DHX Media Announces Q2 Results - Gross Margin Improved and Net Loss Decreased
on Revenue Decline

    
    www.dhxmedia.comTSX: DHX
    

HALIFAX , Feb. 12 /CNW/ - DHX Media Ltd. ("DHX Media" or the "Company") (TSX ticker: "DHX"), a leading independent international producer and distributor of mainly children's entertainment content, announced its unaudited financial results for the three and six months ended December 31, 2009 .

    
    Highlights of Q2 2010 Results:
    (All amounts in Canadian dollars)

      - Revenue of $9.4 million and $22.4 million for the three and six
        months ended December 31, 2009 ("Q2 2010" and "H1 2010"
        respectively), a decrease of 56% and 42%, respectively (Q2 2009:
        $21.5 million, H1 2009: $38.4 million);

      - Gross margin as a percentage of revenue increased to 41% and 38% for
        Q2 2010 and H1 2010, respectively, up from 31% for both of Q2 2009 an
        H1 2009.

      - EBITDA(1) of $0.7 million and $2.2 million for Q2 2010 and H1 2010, a
        decrease of 76% and 54%, respectively (Q2 2009: $3.0 million,
        H1 2009: $4.9 million);

      - Net loss decreased by $100,000 to $0.2 million for Q2 2010 and was
        also $0.2 million for H1 2010 (Q2 2009: net loss of $0.3 million,
        H1 2009: net income of $0.2 million); and,

      - Deliveries of television content of 57.5 and 152.5 half-hours for
        Q2 2010 and H1 2010, respectively. (Q2 2009: 95.0 half-hours,
        H1 2009: 199.5)


    (1) EBITDA represents net earnings (loss) of the Company before
        amortization expense, interest and other income (expense), non-
        controlling interest, equity income (loss), development expenses,
        stock-based compensation expense and one-time charges.
    

Michael Donovan , Chairman and CEO, DHX Media commented, "For Q2 2010 we saw the lagging effect of last winter's economic slowdown on our production revenue when broadcasters held back on commissioning television series due to deteriorating advertising sales. While we expect to see those effects continue into Q4, the broadcast environment continues to improve. Cash increased by $1 million during Q2 2010 and distribution revenue from DHX's library more than doubled in the first half of fiscal 2010, led by international sales of our hit children's show, Animal Mechanicals. We were also pleased to have achieved reductions of 16% for direct SG&A costs during the quarter compared to Q2 2009."

Operating Review

While revenue was below last year's record Q2 results, DHX continued to deliver on its strategic objectives in important ways including the addition of more than 50 episodes to its library of 2,400 half hours of mostly children's entertainment content and by increasing merchandising and licensing activity. DHX continues to have a robust pipeline of productions in development and international distribution deals in discussion, including a potential broadcast license for DHX Media's hit series Animal Mechanicals in the U.S. market. Animal Mechanicals has been licensed to broadcasters across six continents including by Disney for the United Kingdom and Discovery Kids for Latin America.

Selected recent announcements since DHX Media's last quarterly results:

February 10, 2010: Announced licensing of broadcast rights for Martha Speaks to France 5 and the licensing and launch of Martha Speaks TV tie-in books by Houghton Mifflin Harcourt with additional titles scheduled for publication later this year.

January 29, 2010: Announced the private placement of 1.875 million units to Sprott Asset Management.

January 21, 2010: Announced the launch of the second Animal Mechanicals DVD at select retailers across Canada including Walmart, Toys R Us, Movie Gallery, Cinema 1, Reynaud Bray, Best Buy, Columbia House and Loblaws. Animal Mechanicals - Turbo Islands, distributed in cooperation with Phase 4 Films, follows the retail success of the series' first DVD installment, Animal Islands with major retailers, including Walmart, Canada's commitment to stock both of these Canadian releases.

January 21, 2010: Announced the launch of Animal Mechanicals DVDs for the first time in Brazil and in Mexico and the Caribbean where they will be distributed by ST2 and Tycoon, respectively.

November 30, 2009: Announced a licensing deal with Phase 4 Films for the distribution of the first Animal Mechanical's DVD in Canada , titled "Animal Island".

November 30, 2009: Announced Animal Mechanical broadcast deal with okto Singapore which also included licenses for the award-winning, literacy based Super WHY as well as Adastra Creative's Grandpa In my Pocket. In further deals, True Visions in Thailand snapped up Franny's Feet, Bo on the GO! and Poppetstown, an official Canada - Spain co-production produced with the participation of Sony Creative Products. Sun TV India acquired a trio of preschool shows including all available episodes of series Franny's Feet, Super WHY and Martha Speaks , which was also been picked up by Tooniverse in South Korea .

November 23, 2009: Announced several international sales of family series Grandpa in My Pocket, which was commissioned by BBC's CBeebies network in the UK.

November 23, 2009: Announced a home entertainment deal for Australia with ABC Home Video for Australia for Grandpa in My Pocket, where the series rates as one of the top children's programs. ABC TV also picked up the second season for broadcast. DHX Media's consumer products division DHX Licensing signed agreements with licensing partners Warner Home Video UK for DVD rights and Brandzoo for UK merchandise licensing rights.

Consolidated Statements of Income and Comprehensive Income Data

    
    -------------------------------------------------------------------------
                                         Three     Three       Six       Six
                                        Months    Months    Months    Months
                                         Ended     Ended     Ended     Ended
                                      December  December  December  December
                                      31, 2009  31, 2008  31, 2009  31, 2008
                                     ----------------------------------------
                                         ($000)    ($000)    ($000)    ($000)

                                       (except   (except   (except   (except
                                           per       per       per       per
                                         share     share     share     share
                                          data)     data)     data)     data)
                                     ----------------------------------------
    Consolidated Statements of
     Income (Loss) and Comprehensive
     Income (Loss) Data:

    Revenues........................     9,427    21,514    22,375    38,385
    Direct production costs and
     amortization of film and
     television produced............     5,598    14,781    13,885    26,659
                                     ----------------------------------------
    Gross margin....................     3,829     6,733     8,490    11,726
                                     ----------------------------------------
    Selling, general, and
     administrative.................     3,280     3,924     6,732     7,262
    Impairment in value of certain
     investment in film and
     television programs............        75         -       234         -
    Income before the following and
     discontinued operations........       300     2,723     1,038     4,229
    Income (loss) from strategic
     investments....................        29       (85)      (24)      (13)
    Costs associated with abandoned
     transactions...................         -    (1,144)        -    (1,144)
    Amortization, interest and other
    expenses, net...................      (514)     (634)   (1,098)   (1,257)
    Provision for income taxes......        24       245       116       590
    Net income (loss) and
     comprehensive income (loss)
     before discontinued operations.      (209)      615      (200)    1,225
    Discontinued operations, net of
     income tax.....................         -      (943)        -    (1,023)
    Net income (loss) and
     comprehensive income (loss)....      (209)     (328)     (200)      202
    Basic earnings (loss) before
     discontinued operations per
     common share...................      0.00      0.01      0.00      0.03
    Diluted earnings (loss) before
     discontinued operations per
     common share...................      0.00      0.01      0.00      0.03
    Basic earnings (loss) per
     common share...................      0.00     (0.01)     0.00      0.00
    Diluted earnings (loss) per
     common share...................      0.00     (0.01)     0.00      0.00
    Weighted average common shares
     outstanding....................

    Basic...........................    44,484    42,834    44,410    42,834
    Diluted.........................    44,576    42,834    44,587    42,834



                                                             As at     As at
                                                          December      June
                                                          31, 2009  30, 2009

                                                             ($000)    ($000)
                                                         --------------------
    Consolidated Balance Sheet Data:
    Cash, restricted cash and short-
     term investments...............                        12,467    11,086
    Investment in film and
     television programs............                        33,588    35,827
    Total assets....................                       134,623   148,803
    Total liabilities...............                        73,920    88,253
    Shareholders' equity............                        60,703    60,550
    -------------------------------------------------------------------------
    

Revenues

Revenues for Q2 2010 were $9.42 million , down 56% from $21.51 million for Q2 2009. The decrease in Q2 2010 was due to lower deliveries of proprietary programs versus Q2 2009. Proprietary deliveries were lower due to the slow down in orders from our broadcast customers. Last year's global recession has resulted in a slowdown in advertising dollars for some of our broadcast customers and therefore fewer orders and lower per half-hour license fee revenue. Because of the 12-18 month lag between production and delivery this has resulted in fewer deliveries for Q2 2010. The single largest difference in Q2 2010 proprietary production revenue is that there were no deliveries of The Guard versus in total $6.19 million for Q2 2009.

For Q2 2010 the Company recognized 57.5 half-hours - $3.92 million of proprietary film and television program production revenue, a 39% decrease versus the 95.0 half-hours for Q2 2009, where the programs have been delivered and the license periods have commenced for consolidated entities. Included in proprietary film and television production revenue are Canadian and other limited rights programs which have been, for Q2 2010 onward, reclassified from the producer and service fee category. For Q2 2010 the Company earned $0.80 million for producer and service fee revenues, an increase of 433% over the $0.15 million for Q2 2009. For Q2 2010 distribution revenues were up 69% to $3.55 million from $2.10 million for Q2 2009. For Q2 2010 the Company recognized revenue on several contracts throughout its existing library and delivered episodes of newer titles. Some of the more significant sales were on the following titles: Animal Mechanicals Seasons I and II, The Latest Buzz Seasons I, II, and III, Franny's Feet Seasons I, II, and III, Super Why! Season I, Kid vs. Kat Season I, Poppets Town Season I, The Guard Seasons I and II, and Martha Speaks Season I.

For Q2 2010 music and royalty revenues increased 279% to $0.72 million (Q2 2009-$0.19 million). Music and royalty revenues are up as the Company's volume of production was up considerably in its most recent fiscal year ended 2009. Due to a lag in these streams, they tend to follow on 12-18 months after production revenue. New media revenues increased in Q2 2010 to $0.26 million (Q2 2009-$0.03 million).

New media revenues have increased as the Company has undertaken new activities to support several of its proprietary series, specifically Animal Mechanicals, That's So Weird, and This Hour Has 22 Minutes.

Gross Margin

Gross margin for Q2 2010 was $3.83 million , a decrease in absolute dollars of 43% compared to $6.74 million for Q2 2009. Management was pleased, however, with the overall margin at 41% of revenue for Q2 2010 due to the greater percentage of delivered children's content.

Operating Expenses

Operating expenses for Q2 2010 were $3.53 million compared to $4.02 million for Q2 2009, a decrease of 12%. SG&A costs for Q2 2010 excluding stock based compensation were down 16% at $3.12 million compared to $3.72 million for Q1 2009.

EBITDA

In Q2 2010 EBITDA was $0.71 million , a 76% decrease as compared to $3.01 million for Q2 2009. For Q2 2010 this was generally due to the decrease in gross margin dollars of $2.91 million , offset by a $0.60 million decrease in SG&A.

Cash on Hand

DHX's cash balance continued to grow with cash and restricted cash increasing $1 million to $12.5 million as at December 31, 2009 .

The full unaudited Q2 2010 financial statements and MD&A are available on SEDAR at www.sedar.com and will be available on the Company's website www.dhxmedia.com.

About DHX Media Ltd.

DHX Media Ltd. is a leading international producer and distributor of television programming and interactive content with an emphasis on children, family and youth markets. DHX Media Ltd. shares trade on AIM and are listed on the TSX, the Toronto Stock Exchange. DHX Media's production companies, Decode Entertainment, Halifax Film, Studio B Productions and imX Communications, are the producers or co-producers of eight original television series currently commissioned for production and maintain a growing library of over 2,300 half-hours of mostly children and youth-oriented television productions. www.dhxmedia.com

Disclaimer

This press release contains forward looking statements with respect to the Company. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, such statements involve risks and uncertainties and are based on information currently available to the Company. Actual results may differ materially from those expressed or implied by such forward looking statements. Factors that could cause actual results or events to differ materially from current expectations, among other things, include risks related to market factors, customer contract interpretation, application of accounting policies and principles, and production related risks, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time including matters discussed under "Risk Factors" in the Company's short form prospectus dated November 7, 2007 and in the Company's Amended Annual Information Form incorporated by reference therein. These forward-looking statements are made as of the date hereof, and the Company assumes no obligation to update or revise them to reflect new events or circumstances.

%SEDAR: 00023380E

For further information: David A. Regan - EVP, Corporate Development & IR, DHX Media Ltd., [phone]