TORONTO – The juggernaut that is the CSI franchise continues to lead growth at Alliance Atlantis.
For the third quarter, ended September 30th, earnings from operations increased to $17 million from $9 million, free cash flow of $69 million in Q3 reduced consolidated net debt to $374 million, and total advertising sales rose 30%, were just a few of the highlights.
Overall, revenue in the quarter was 247.1 million, up 15.2% over the third quarter of last year. However, due to increased operating expenses, net earnings came in at $12.2 million in the quarter, a drop of 35% compared to Q3 ’04.
Broadcasting revenue rose by 17% in the quarter to $64 million. “Strong advertising sales reflected continued audience growth, particularly for Showcase Television, Food Network Canada, History Television and HGTV Canada,” said the press release. “Digital channel revenue increased 35% due to gains in both advertising and subscriber revenue. Seven of our eight digital channels now have paid subscriber levels between 900,000 and 1.3 million.”
Broadcasting EBITDA increased 23% over the prior year’s period to $14.5 million. This represented an EBITDA margin of 23% during the quarter compared to 22% in the prior year’s quarter.
The company’s entertainment division (which produces CSI, CSI Miami and CSI New York) recorded revenue of $66.9 million during the quarter, a big jump of 47% due to continued strong performance of the CSI franchise and sales related to the company’s film and television library. CSI revenue alone was $50.3 million compared to $43.9 million in the prior year’s period. Revenue gains are attributable to higher first and second window licence fees and increased video/DVD revenue, both internationally and in the United States. Sales from Other, which primarily reflects distribution of the Company’s library of international program rights, increased to $16.6 million.
CSI is available in over 200 territories now.
Entertainment generated EBITDA of $12.8 million compared to $17.0 million in the prior year’s quarter. The CSI franchise recorded a direct margin of 46% in the third quarter compared to 51% in the prior year’s period. As previously disclosed, the prior year’s period direct margin was unusually high as the Company recorded a significant reduction in investment in film and television programs in the second quarter last year which resulted in lower amortization expense in the third quarter last year. The Other Entertainment segment recorded a direct loss of $3.4 million in the third quarter compared to a direct profit of $2.2 million in the prior year’s period. During the quarter, ultimate revenue estimates for a limited number of library titles were revised, resulting in additional amortization expense of $4.0 million.
The company’s Motion Picture Distribution revenue (AA owns a majority of Motion Picture Distribution Income Trust) for the third quarter was $116.2 million, an increase of $2 million or 2% compared to the prior year’s quarter. This increase was primarily due to strong results from the company’s Spanish operations.
"These strong results underline our ability to grow audience and advertising sales across our 13 specialty TV channels while maximizing the value of the CSI franchise," said Phyllis Yaffe, CEO, in a release. "Our continued debt reduction is a result of free cash flow generation in each of our businesses and reinforces our confidence in the long term strength of our assets."
Alliance Atlantis also announced it has concluded a review of its capital structure. "The objectives of our capital structure review were to establish target debt levels for our business and to determine appropriate uses of free cash flow beyond current reinvestment opportunities," said David Lazzarato, chief financial officer. "Going forward, the company will target a net debt to EBITDA ratio in the range of 1.5x to 2.5x, excluding its Motion Picture Distribution business. We intend to begin opportunistically repurchasing shares under our Normal Course Issuer Bid, and plan to renew the bid when it expires in December, 2005."
