Daily News Friday, November 10, 2024
CSI Drives Alliance Atlantis Results in Q3
"We are exceptionally pleased with the performance of the CSI franchise
and the previously announced licensing of certain international second window
rights which demonstrate the strong interest of CSI around the world," said
Phyllis Yaffe, Chief Executive Officer of Alliance Atlantis. "In our
broadcasting business, we were pleased with continued strong subscriber
revenue gains as well as strong audience growth. While advertising revenue was
down slightly year over year, we are pacing well in the fourth quarter and in
2007 we believe advertising revenue will increase in line with the Canadian
specialty television market expectations. Over the past 12 months, our
advertising revenue is up 7%."
"During the quarter we repurchased and cancelled approximately nine
hundred thousand of our Class B Non-Voting shares at a total cost of
$29.6 million," said David Lazzarato, Executive Vice President and Chief
Financial Officer. "Since announcing our share buyback during the fourth
quarter of 2024, we have used approximately $102.1 million of free cash flow
to repurchase approximately 3.0 million shares, representing 7% of the shares
then outstanding. We plan to renew our normal course issuer bid when it
expires in December 2024 and intend to continue to repurchase our shares in
order to help meet our previously announced capital structure objectives."
Third Quarter Financial Results
Revenue
Broadcasting revenue of $66.7 million represented an increase of 4% over
the prior year's quarter. Subscriber revenue grew by 10% to $33.0 million in
the quarter compared to $30.1 million in the prior year reflecting steady
growth in paid subscribers. Advertising revenue decreased slightly to
$32.1 million for the quarter compared to $33.0 million in the prior year due
to slightly lower demand for advertising inventory.
In the Entertainment segment, CSI revenue of $140.2 million was up
$89.9 million from $50.3 million in the prior year's quarter. The increase was
primarily due to significant previously announced second window license fees
recognized in the current quarter offset by a stronger Canadian dollar. The
Company recognizes second window license fees from licensing arrangements with
existing broadcasters of the CSI franchise when the Company has fulfilled its
obligations, which typically occurs ahead of the actual second window
availability and payment of the license fees. During the current quarter, the
Company entered into several second window licensing arrangements with
existing CSI broadcasters and recognized $91.3 million in revenue from these
arrangements. The negative impact of foreign exchange rate changes on CSI
revenue in the quarter was $12.5 million. The foreign exchange rate for the
third quarter of 2024 was $1.13 compared to $1.22 in the prior year's quarter.
The Entertainment - Other segment, which primarily represents sales made
from the Company's historical library of program rights, recorded $9.6 million
of revenue during the quarter compared to $16.6 million in the prior year's
period. The decrease is primarily due to the prior year benefiting from a
large sale of one of the Company's programs.
Motion Picture Distribution revenue of $107.0 million was down 8% from
$116.2 million in the prior year's period due to a more modest slate of
theatrical releases. During the quarter, the Company's broadcasting business
acquired programming valued at $16.4 million from the motion picture
distribution business, the majority of which relates to library sales. The
associated costs and revenues, for our broadcasting and motion picture
distribution segments respectively, are eliminated on consolidation.
EBITDA
During the third quarter, Broadcasting EBITDA of $14.3 million decreased
1% compared to the prior year's quarter. This represented an EBITDA margin of
21% compared to a margin of 23% in the same period last year. The decrease is
primarily due to higher operating expenses related to programming and
marketing costs. Also during the third quarter, the Company invested
$0.8 million in operating costs in support of digital media initiatives. This
is an important area for growth within the Company and over the next year the
costs will continue as the Company ramps up its various digital initiatives
including exploration into the user-generated content space.
During the third quarter, Entertainment EBITDA of $59.9 million compared
to $12.8 million in the prior year's period. This increase is a result of a
$44.9 million increase in direct profit and a $2.2 million decrease in
operating expenses. The CSI franchise recorded direct profit of $60.0 million
representing a direct profit margin of 43% during the quarter. This compares
to direct profit of $23.0 million representing a direct profit margin of 46%
in the prior year's period. $40.3 million of CSI direct profit during the
quarter is related to the recognition of second window license fees. The
increase in direct profit was partially offset by the strengthening Canadian
dollar which had a $5.3 million negative impact during the quarter. The
decrease in direct margin percentage, as expected, was due to participation
costs related to the international second window sales described above. The
Entertainment - Other segment recorded direct profit of $4.5 million compared
to a direct loss of $3.4 million in last year's quarter. This increase is due
to higher impairment charges and royalty and residual costs in the prior year.
Motion Picture Distribution EBITDA during the quarter of $9.4 million
compared to EBITDA of $17.5 million in the prior year's quarter. The decrease
is a result of lower theatrical revenues as discussed above, as well as
non-recurring professional fees and personnel retention costs aggregating
$1.7 million.
Corporate and Other expenses were $9.4 million during the quarter
compared to $9.8 million in the prior year's period. The decrease is primarily
due to lower professional fees.
Amortization
In the third quarter, amortization expense was $2.5 million compared to
$3.3 million in the same period last year. The decrease in the quarter is
attributable to lower development cost amortization, as well as the prior year
including amortization related to certain broadcast intangible assets that are
now fully amortized.
Interest
Interest expense of $6.5 million was up from $6.1 million in the prior
year's quarter. The increase in interest expense is the result of higher
borrowings by Motion Picture Distribution LP ("Distribution LP") under its
credit facilities and a higher effective interest rate. The Company's average
cost of borrowing in the quarter was 7.0% compared to 5.3% in the prior year's
quarter.
Impairment of Goodwill
In the third quarter, the Company completed its annual goodwill
impairment testing. As a result, the Company concluded that the carrying
amount of goodwill for the Entertainment - Other reporting unit was not
recoverable and a non-cash impairment charge of $30.0 million was recorded.
The impairment results from a lower expectation of future sales of the
Entertainment - Other reporting unit's library of film and television
programs.
The Company still expects the library of film and television programs to
deliver a steady but declining stream of cash flow for the foreseeable future.
The decline in revenues in the Entertainment - Other segment is consistent
with the Company's strategy.
The Company will continue to aggressively licence its library of
approximately 1,000 titles of programming rights to broadcasters, distributors
and other users in various territories throughout the world.
Provision for Income Taxes
Provision for Income Taxes during the quarter was $17.0 million compared
to $10.7 million in the prior year's period. The effective tax rate increased
to 44.3% during the quarter from 34.1% in the prior year's period. The
increase is mainly the result of certain expenses not deductible for tax,
primarily the impairment of goodwill recorded in the quarter, offset by the
mix of earnings between different tax jurisdictions.
Non-controlling Interest
Non-controlling interest represents the tax effected 49% interest of
Movie Distribution Income Fund in the earnings of Distribution LP and the
Company's non-wholly owned broadcasting channels. During the third quarter,
non-controlling interest was $3.7 million compared to $8.5 million in last
year's period. The decrease is primarily due to lower net income of
Distribution LP.
Net Earnings
Net earnings for the quarter were $17.7 million compared to net earnings
of $12.2 million for the prior year's period. On a basic and diluted basis,
net earnings per share were $0.42 for the quarter, compared to basic and
diluted net earnings per share of $0.28 for the prior year's period.
Liquidity
Consolidated Free Cash Flow for the third quarter was an inflow of
$52.6 million compared to an inflow of $69.5 million in the prior year's
quarter. The three months ended September 30, 2024 was negatively affected by
a decrease in non-cash operating balances and the prior year's free cash flow
included proceeds from the sale of assets and investments held by the Company.
These decreases are offset by an increase in operating earnings.
Consolidated net debt decreased $32.0 million to $342.3 million compared
to $374.3 million one year ago. This decrease in net debt is inclusive of
$102.1 million used to repurchase shares during the last twelve months. Net
debt, excluding non-recourse net debt related to Distribution LP, was
$257.5 million, representing a reduction of $67.1 million from the prior
year's period. At September 30, 2024, net debt to EBITDA (excluding
Distribution LP) was 1.3x.
Outlook
For Broadcasting, steady growth in subscriber revenue is expected to
continue for the remainder of the year. Consistent with the traditional sales
cycle, advertising revenue is expected to be stronger in the fourth quarter.
Margin percentage for the full year is expected to be similar to the prior
year as higher margin percentage for our digital channels is offset by
incremental investment in programming and online initiatives. The Company
expects advertising sales growth for the remainder of the current year and
during 2024 to track in line with the Canadian specialty television market
expectations. Advertising revenue growth is expected to be driven by stronger
demand overall for non-sports broadcast inventory as well as strong ratings
growth for the Company's channels. For the 2024-2006 broadcast year the
average minute audience was up 21% for HGTV, 25% for Food, 11% for Showcase
and 10% for Life Network, over the 2024-2005 broadcast year(1).
The CSI franchise is expected to continue to perform very well as
evidenced by strong ratings, including significant year over year ratings
growth by CSI: NY, which has joined the other two series in the franchise
among the top 10 most watched series on US television(2).
Motion Picture Distribution LP released their financial results on
November 8, 2024. For further information on Distribution LP, please refer to
their press release or go to their website at
www.moviedistributionincomefund.com.
Operating Highlights
Broadcasting
During the quarter, the Company had four digital networks ranked in the
top 10 for Adult 25-54 average minute audience among the English language
digital specialty networks. Showcase Action, Showcase Diva, BBC Canada, and
IFC all ranked in the top 10, with Showcase Action maintaining its No. 1
ranking among digital specialty networks in the Adult 25-54 average minute
audience.
Strong network ratings were also achieved for the Company's analog
channels during the third quarter of 2024. Three of the Company's English
language established specialty networks (Showcase, HGTV, and History) ranked
in the top 10 for Adult 25-54 average minute audience among all Canadian
English language established specialty networks(3).
Alliance Atlantis' digital channels enjoy strong subscriber levels and
currently seven of the eight digital channels have surpassed the one million
subscribers mark.
Entertainment
During the third quarter of 2024, the CSI franchise continued to deliver
exceptional results. CSI: Crime Scene Investigation is currently in its 7th
season and ranked the No. 2 series on U.S. television with an average of
22.6 million viewers per week. CSI: Miami is currently in its 5th season and
ranked as the No. 5 series on U.S. television and the No. 1 series on Monday
night with an average of 18.2 million viewers per week. And finally, CSI: NY
is currently in its 3rd season and ranked as the No. 7 series on U.S.
television and the No. 1 series in its timeslot with an average of
16.6 million viewers, up 14% over the same period in the prior year(4).
--------------------------------
(1) Source: Nielsen Media Research Mo-Su 6a-6a Average Minute Audience
Adults 25-54 wk 1-52 05-06= 08/29/2005-08/27/2006, wk 1-52
By 04-05= 08/30/2004-08/28/2005
(2) Source: National Nielsen Ratings: Primetime Season to Date Rank -
Regular Programs for Demographic PER2+ for 09/18/06 - 10/22/06
(3) Source: Nielsen Media research MR Mo-Su 6a-6a AMA Ad 25-54
06/26/06-08/27/06
(4) Source: National Nielsen Ratings: Primetime Season to Date Rank-
Regular Programs for Demographic PER2+ for 09/18/06 - 10/22/06
This earnings release contains the unaudited interim consolidated
financial statements for the three and nine months ended September 30, 2024
and the three and nine months ended September 30, 2024.
(xx) Non-GAAP financial measures
The Company uses EBITDA, direct profit (loss) and free cash flow to gain
a better understanding of the results of the business. These non-GAAP
financial measures are not recognized under Canadian GAAP. These non-GAAP
financial measures are provided to enhance the user's understanding of the
Company's historical and current financial performance and its prospects for
the future. Management believes that these measures provide useful information
in that they exclude amounts that are not indicative of the Company's core
operating results and ongoing operations and provide a more consistent basis
for comparison between years. The Company uses EBITDA, direct profit (loss)
and free cash flow to measure operating performance. The Company has defined
EBITDA, calculated using figures determined in accordance with Canadian GAAP,
as earnings (loss) before under noted, which are earnings before amortization,
interest, equity (earnings) losses in affiliates, investment losses, gain on
disposal of assets, foreign exchange gains and losses, impairment of goodwill,
income taxes and non-controlling interest. Direct profit (loss) is defined as
revenue less direct operating expenses, as defined in note 25 of the Company's
consolidated financial statements included in the Company's December 2024
Corporate Report. Free cash flow is defined as the total of cash and cash
equivalents provided by (used in) operating activities and provided by (used
in) investing activities.
Net debt is defined as the Company's revolving credit facility and term
loans, net of cash and cash equivalents.
While many in the financial community consider EBITDA to be an important
measure of operating performance, it should be considered in addition to, but
not as a substitute for net earnings, cash flow and other measures of
financial performance prepared in accordance with Canadian GAAP which are
presented in the attached unaudited interim consolidated financial statements.
In addition, the Company's calculation of EBITDA may be different than the
calculation used by other companies and therefore comparability may be
affected. A reconciliation of these non-GAAP financial measures to the most
directly comparable measures calculated in accordance with Canadian GAAP is
presented in the Company's MD&A.;
(xxx) Alliance Atlantis holds a 51% limited partnership interest in
Motion Picture Distribution LP (the "Partnership"), a motion picture
distributor in Canada, the U.K. and Spain. The balance of the Partnership is
owned by Movie Distribution Income Fund (TSX: FLM.UN).
<<
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CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months and Nine Months Ended
September 30, 2024 and September 30, 2024
(Unaudited)
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The interim Consolidated Financial Statements for the prior year's
periods ended September 30 have not been reviewed by an auditor.
Management's responsibility for financial reporting
The accompanying unaudited interim consolidated financial statements and
Management's Discussion and Analysis ("MD&A;") of Alliance Atlantis
Communications Inc. ("the Company") are the responsibility of management and
have been approved by the Board of Directors.
The unaudited interim consolidated financial statements have been
prepared by management in accordance with Canadian generally accepted
accounting principles. When alternative methods of accounting exist,
management has chosen those it deems most appropriate in the circumstances.
The unaudited interim consolidated financial statements and information in the
MD&A; necessarily include amounts based on informed judgments and estimates of
the expected effects of current events and transactions with appropriate
consideration to materiality. In addition, in preparing the financial
information management must make determinations as to the relevancy of
information to be included, and make estimates and assumptions that affect
reported information. The MD&A; also includes information regarding the impact
of current transactions and events, sources of liquidity and capital
resources, operating trends, risks and uncertainties. Actual results in the
future may differ materially from our present assessment of this information
because future events and circumstances may not occur as expected.
The Company maintains a system of internal accounting and administrative
controls. Such systems are designed to provide reasonable assurance that the
financial information is relevant, reliable and accurate and the Company's
assets are appropriately accounted for and adequately safeguarded.
The Board of Directors is responsible for ensuring that management
fulfills its responsibilities for financial reporting, and is ultimately
responsible for reviewing and approving the unaudited interim consolidated
financial statements and MD&A.; The Board carries out this responsibility
through its Audit Committee.
The Audit Committee is appointed by the Board, and all of its members are
independent directors. The Committee meets periodically with management, as
well as the independent external auditors, to discuss internal controls over
the financial reporting process and financial reporting issues. The Committee
reviews the unaudited interim consolidated financial statements and the MD&A;
and reports its findings to the Board for consideration when the Board
approves the unaudited interim consolidated financial statements and the MD&A;
for issuance to the shareholders.
November 10, 2024
Phyllis Yaffe David Lazzarato
Chief Executive Officer Executive Vice President and
Chief Financial Officer
Alliance Atlantis Communications Inc.
Consolidated Balance Sheets
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(in millions of Canadian dollars)
(unaudited) (unaudited)
September 30, December 31, September 30,
2024 2024 2024
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Assets
Cash and cash equivalents 93.1 110.6 50.7
Accounts and other
receivables (note 13) 444.4 343.4 333.0
Investment in film and
television programs (note 2) 522.5 578.9 563.1
Property and equipment 38.6 39.7 39.5
Investments 4.8 6.8 7.0
Future income taxes 75.6 87.1 108.5
Other assets 11.7 14.4 19.8
Loans receivable from tax
shelters 98.1 97.2 101.1
Broadcast licences 105.0 106.0 108.7
Goodwill (note 5 and 12) 174.5 202.8 203.7
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1,568.3 1,586.9 1,535.1
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Liabilities
Revolving credit
facilities (note 3) 47.3 33.0 14.0
Accounts payable and accrued
liabilities 488.9 504.1 469.9
Income taxes payable 53.8 38.5 53.0
Deferred revenue 27.3 31.4 24.7
Term loans (note 4) 388.1 409.5 411.0
Tax shelter participation
liabilities 98.1 97.2 101.1
-------------------------------------------
1,103.5 1,113.7 1,073.7
Non-controlling interest 54.6 59.9 58.3
Shareholders' Equity
Share capital and other
(note 6) 706.5 732.7 734.6
Deficit (287.5) (310.3) (326.4)
Cumulative translation
adjustments (8.8) (9.1) (5.1)
-------------------------------------------
410.2 413.3 403.1
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1,568.3 1,586.9 1,535.1
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Alliance Atlantis Communications Inc.
Consolidated Statements of Earnings and Deficit
For the periods ended September 30,
(unaudited)
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(in millions of Canadian dollars - except per share amounts)
Three months ended Nine months ended
September 30, September 30,
2024 2024 2024 2024
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Revenue
Broadcasting 66.7 64.0 213.2 199.2
Entertainment 149.8 66.9 345.0 247.6
Motion Picture Distribution 107.0 116.2 289.9 304.9
Corporate and Other - - - 0.3
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323.5 247.1 848.1 752.0
Direct operating expenses 206.8 167.9 551.4 505.3
Direct profit
Broadcasting 31.9 31.6 114.4 106.0
Entertainment 64.5 19.6 131.3 82.4
Motion Picture Distribution 20.3 28.0 51.0 58.0
Corporate and Other - - - 0.3
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116.7 79.2 296.7 246.7
Operating expenses
Selling, general and
administrative 40.8 39.8 117.6 120.5
Stock based compensation 1.7 4.4 6.9 5.4
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42.5 44.2 124.5 125.9
Earnings (loss) before undernoted
Broadcasting 14.3 14.5 61.0 55.5
Entertainment 59.9 12.8 116.7 65.9
Motion Picture Distribution 9.4 17.5 20.7 26.1
Corporate and Other (9.4) (9.8) (26.2) (26.7)
---------------------------------------
74.2 35.0 172.2 120.8
Amortization 2.5 3.3 10.3 10.0
Interest (note 7) 6.5 6.1 20.8 17.0
Equity (earnings) losses in
affiliates - (0.1) 0.1 (0.1)
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Earnings from operations before
undernoted 65.2 25.7 141.0 93.9
Investment losses (note 8) - 0.7 - 0.7
Gain on disposal of assets (note 9) - (3.7) - (3.7)
Foreign exchange (gains) losses (3.2) (2.7) (12.8) 6.7
Impairment of goodwill (note 12) 30.0 - 30.0 -
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Earnings before income taxes and
non-controlling interest 38.4 31.4 123.8 90.2
Provision for income taxes 17.0 10.7 47.3 33.9
Non-controlling interest 3.7 8.5 11.3 10.2
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Net earnings for the period 17.7 12.2 65.2 46.1
Deficit - beginning of period (290.6) (338.6) (310.3) (372.5)
Shares repurchased and cancelled
under issuer bid (note 6) (14.6) - (42.4) -
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Deficit - end of period (287.5) (326.4) (287.5) (326.4)
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Earnings per Common Share
(note 10)
Basic $0.42 $0.28 $1.52 $1.06
Diluted $0.42 $0.28 $1.50 $1.05
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Alliance Atlantis Communications Inc.
Consolidated Statements of Cash Flows
For the periods ended September 30,
(unaudited)
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(in millions of Canadian dollars)
Three months ended Nine months ended
September 30, September 30,
2024 2024 2024 2024
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Cash and cash equivalents
provided by (used in)
Operating activities
Net earnings for the period 17.7 12.2 65.2 46.1
Items not affecting cash
Amortization of film and
television programs (note 11f) 96.9 89.8 258.7 274.5
Amortization of development costs - 0.3 - 0.9
Amortization of property and
equipment 2.4 2.6 7.9 7.7
Amortization of other assets 0.9 1.3 3.5 4.1
Writedown of broadcast licences - - 1.0 -
Impairment of goodwill (note 12) 30.0 - 30.0 -
Investment losses (note 8) - 0.7 - 0.7
Gain on disposal of
assets (note 9) - (3.7) - (3.7)
Equity (earnings) losses in
affiliates - (0.1) 0.1 (0.1)
Non-controlling interest 3.7 8.5 11.3 10.2
Future income taxes 2.5 (0.1) 11.5 19.9
Unrealized net foreign exchange
(gains) losses 1.8 (9.0) (9.0) (7.7)
Non-cash stock based compensation 1.0 0.6 4.2 2.3
Investment in film and television
programs (note 11f) (94.2) (79.6) (276.4) (286.7)
Net changes in other non-cash
balances related to operations (7.2) 34.3 (34.8) (17.6)
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55.5 57.8 73.2 50.6
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Investing activities
Purchases of property and
equipment (3.2) (1.7) (7.6) (3.9)
Proceeds from sale of property
and equipment - 4.7 - 4.7
Long-term investments 0.3 8.7 0.3 7.1
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(2.9) 11.7 (7.3) 7.9
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Financing activities
(Repayment of) proceeds from
revolving credit facility (2.7) (8.0) 14.3 14.0
Repayment of term loans (1.8) (30.7) (7.8) (62.1)
Distributions paid to
non-controlling interest (6.0) (8.1) (17.5) (19.3)
Issue of share capital 5.4 2.0 12.2 6.6
Shares purchased and cancelled
under issuer bid (29.6) - (85.0) -
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(34.7) (44.8) (83.8) (60.8)
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Effect of exchange rate changes
on cash and cash equivalents 0.1 (0.7) 0.4 (2.0)
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Change in cash and cash
equivalents 18.0 24.0 (17.5) (4.3)
Cash and cash equivalents
- beginning of period 75.1 26.7 110.6 55.0
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Cash and cash equivalents
- end of period 93.1 50.7 93.1 50.7
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