- The Company generated positive operating cash flow of
$11.6 million in Q2 2019 vs a
$1.1 million outflow in Q2 2018.
$9.5 million was paid down on the
Company's revolving facility in Q2 2019 and $16.4 million YTD.
- At the end of the second quarter, the Company signed its
largest multi-year content partnership agreement which is expected
to begin generating earnings this year.
- Total revenue for Q2 2019 was $117.0
million vs $121.9 million in
Q2 2018. H1 2019 revenue was largely flat at $221.1 million.
- Adjusted EBITDA for Q2 2019 was $22.0
million vs $32.0 million in Q2
2018, and for H1 2019 was $39.3
million vs $54.8 million a
year ago. Adjusted EBITDA was reduced by $4.7 million in Q2 2019 and $8.6 million in H1 2019, due to the sale of a
minority stake in Peanuts to Sony1.
- Net loss for Q2 was $17.9
million, or $0.13 per share,
vs net income of $7.4 million, or
$0.06 per share, in Q2 2018. Net loss
for H1 2019 was $20.3 million, or
$0.15 per share, vs net income of
$15.6 million, or $0.12 per share, in H1 2018. The decline was
primarily due to increases in non-cash, unrealized foreign exchange
losses.
- WildBrain grew views 29% to more than 7 billion in the quarter.
Revenue rose 13% to $19.9 million vs
$17.6 million in Q2 2018, marking
WildBrain's highest revenue quarter to date. H1 2019 revenue rose
27% to $36.2 million from a year
ago.
- Initiating process to reorganize the Company into two
subsidiaries to enhance strategic flexibility.
HALIFAX, Feb. 12, 2019
/PRNewswire/ - DHX Media Ltd. (or the "Company") (TSX: DHX; NASDAQ:
DHXM), a global children's content and brands
company, reported its Fiscal 2019 second quarter ("Q2
2019") and first six-month ("H1 2019") results for the periods
ended December 31, 2018.
"In our second quarter, we made progress against our three
strategic priorities of producing premium content, growing
WildBrain and improving cash generation," said Michael Donovan, Executive Chair and CEO, DHX
Media. "We signed the largest content deal in the history of the
Company, which we believe will contribute steady EBITDA for the
coming years, and WildBrain continued to deliver double-digit
growth. We also experienced a 7% rise in consumer products revenue
from Peanuts. Our strategic shift and disciplined cost management
contributed to positive cash flow and allowed us to pay down
$9.5 million of our debt in the
quarter."
Mr. Donovan added: "DHX Media continues to sharpen its focus on
its digital strategy. The Board of Directors has decided to
reorganize the Company under two subsidiaries along business lines,
one for its cash-flow generating studios and TV channels, and one
for its global digital and content assets with significant growth
potential, including WildBrain, Distribution and Consumer
Products."
Q2 2019 Performance – Executing on Strategic
Priorities
During Q2 2019, we continued to make progress on our strategic
priorities as highlighted below:
PRIORITIES
|
HIGHLIGHTS
|
Develop New,
and
Revitalize Classic
Brands with Content
on WildBrain
|
- Grew WildBrain
revenue by 13% to $19.9 million vs $17.6 million in Q2
2018, marking WildBrain's highest quarter to date in dollar
terms.
- Expanded
WildBrain's viewership to more than 7 billion views in Q2
2019, up 29% from Q2 2018. This resulted in over 38 billion minutes
of
videos watched, up 33% from the same prior year
quarter.
- Grew the WildBrain
network through deals to manage leading third-
party brands on YouTube, including PLAYMOBIL®, The Smurfs, and
Miffy.
- Expanded
WildBrain's reach to additional AVOD (ad-supported video-
on-demand) platforms: Apple TV, Amazon Fire and Roku.
|
Develop Premium
Kids' Content to Drive
Franchise Brands
|
- Signed the largest
content deal in the history of the Company, for Peanuts,
which is expected to contribute steady EBITDA for the coming
years.
- Growing the
audience for original preschool brand Rev & Roll, with
partner
Alpha Group signing 20 new broadcasters and streaming platforms
in
China, including CCTV, Tencent, iQiyi and YouKu.
|
Improve Cash
Flow
and Balance Sheet
|
- Generated positive
operating cash flow of $11.6 million vs $1.1 million
outflow in Q2 2018.
- Reduced debt by
$9.5 million by paying down the Company's revolving
facility in the quarter.
- Implemented $3.8
million in further cost cuts including the sale of the
Halifax animation studio, as part of an incremental $5.0 million
in
targeted run-rate cost-savings. These initiatives are expected
to
improve margins beyond Fiscal 2019.
- Realizing cost
synergies by bringing agency representation on Peanuts
in-house to CPLG for Russia and Eastern Europe.
|
Q2 2019 Financial Highlights
Financial
Highlights2
(in millions of
Cdn$)
|
Three Months
ended
December
31,
|
Six Months
ended
December
31,
|
|
2018
|
2017
|
2018
|
2017
|
Revenue
|
$117.0
|
$121.9
|
$221.1
|
$220.6
|
Gross
Margin
|
$48.8
|
$53.9
|
$91.6
|
$96.9
|
Gross Margin
(%)
|
42%
|
44%
|
41%
|
44%
|
Adjusted EBITDA
attributable to DHX Media1
|
$22.0
|
$32.0
|
$39.3
|
$54.8
|
Net Income
|
($11.8)
|
$9.2
|
($8.4)
|
$18.8
|
Net Income
attributable to DHX Media1
|
($17.9)
|
$7.4
|
($20.3)
|
$15.6
|
Basic earnings (loss)
per share
|
($0.13)
|
$0.06
|
($0.15)
|
$0.12
|
|
|
1.
|
Q2 2018 Adjusted
EBITDA and net income attributable to DHX Media for the three- and
six-months ended December 31, 2017
included the Company's 80% interest in Peanuts Holdings LLC
("Peanuts"). In Q1 2019, the Company sold a 39% minority
stake
in Peanuts to Sony Music Entertainment (Japan) Inc. ("Sony").
Accordingly, Q2 2019 and H1 2019 Adjusted EBITDA and net
income attributable to DHX Media for these periods, ended December
31, 2018, reflected the Company's 41% interest in
Peanuts.
|
|
|
2.
|
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,
development expenses, impairments, share-based compensation
expense, acquisition costs and adjustments for other identified
charges. The definitions of Gross Margin and Adjusted EBITDA are
included in the "Non-GAAP Financial Measures" section of
the Company's Q2 2019 Management Discussion and
Analysis.
|
Q2 2019 revenue was $117.0 million
compared with $121.9 million in the
same prior-year period. In H1 2019, revenue was largely flat
at $221.1 million vs the first-half
of Fiscal 2018, reflecting our transition as we reposition our
assets to meet the growing and evolving market for kids'
content.
In the quarter, Distribution (excluding WildBrain) was
$13.7 million vs $16.6 million in Q2 2018, down $2.9 million. Sequentially, Q2 2019
increased by $4.9 million over Q1
2019. We are investing to further build our distribution pipeline
and we expect to see growth in distribution revenue in H2 2019,
compared to H1 2019.
WildBrain views increased 29% to 7 billion in Q2 2019. Revenue
grew 13% to $19.9 million. This was
WildBrain's strongest quarter to date, with respect to both viewers
and total revenue. However, the rate of revenue growth slowed
in the quarter, which we believe was impacted by a number of
factors, including management transitions at WildBrain and a shift
of kids' viewing from the main YouTube platform to the new YouTube
Kids dedicated app. We see the slowdown as transitional. In
the past, algorithm changes and various other platform improvements
have temporarily affected the rate of revenue growth at WildBrain,
but ultimately led to better monetization and user experience.
Additionally, we are pursuing numerous initiatives to unlock the
value of WildBrain's large and growing user base, including further
mining our content library, growing the WildBrain network with new
third-party brands, and expanding into new revenue areas and
platforms to drive future growth.
During Q2 2019, we also continued to see consistent royalties
from consumer products derived from our owned IP, mainly driven by
Peanuts, and momentum rebuilding in our consumer
products-represented business.
Gross Margin was 42% and 41% for Q2 and H1 2019, respectively,
compared with 44% for each of the same prior year periods in Fiscal
2018. The decline was largely due to a lower volume of
business in non-WildBrain distribution and the increasing share of
revenue derived from WildBrain. These factors were partially
offset by higher margins in the television business, as we continue
to maintain steady subscriber revenue while controlling programming
costs by exploiting our content library. We expect margin to
improve as a consequence of anticipated growth in distribution
(excluding WildBrain) revenue in H2 2019.
Adjusted EBITDA was $22.0 million
in Q2 2019 and $39.3 million in the
H1 2019. This compared with $32.0
million in Q2 2018 and $54.8
million in H1 2018. In the Fiscal 2019 periods, Adjusted
EBITDA was reduced by $4.7 million
and $8.6 million, respectively, due
to the sale of the minority stake in Peanuts1.
Q2 2019 recorded a net loss of $17.9
million vs net income of $7.4
million in the prior year quarter. In H1 2019, net loss was
$20.3 million compared with net
income of $15.6 million in the same
period a year ago. The decline was in part due to: a larger
non-controlling interest in Peanuts due to the Sony transaction; a
$15.5 million non-cash, unrealized
foreign exchange loss in Q2 2019, which was mainly the result of a
change in carrying value of our US dollar-dominated debt; and
changes in the fair value of embedded derivatives.
We paid down our revolving facility by $9.5 million during Q2 2019, and by $16.4 million in the first-half of Fiscal 2019,
as part of our commitment to reduce debt. The Company's debt
leverage ratio was 5.62x at Q2 2019. The net leverage ratio
calculation is based on the definition in the Company's senior
secured credit agreement available on SEDAR at www.sedar.com.
Other Business Highlights
DHX Media's library titles continued to be in demand
globally. Heading into its third season, The Deep saw
10 new distribution deals signed, bringing the total
broadcasters and streaming services for this animated series up to
40 globally. Other library deals were signed with Amazon in
the US and India, BBC Worldwide,
and Hunan TV in China, and
included such shows as Teletubbies, Inspector Gadget,
Cloudy with a Chance of Meatballs and In the Night
Garden.
Peanuts executed 66 new licensing agreements across multiple
categories and territories in Q2 2019. The brand's evergreen
appeal was further highlighted this past holiday season in the US,
where the Peanuts' Thanksgiving and Christmas specials won their
nights for broadcaster ABC, rating #1 for all-family viewing.
A successful 40-city run of the US stage production, A
Charlie Brown Christmas, and the
first-ever Peanuts Lantern Festivals in China reflected the strong international
demand of location-based entertainment for the franchise.
During this fall season, our TV channels in Canada experienced a 28% rise in ratings in
our core audience group of 2-11 year-olds vs last year. While
the channels are mainly subscriber-driven, revenue from advertising
showed growth, rising 21% to $1.7
million in Q2 2019 vs Q2 2018.
CPLG continued to expand its third-party representation across
territories, having been recently appointed the worldwide consumer
products licensing agent for Andrew Lloyd
Webber's The Phantom of the Opera, CATS and
Starlight Express. CPLG will develop a cross-category
licensing program inspired by Webber's award-winning musicals.
Other recent appointments for CPLG included emoji in
Russia, France and Greece and for MGM's upcoming animated feature
film, The Addams Family, in EMEA (Europe, the Middle
East and Africa).
Analyst and Investor Webcast and Conference Call
DHX Media Management will host a live webcast and presentation
with slides for analysts and investors at 8:00 a.m. ET on February
12, 2019, at the following address:
https://event.on24.com/wcc/r/1923063/8D02C59FF0E65EF3877302924788C0A6.
To listen by phone only, please call +1 (888) 231-8191 or +1
(647) 427-7450 internationally, and reference conference ID
2498567. Please allow 10 minutes to be connected to the conference
call. The presentation for the call will also be posted to the
Investor Relations section of our website, at:
http://www.dhxmedia.com/investors/.
Instant replay will be available after the call on +1 (855)
859-2056 toll free, under passcode 2498567, until 11:59 p.m. ET, February
19, 2019.
About DHX Media
DHX Media Ltd. (TSX: DHX, NASDAQ: DHXM) is a global children's
content and brands company, recognized for such high-profile
properties as Peanuts, Teletubbies, Strawberry Shortcake,
Caillou, Inspector Gadget, and the acclaimed Degrassi
franchise. One of the world's foremost producers of children's
shows, DHX Media owns the world's largest independent library of
children's content, at 13,000 half-hours. It licenses its content
to broadcasters and streaming services worldwide and generates
royalties through its global consumer products program. Through its
subsidiary, WildBrain, DHX Media operates one of the largest
networks of children's channels on YouTube. Headquartered in
Canada, DHX Media has offices
worldwide. Visit us at www.dhxmedia.com.
Disclaimer
This press release contains "forward-looking statements" under
applicable securities laws with respect to DHX Media including,
without limitation, statements regarding expected financial results
from content deals, the reorganization of the Company and expected
results therefrom, the Company's strategic priorities and the
Company's progress with respect to such priorities, expectations
for growth of certain business lines of the Company, including
WildBrain and distribution, cost rationalization initiatives,
synergies and targeted cost savings, the Company's transition and
repositioning of its assets, market changes and demand for kids
content, pursuit of initiatives through WildBrain and expected
results therefrom, investments by the Company in distribution
resources, and the business strategies and operational activities
of the Company and expected results therefrom. 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 ability of the Company to execute on its business strategies
and strategic initiatives, the ability of the Company to execute on
cost rationalization initiatives and realize expected operating
savings, consumer preferences, market factors, regulatory and
contract risk, 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, which also form part of the Company's
annual report on Form 40-F filed with the U.S. Securities and
Exchange Commission. These forward-looking statements are made as
of the date hereof, and the Company assumes no obligation to update
or revise them to reflect new events or circumstances, except as
required by law.
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SOURCE DHX Media Ltd.