HALIFAX – The pending arrival of Charlie Brown and the Peanuts gang is expected to boost the bottom line at DHX Media, which saw third quarter profits and revenues sink, the kids content producer, distributor and broadcaster said Wednesday.
Revenues for Q3 2017 of $78.35 million fell 7% from $84.10 million in the same period last year but slightly ahead of expectations, reads the company’s news release. In absolute dollars, the decrease was due largely to expected declines, in line with quarterly targets, in DHX Television, consumer products-represented revenues, consumer-products owned, proprietary production and producer and service fees, offset by increases in distribution.
Net income dropped to $7.55 million from $10.23 million year-over-year, while adjusted EBITDA of $24.85 million decreased 24% from $32.74 million for Q3 2016.
The company's proprietary content revenue for Q3 2017 was down 8% to $43.19 million, and proprietary production revenues dropped 20% to $9.68 million. Strong growth in its ad-based video-on-demand service WildBrain saw total distribution revenues climb 11% to $26.45 million.
DHX Television, which encompasses Family Channel, Family Junior, Telemagino and Family CHRGD, saw revenues fall 13% to $13.64 million from $15.73 million in the same period last year. “The decline in the subscriber revenues was expected and has been driven by the negotiated lower rates resulting from the Company's strategic decision to focus the majority of the TV slate on our own proprietary content”, reads the release. “The lower than expected promotion and advertising revenue is expected to reverse throughout Q4 2017 and Fiscal 2018 as the Company has stepped up its efforts in this regard after recently getting approval from the CRTC to allow broadcast advertising for the Family Channel. Approximately 95% or $13.01 million of the television revenues were subscriber revenues, while advertising, promotion, and digital revenues accounted for a combined 5% or $0.62 million of the total television revenues.”
The company also announced today that it is acquiring the entertainment division of Iconix Brand Group Inc. for US$345 million, which includes both an 80% controlling interest in the Peanuts and 100% of the Strawberry Shortcake brands. The remaining 20% interest in Peanuts will continue to be held by members of the family of Charles M. Schulz.
The deal, expected to close by June 30, 2017, adds more than 340 half-hours of proprietary content to DHX Media’s library, which can feed potential new production including new digital content for YouTube, mobile, and video-on-demand services. It also creates opportunities to mine an underexploited library for global distribution and expansion into new territories and channels, including its WildBrain network on YouTube, reads that news release.
On a pro forma basis, DHX Media revenue would grow 52% to approximately C$443 million, and adjusted EBITDA would rise by 40% to approximately C$134 million, continues the release. The transaction would be 6-10% accretive to earnings per share and 25-30% accretive to free cash flow per share, on a pro forma basis. Even on a leverage neutral basis, the acquisition would be accretive. The highly cash generative nature of the combined entity provides the ability to rapidly de-lever while still permitting investment in the company.
“Over the past ten years, DHX Media has become a global leader in children’s entertainment content, building scale across production, distribution and consumer products and is perfectly positioned to benefit from the incredible growth of streaming services, worldwide,” said DHX Media CEO Dana Landry, in the release. “Peanuts and Strawberry Shortcake have widespread, evergreen appeal that make them ideal for layering onto this platform, complementing our 450-title library, and significantly increasing our scale in consumer products. These brands are expected to drive meaningful growth across multiple revenue streams, and we look forward to extending their reach to new generations of kids worldwide.”
