DHX Media Reports Q1 Financial Results

DHX Media Ltd. reports its unaudited results for the first quarter of Fiscal 2024, ended September 30, 2024.

“As announced today, five new deals in China reflect the global appetite for our content,” said Dana Landry, CEO of DHX Media.  “We are also excited about our WildBrain Multi-platform Kids’ Network, which is performing very well with Q1 revenue up 68% over the same period last year. While the first quarter was a slow start, we expect to deliver growth for the rest of the year in line with our recently increased annual revenue outlook on the back of continued strong global demand for our shows. The back half of the year is also expected to benefit from growing momentum for Teletubbies as we continue to roll out broadcast and consumer products for this flagship brand worldwide.”

Highlights included:

• Q1 2024 revenue of $53.8 million primarily reflected seasonal fluctuations along with the timing of certain production schedules expected to accelerate towards the back half of the year.  This was offset by strong growth from our WildBrain Multi-platform Kids’ Network contributing $5.9 million in revenue, up 68% from Q1 2024, and solid performance from our Consumer Products-represented business (formerly Merchandise & Licensing-represented).
• Net income for Q1 2024 of $1.4 million was significantly impacted by a foreign exchange loss versus a foreign exchange gain in the prior year quarter.
• DHX Media continued to deliver on its strategic priorities of expanding its content library, distributing its shows worldwide, and developing global brands with strong consumer product potential as reflected in the following advancements.
  • During Q1 2024, we added 35 half-hours of proprietary content to our library.  Investment in content continued to be strong during the quarter, including continuing production on new seasons of Teletubbies, Inspector Gadget, Degrassi and a new TV series based on the Cloudy with a Chance of Meatballs movie franchise.
  • A second season of The Deep was greenlit and has been picked up as a worldwide exclusive by Netflix, except in Germanywhere Super RTL signed an exclusive for that territory.
  • DHX Media and Mattel Creation recently announced European distribution deals for Bob the Builder, Fireman Sam and Little People that highlight the global appeal of these brands for TV, home videos to feature-length movies.  New episodes have also been greenlit in partnership with Mattel, to drive potential new revenue streams from production, distribution and consumer products.
  • DHX Media’s ability to develop global brands to drive consumer products is evident in the success of its licensing agency, CPLG, in representing third-party brands including Despicable Me, Sesame Street, Pink Panther, and working with DreamWorks to build out Felix the Cat across Europe, the Middle East and Africa (EMEA) plus North America.   CPLG is also the newly appointed agent in EMEA (excluding UK) to extend BBC Worldwide’s flagship properties, such as Dr. Who and Top Gear, into new consumer product offerings.
• In addition, we announced today the licensing of 19 preschool and kids’ series across five video-on-demand (VOD) services inChina as we increase our penetration in this emerging growth market.  More than 6,100 half-hours of our programming is now available on China’s top digital platforms.

Dividend Declaration

Today, the Company declared a dividend for the quarter of $0.018 on each common voting share and variable voting share outstanding to the shareholders of record at the close of business on November 29, 2024 to be paid on December 16, 2024.

Outlook

On November 8, 2024, management updated its Outlook for fiscal 2024, which reflected an increase to the total revenue target range for the year, attributable to anticipated growth for WildBrain.  Details of management’s expectations for revenues, gross margins and operating expenses for fiscal 2024 can be found in the Outlook section of the Company’s Q1 2024 MD&A, available atwww.dhxmedia.com, on www.sedar.com or http://www.sec.gov/edgar.

Consolidated Statements of Income and Comprehensive Income Data

Q1 2024 Results

Revenues

Revenues for Q1 2024 were $53.83 million, down 16% from $63.91 million for Q1 2024. In absolute dollars, the decrease in Q1 2024 was due largely to expected declines in DHX Television and consumer products-represented revenues, as well as declines in proprietary production, distribution, producer and service fees, and consumer products-owned that are attributable to a combination of expected seasonal fluctuations and the timing of certain deliverables as detailed below. Comparatively, Q1 2024 and Q1 2024 include the same assets in terms of prior acquisitions; accordingly, all revenue fluctuations in comparing Q1 2024 to Q1 2024 are organic. A detailed review of each source of revenue is included below.

Proprietary production revenues: Proprietary production revenues for Q1 2024 were $3.50 million, a decrease of 15% compared to$4.10 million for Q1 2024. For Q1 2024, the Company added 35.0 proprietary half-hours to the library down 10% versus 39.0 proprietary half-hours for Q1 2024. For Q1 2024, the Company added 27.0 half-hours of third party produced titles with distribution rights (Q1 2024 – 30.0 half-hours), a decline of 10%. The proprietary production revenue was in line with the Company’s revised quarterly pacing provided in its Corporate Update press release of November 8, 2024. The Company had expected to deliver an additional 4 episodes of Inspector Gadget, which were delivered subsequent to September 30, 2024 and the revenue will be recognized in Q2 2024.

Distribution and Wildbrain revenues: Total distribution revenues were up 5% to $14.68 million, from $14.03 million for Q1 2024, driven by strong growth in WildBrain. Distribution revenues excluding WildBrain were $8.78 million for Q1 2024, down $1.73 million from$10.51 million in Q1 2024. Management continues to see strong annual growth and continued strong demand from new digital customers, platforms, and territories. While distribution revenues excluding WildBrain were down compared to Q1 2024, they were in line with the Company’s revised quarterly pacing provided in its Corporate Update press release of November 8, 2024 and Management is reiterating its previously provided annual revenue target of $76-80 million. For Q1 2024, amongst other key distribution deals for both linear and digital platforms, the Company closed significant deals with ITV, Lagardère Thématiques, Netflix, and Turner. Management is very pleased to report that revenues from WildBrain were $5.90 million for Q1 2024, reflecting 68% growth versus Q1 2024 revenues of $3.52 million. Management is also pleased to report that the annual revenue target for WildBrain was increased in its Corporate Update press release of November 8, 2024.

Consumer products-owned revenues (formerly M&L-owned) (including music and royalties): For Q1 2024, the consumer products-owned revenues were $3.66 million, down 22% as compared to $4.71 million for Q1 2024. For Q1 2024, consumer products-owned revenues included $0.65 million from the 2016 Big Ticket Summer Concert tour, compared to Q1 2024, when the Company recognized revenues of $1.23 million associated with the 2015 Big Ticket Summer Concert tour. Excluding the live tour revenues, consumer products-owned revenues for Q1 2024 were $3.01 million as the Company continued to recognize revenues related to non-refundable minimum guarantees associated with Teletubbies, In The Night Garden, and Twirlywoos. Management expects consumer products-owned revenues from Teletubbies to begin to ramp up in late Fiscal 2024. Consumer products-owned revenues were in line with Management’s revised quarterly pacing provided in its Corporate Update press release of November 8, 2024.

Producer and service fee revenues: For Q1 2024, the Company earned $10.41 million of producer and service fee revenues, a decrease of 27% versus the $14.30 million from Q1 2024, which were in line with the Company’s revised quarterly pacing provided in its Corporate Update press release of November 8, 2024. Management expects progress to accelerate for the remainder of Fiscal 2024 on a number of key service projects.

New media revenues: For Q1 2024, new media revenues were down $0.99 million or 80% to $0.24 million (Q1 2024-$1.23 million) based primarily on apps and games as the UMIGO project is now complete.

Television revenues: For Q1 2024, DHX Television revenues were down 18% to $15.44 million from $18.82 million from Q1 2024, and were within Management’s expected range. The decline in the revenues was expected and has been driven by lower rates resulting from the Company’s transition away from its content supply agreement with Disney and the rebranding strategy launched in early Fiscal 2024. Approximately 90% or $13.95 million of the television revenues were subscriber revenues, while advertising, promotion, and digital revenues accounted for a combined 10% or $1.49 million of the total television revenues.

Consumer products-represented revenues (formerly M&L-represented): For Q1 2024, consumer products-represented revenues were, as expected, down $0.81 million, or 12%, to $5.90 million compared to Q1 2024 at $6.71 million, and were in line with the Company’s revised quarterly pacing provided in its Corporate Update press release of November 8, 2024. Consumer products-represented revenues were driven mainly by the continued strong performance of our represented brands Despicable Me and Minions in several territories and also significant growth in Sesame Street, Dora the Explorer, The Pink Panther, and Jurassic World, despite currency headwinds created by the weakness in the GBP versus CAD.

Gross Margin

As previously noted herein and as a result of the adoption of the amendment to IAS 38, the Company has adjusted its definition of gross margin, the details of which are included in the “Use of Non-GAAP Financial Measures” section of this MD&A. The Company expects, amongst other potential impacts, the adoption of the amendment to IAS 38 will result in increased fluctuations in the percentage gross margins from period to period. Overall, Management expects the adoption of the amendments to IAS 38 to have a positive impact on overall gross margins. As a result of the adoption of the amendment to IAS 38, the Company will now group proprietary production, distribution (including WildBrain), consumer products-owned, and new media & other into a single Proprietary Content Gross Margin for the purpose of providing analysis of gross margins. The change has been applied prospectively.

Gross margin for Q1 2024 was $31.18 million, a decrease in absolute dollars of $3.38 million or 10% compared to $34.56 million for Q1 2024. The overall gross margin for Q1 2024 at 58% of revenue was near the mid-point of Management’s revised guidance as provided in its Corporate Update press release of November 8, 2024, impacted by stronger than expected revenue growth for WildBrain, seasonally low deliveries for proprietary production, and lower than expected live tour gross margins. At 42%, gross margins for producer and service fees were at the mid-point of Management’s expectations. Gross margins for DHX Television, at 62%, were well within Management’s expectations, impacted by lower external content costs when compared to Q1 2024. Gross margin for Q1 2024, including DHX Television, was calculated as revenues of $53.83 million, less direct production costs and expense of investment in film of $22.65 million and $nil expense of book value of acquired libraries, (Q1 2024-$63.91 million less $28.25 million and less$1.10 million, respectively).

For Q1 2024, the margins for each revenue category in absolute dollars and as a margin percentage were as follows: the proprietary content business had a gross margin of $11.38 million or 52%, net producer and service fee revenue margin of $4.34 million or 42%, television margin was $9.57 million or 62%, and consumer products-represented revenue margin was $5.90 million or 100%.

Operating Expenses (Income)

SG&A

SG&A costs for Q1 2024 increased 2% to $17.64 million compared to $17.28 million for Q1 2024. SG&A includes $1.29 million (Q1 2024-$1.09 million) in non-cash share-based compensation. When adjusted, cash SG&A at $16.35 million was below Management’s quarterly SG&A expectations, benefited somewhat by the weakness in the GBP versus the CAD. Management intends to continue to add resources throughout the year as it continues to ramp up its WildBrain business and to drive in the consumer products-owned business.

Adjusted EBITDA

For Q1 2024, Adjusted EBITDA was $14.83 million, down $3.54 million or 19% over $18.37 million for Q1 2024. Please see the “Use of Non-GAAP Financial Measures” and “Reconciliation of Historical Results to Adjusted EBITDA” sections of the MD&A for the definition and calculation of Adjusted EBITDA.

SOURCE DHX Media Ltd.