Structural re-org to separate business lines
HALIFAX – DHX Media saw revenues dip and recorded a $17.9 million net loss attributable to its shareholders for its second quarter ended December 31, 2018.
The children's content and brands company said Tuesday that Q2 2019 revenue was $117.0 million, down 4% from $121.9 million in the same prior-year period, as a result of a drop in producer and service fees and distribution revenues. In the quarter, Distribution (excluding WildBrain) was $13.7 million, down $2.9 million year-over-year. Sequentially, Q2 2019 increased by $4.9 million over Q1 2019.
Q2 2019 posted a net loss of $17.9 million versus net income of $7.4 million in the prior year quarter, due in part to a larger non-controlling interest in Peanuts due to the Sony transaction; a $15.5 million non-cash, unrealized foreign exchange loss which the company said was mainly the result of a change in carrying value of its US dollar-dominated debt; and changes in the fair value of embedded derivatives.
Adjusted EBITDA was $22.0 million, down from $32.0 million in Q2 2018.
WildBrain had its strongest quarter to date, with views jumping 29% to 7 billion and revenue growing 13% to $19.9 million. However, the rate of revenue growth slowed in the quarter, which the company said was impacted by 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”, reads the news release accompanying the financial results. “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.”
Executive chair and CEO Michael Donovan said that the Board of Directors 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, a move designed to “enhance strategic flexibility”.
“From a modeling perspective, nothing changes”, he said during the Q2 call with analysts. “In its most simplistic form, think of a holding company that owns two unique subsidiaries with different growth profiles and different regulatory constraints.”
In a note to clients, Canaccord Genuity analyst Aravinda Galappatthige said that affiliate fee negotiations for DHX Media-owned Family Channel should be watched closely.
“Management alluded to higher ratings at Family Channel led by DHX’s own content, during the fall season”, reads the note. “We believe this is particularly important during affiliate agreement renewal negotiations, currently ongoing with two major BDUs. We know that subscriber fees at Family channel are sharply elevated vs. comps. Hence it’s very much a case of whether the regulatory realities and recent ratings strength can facilitate at least some degree of sustainability of these premium rates. Given our estimate of ~$20M in EBITDA from Family Channel, this is certainly meaningful to consolidated earnings.”
