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DHX Media Earnings: Negative Earnings but Positive Cash Profits

By Anders Bylund – Updated Apr 22, 2019 at 11:52AM

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The maker of children's video content under popular names like "Peanuts" and "Teletubbies" fought heavy currency-exchange headwinds in the second quarter.

Family-friendly video content manager and producer DHX Media (WLDB.F 7.95%) reported earnings early Tuesday morning, covering the second quarter of fiscal year 2019. The company absorbed a large currency-based loss on the bottom line in a quarter its management called a "transitional period" for the overall business.

DHX Media's second-quarter results: The raw numbers

Metric

Q2 2019

Q2 2018

Year-Over-Year Change

Revenue

$117 million

$122 million

(4.1%)

Net income

($11.8 million)

$9.2 million

N/A

Diluted IFRS earnings per share

($0.13)

$0.06

N/A

Data source: DHX Media. All financial figures are in Canadian dollars, DHX Media's reporting currency.

What happened with DHX Media this quarter?

  • The WildBrain package of child-focused YouTube channels grew its view count by 29% above the year-ago quarter, totaling 7 billion views. Revenues for this operation rose 13% to 19.9 million Canadian dollars. In other words, WildBrain accounted for 17% of DHX Media's total revenues, up from 14% a year earlier.
  • Currency-exchange trends made a big difference to DHX Media's bottom line due to substantial financial holdings in several major world currencies. On a currency-neutral basis, net income more than doubled year over year to CA$16.8 million.
  • Operating cash flows swung from a CA$1.1 million outflow in the second quarter of 2018 to CA$11.6 of positive cash flows in this period. The main difference between cash flows and after-tax earnings for a company like DHX Media lies in the up-front cash costs of new-content productions.
An illustration of DHX Media's shifting content strategy, moving away from mid-market TV fare to focus on YouTube fare and premium originals.

Image source: DHX Media.

What management had to say

In a prepared statement, DHX Media CEO Michael Donovan addressed how the company is performing with regard to the stated three-prong strategy for fiscal year 2019.

"In our second quarter, we made progress against our three strategic priorities of producing premium content, growing WildBrain and improving cash generation," Donovan said. "We signed the largest content deal in the history of the company, which we believe will contribute steady EBITDA for the coming years, and WildBrain continued to deliver double-digit growth. We also experienced a 7% rise in consumer products revenue from Peanuts."

The "largest content deal" in the company's history that Donovan mentioned was a worldwide distribution agreement for a slate of new Peanuts episodes.

Looking ahead

Donovan also noted that his company is relying on digital production and distribution tools to a high and growing degree. The company carries exclusive distribution deals with all the major digital video platforms through titles like Carmen Sandiego, The Adventures of Rocky and Bullwinkle, and Supernoobs. DHX Media's highest-value premium brands such as Peanuts, Strawberry Shortcake, and Teletubbies are developed and distributed to global audiences through a variety of nonexclusive contracts.

The company signed up a package of 10 new distribution territories for The Deep, an animated series about a family of underwater explorers. That show now reaches more than 40 different platforms around the world, including Netflix (NFLX -1.78%).

Check out the latest earnings call transcripts for companies we cover.

Anders Bylund owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool recommends DHX Media. The Motley Fool has a disclosure policy.

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