HALIFAX – Despite gains in revenue, DHX Media posted a net loss of $8 million for its third quarter ended March 31.
The children's content and brands company said Monday that revenues for Q3 2018 grew by 49% year-over-year to $116.5 million, which included 3% organic growth, and 46% acquisitive growth largely from its Peanuts and Strawberry Shortcake assets. The increase for Q3 2018, was due to strong growth in total distribution revenue (including WildBrain) (88% organic, 12% acquisitive), accounting for 38% of the growth, higher consumer products-owned revenues (9% organic, 91% acquisitive), accounting for 71% of the growth, robust growth in producer and service fee revenues (all organic), accounting for 9% of the growth, offset by decreased proprietary production revenues (all organic), offsetting 8% of the growth, a decrease in consumer products represented revenues (all organic), offsetting 7% of the growth, and a decline in DHX Television revenue (all organic), offsetting 2% of the growth.
Adjusted EBITDA for the period was $26.7 million with a net loss of $8.0 million, versus adjusted EBITDA of $24.9 million and net income of $7.6 million in Q3 2017. The net loss was partially due to a non-cash, unrealized foreign exchange loss of $6.9 million this quarter, which was primarily the result of a change in carrying value of its U.S. dollar-dominated debt.
Gross margin of 44% was down from 54% in Q3 2017 as a result of the new mix of its business with Peanuts as well as continued growth in third-party revenues from WildBrain and a larger proportion of service work including the Mattel partnership versus proprietary business in its studios, reads the company’s news release.
The company added that it remains on track to realize $11 million in targeted annual synergies on Peanuts and company-wide cost-reductions by the end of Fiscal 2019, of which $5-$6 million is expected to be recognized in Fiscal 2018.
"While top- and bottom-line results were below our expectations this quarter, content distribution and WildBrain delivered strong organic growth and Peanuts continued to perform ahead of plan," said executive chair and CEO Michael Donovan, in the release. "We have taken corrective steps to return to sustainable growth, including executive changes, additional streamlining of costs and a refocusing of our business to enhance margins and cash generation."
Donovan added that the company’s ongoing strategic review has “reaffirmed the value of our individual assets and generated strong interest especially in our leading portfolio of intellectual property”, and that the company is in advanced discussions on material licensing opportunities that could have a positive impact on operating results and further reduce debt. The review is expected to be completed by June 30, 2018.
DHX Media announced earlier that it will sell 49% of its stake in the Peanuts brand to Sony Music Entertainment (Japan) for $237 million cash to help cut its debt load.
