset sales. Josh, that you mentioned. Can you give us a sense of how sort of advanced these conversations are and how you see sort of the likelihood of achieving sort of your target of $100 million to $300 million? Because to the extent that some of the potential buyers themselves could be other content producers, they could be affected by a lot of the same factors that you're talking about as well and that ability to pay up for assets may be limited. So I just wanted to get a sense of your level of confidence in achieving that at this point because you said 12 months? And then secondly, connected to that, are you just thinking brands at this point? Could it involve a division? I mean obviously, I'm thinking television. Would that -- could that be part of the mix as well?

Thanks, Aravinda. So yes, we're certainly focused on IP assets. As we've refined our strategy, it's become clear that there is meaningful IP in our library that could unlock some real value for us. Your question about the kind of the market conditions and how that might impact the ability to sell. I mean we are into a process, it's early stages, but the reactions -- the discussions have been very positive. And I think it really speaks to the resilience of IP. We've continued to see as fragmentation has taken hold in the content world that known IP matters more than ever. And these are scarce resources. There just are not many of them available. And so when -- we're confident that multiples are going to have continued to grow in IT, and we're confident that we're going to be able to realize that. Now timing wise, yes, we put 12 months out there. That's not in our control, how long these deals take, but that's every indication we've had so far that, that seems like a reasonable time frame. And look, we really think that we've got this opportunity to unlock value that we don't get credit for right now in our IP library. It is a really unique, scarce collection of assets that we have and presents a real opportunity for us to delever and set us up extremely well for the future.

And just a quick one for Aaron. I know you talked about sort of high interest cost. And I know we saw that in fiscal '23 as well. Can you give us a sense of the magnitude? I know that the interest rate swap is still in place for pretty much the whole year. But obviously, there's a component that it doesn't cover. Any kind of color in terms of how much the interest rate expense could rise by?

So first of all, for this year, the hedge is in place through the end of June. And then we'll have the impact of some of the refinancing alternatives that we are down the path on. And so going into '25 and as well as the noncore asset sales that Josh talked about. So overall, I think we're in a good position for this year and then heading into next year.

[Operator Instructions] There are no further questions at this time. This concludes today's conference. Thank you all for participating. You may now disconnect.