KEW MEDIA GROUP Reports Second Quarter 2019 Financial Results

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Reaffirms Full Year 2019 Outlook

TORONTO–(BUSINESS WIRE)–KEW MEDIA GROUP INC. (“KEW MEDIA”, “KEW” or the “Company”) (TSX:KEW and KEW.WT) today released its financial results for the three and six months ended June 30, 2019 (“Q2 2019”). KEW MEDIA’s interim condensed financial statements along with its Management’s Discussion and Analysis for Q2 2019 are available on the Company’s investor relations website at https://investors.kewmedia.com and under the Company’s profile at www.sedar.com. All financial results are reported in Canadian dollars unless otherwise stated.

Q2 2019 Highlights

  • Revenue of $69.1 million (2018: 49.8 million)
  • Gross Profit1 of $21.3 million (2018: $13.4 million)
  • General and Administrative expenses2 (“G&A”) of $13.6 million (2018: $11.6 million)
  • Adjusted EBITDA3 of $7.8 million (2018: $2.7 million)
  • Net income of $0.2 million (2018: Net loss of $(5.0) million)
  • Adjusted Net Income4 after tax5 of $7.2 million (2018: $0.9 million)
  • Free Cash Flow (FCF)6 before movements in working capital and film and television rights of $4.6 million (2018: $1.0 million)
  • FCF after movements in working capital and investments in film and television rights of $0.9 million (2018: $(8.7) million)
  • Reaffirmed full year 2019 outlook of mid to high single digit percentage organic growth over the annualized Pro forma 2018 Adjusted EBITDA of $31.9 million7
 

(in millions of Canadian dollars,

except per share data)

Three months ended

 

Six months ended

 

June 30, 2019

June 30, 2018

% Change

 

June 30, 2019

June 30, 2018

% Change

Revenue

 

 

 

 

 

 

 

Production

$

46.0

 

$

37.4

 

23.0

%

 

$

79.6

 

$

61.9

 

28.6

%

Distribution

$

23.1

 

$

12.4

 

86.3

%

 

$

41.5

 

$

27.7

 

49.8

%

Total

$

69.1

 

$

49.8

 

38.8

%

 

$

121.1

 

$

89.6

 

35.2

%

Gross Profit

 

 

 

 

 

 

 

Production

$

11.7

 

$

8.0

 

46.3

%

 

$

20.7

 

$

14.4

 

43.8

%

Distribution

$

9.6

 

$

5.4

 

77.8

%

 

$

14.6

 

$

11.8

 

23.7

%

Total

$

21.3

 

$

13.4

 

59.0

%

 

$

35.3

 

$

26.2

 

34.7

%

Gross Profit Margin –

Production

 

25.4

%

 

21.4

%

 

 

 

26.0

%

 

23.3

%

 

Gross Profit Margin –

Distribution

 

41.6

%

 

43.5

%

 

 

 

35.2

%

 

42.6

%

 

Gross Profit Margin Total

 

30.8

%

 

26.9

%

 

 

 

29.1

%

 

29.2

%

 

Adjusted EBITDA after NCI

$

7.8

 

$

2.7

 

188.9

%

 

$

7.6

 

$

5.1

 

49.0

%

Net income (loss) for the period

$

0.2

 

$

(5.0

)

N.M.

 

$

(7.7

)

$

(5.2

)

N.M.

Adjusted net income after tax

$

7.2

 

$

0.9

 

700.0%

 

$

6.0

 

$

3.5

 

71.4

%

Basic and diluted loss per share

 

$

(0.03

)

 

$

(0.45

)

N.M.

 

 

$

(0.66

)

 

$

(0.51

)

N.M.

Adjusted earnings per share

 

$

0.53

 

 

$

0.07

 

657.1%

 

 

$

0.44

 

 

$

0.30

 

46.7

%

Steven Silver, Chief Executive Officer of KEW MEDIA, commented, “KEW’s strong momentum continued into the second quarter and met our expectations, largely driven by high revenues from both our production and distribution segments. We are beginning to see the benefits of our significant investment in film and television rights last year and expect this momentum to continue. Based on our performance through the first half of the year and the current visibility into the second half of the year, we reaffirm our 2019 outlook to deliver mid to high single digit percentage organic growth over the annualized Pro forma Adjusted EBITDA of $31.9 million.”

Peter Sussman, Executive Chairman of KEW MEDIA, added, “We continue to see growth in our sector in both financial and non-financial metrics. In particular, the explosion of subscription video on demand platforms across the world, together with ongoing purchasing from traditional platforms, continues to fuel demand across a range of content. As we wrap up our traditionally busy production season and move into our sales-heavy fall and winter seasons, we are pleased with our progress and are confident in our future. There are no signs of the appetite for content slowing, and we will continue to produce and sell to eager buyers around the world.”

Financial Highlights for the Three Months Ended June 30, 2019

KEW MEDIA’s results in any given quarter or year can be affected by seasonality and/or specific product mix timing. Typically, production occurs over the summer and starts delivering in the fall and winter months, when the majority of revenues and profits are achieved.

Q2 2019’s revenue of $69.1 million was comprised of $46.0 million from Production and $23.1 million from Distribution. Gross Profit of $21.3 million included $11.7 million from Production and $9.6 million from Distribution. Gross Profit Margin and was 30.8%, with segmented Gross Profit Margin of 25.4% for Production and 41.6% for Distribution. Overall and Segmental margins met management’s expectations for the quarter with Production Gross Profit Margins higher in the period this year due to the introduction of Essential and Distribution Gross Profit Margins being marginally lower due to product mix and revenue recognition timing. Adjusted EBITDA was $7.8 million, the Net income was $0.2 million, the loss attributable to the equity holders of the parent was $(0.03) per share and Adjusted Net Income after tax was $7.2 million, or $0.53 per share.

Segment Information

Production

During the second quarter, Revenues were $46.0 million, an increase from the same period in 2018 of 23%, Gross Profit was $11.7 million, an increase of 18.7%, and the Gross Margin percentage was 25.4% (2018: 21.4%). G&A increased by $1.3 million to $6.3 million. These increases were predominantly due to the inclusion of Essential. Adjusted EBITDA increased by 65.4% to $4.3 million with the positive change being driven by increased production volume across the group. Titles produced include: Essential’s Texas Flip ‘N Move seasons 12 and 13 for DIY Network in the US and Body Hack season 3 for Network Ten in Australia, Collins Avenue’s Dance Moms season 8 for A&E in the US, Jigsaw Productions’ The Family for Netflix and Frantic Films’ Baroness von Sketch season 4 for CBC in Canada.

Distribution

During the second quarter, Revenues were $23.1 million, an increase of 86.3%, Gross Profit was $9.6 million, an increase of 77.8%, and the Gross Margin percentage was 41.6% (2018: 43.5%). G&A increased by $0.5 million to $4.8 million. Adjusted EBITDA increased by 284.6% to $4.9 million. The segment’s revenues benefited from the delivery in the quarter of some higher revenue/low margin titles. Consequently, while Revenues increased, Gross Profit margins decreased compared to Q2 last year, which had a product mix with comparatively higher margin titles. Titles distributed across the segment included: Line of Duty season 5, Bletchley Circle: San Francisco, My Crazy Birth Story, Egypt’s Unexplained Files, Massive Engineering Mistakes, and Shocking Emergency Calls.

Gross Profit and G&A

KEW MEDIA focuses on Gross Profit as a performance indicator given that the Company has a diverse product range with some low revenue items attracting 100% Gross Profit Margins and other high revenue items having Gross Profit Margins as low as 5%. Gross Profit for Q2 2019 was $21.3 million compared to $13.4 million last year, an overall increase of 59%.

G&A increased in the quarter to $13.6 million compared to $11.6 million last year. This was predominantly due to budgeted increases in corporate overhead as well as the inclusion of Essential in the production segment.

Developments in the Quarter

There were a number of positive developments in the quarter. These include:

  • Leaving Neverland continues to captivate buyers and audiences. Kew Media Distribution (KMD) has sold the 2-part documentary series to every territory in the world save China. It was also recently nominated for 5 Emmy Awards, as was the recipient of a Television Critics Association award for best news and information program.
  • The popular Dance Moms started delivering episodes from its 8th season to A&E in Q2.
  • Jigsaw delivered The Family for Netflix, a five-part docuseries on an enigmatic conservative Christian group known as the Family which wields enormous influence in Washington, D.C., in pursuit of its global ambitions. The show launched on the global streamer on August 9.
  • In the Production segment, production commenced on a raft of titles including The Trickster for CBC, Hot Market for HGTV Canada, Griff’s Kiwi Adventures for Prime New Zealand, and Haunted Hospitals season 2 for Travel Channel Canada. New series were also commissioned including Volcano Walk Live for A&E in the US from Essential and Frankie Boyle’s Scotland for BBC Two from Two Rivers Media.

Balance Sheet and Net Debt

As of June 30, 2019 the Company had cash and cash equivalents of $26.2 million, approximately $11.9 million in loan availability and Net Debt8 of $99.7 million.

Adjusted Net Debt9 as of June 30, 2019 was $85.8 million. This figure takes into account material foreign exchange movements since the beginning of the year and amounts expended by KEW MEDIA’s treasury on interim production financing.

The Adjusted Net Debt of $85.8 million to Pro forma 2018 Adjusted EBITDA of $31.9 million is 2.7:1. The Company continues to anticipate that this ratio will reduce further into 2019 with an overall target of 2.1 or below, reflecting the projected growth in our Adjusted EBITDA for the year, together with the expected benefits from positive cash flow generation.

Free Cash Flow (FCF)

FCF before movements in working capital and before movements in film and television rights was $4.6 million compared to $1.0 million last year. FCF after movements in working capital but before investments in film and television rights was $(2.2) million compared to $(4.6) million last year. After movements in both working capital and investments in film and television rights, FCF was $0.9 million compared to $(8.7) million last year. As KEW’s significant FY18 investment in film and television begins to provide returns, the cash flow generative nature of the overall business is starting to emerge.

At the segment level, Production FCF before movements in working capital and investments in film and television rights was $3.1 million. FCF after movements in working capital but before movements in investments in film and television rights was $(2.1) million. After movements in both working capital and investments in film and television rights, FCF was $0.8 million).

Distribution FCF before movements in working capital and movements in investments in film and television rights was $4.5 million. FCF after movements in working capital but before movements in investments in film and television rights was $1.1 million. After movements in both working capital and investments in film and television rights, FCF was $1.4 million.

Outlook10

For the full year 2019, KEW MEDIA continues to expect a range of mid to high single digit percentage organic growth on full year 2018 Pro forma Adjusted EBITDA of $31.9 million. KEW MEDIA’s results in any given quarter or year can be affected by seasonality and/or specific product delivery timing. Typically, production occurs over the summer and starts delivering in the fall and winter months. As reflected in our 2018 performance, our 2019 results are expected to be heavily weighted in the fourth quarter.

Conference Call

KEW MEDIA will host a conference call to discuss the second quarter 2019 financial results on August 14, 2019 at 9:00 a.m. ET. The conference call can be accessed live over the phone by dialing 877-407-0784 (USA and Canada) or 201-689-8560 (International). The conference call replay will be available via webcast through KEW MEDIA’s Investor Relations website. The telephone replay will be available from 12:00 p.m. Eastern Time on August 14, 2019, through August 21, 2019, by dialing 844-512-2921 (USA and Canada) or 412-317-6671 (International). The replay passcode will be 13692653.

The call will also be webcast live from KEW MEDIA’s investor relations website at https://investors.kewmedia.com. Following completion of the call, a recorded replay of the webcast will be available on the website.

About KEW MEDIA GROUP INC.

KEW MEDIA GROUP is a leading publicly-listed content company that produces and distributes multi-genre content worldwide. Companies included in the KEW family are the production companies: Architect Films, Awesome Media & Entertainment, Bristow Global Media, Collins Avenue Productions, Essential Media Group, 4East Media, Frantic Films, Jigsaw Productions, Media Headquarters, Our House Media, Sienna Films, Spirit Digital Media, and Two Rivers Media; and the distribution companies: KEW Media Distribution and TCB Media Rights.

With primary offices in London, Los Angeles, New York, Sydney and Toronto, the KEW MEDIA GROUP companies develop, produce and distribute more than 2,000 new hours of content every year, as well as manage a library of more than 14,000 hours of content, for almost every available viewing platform worldwide. KEW aspires to offer great content from all over the world to viewers of all ages and tastes. KEW promotes transparency, equality, respect, and inclusiveness and plans to grow with the benefit of people from a wide range of perspectives and backgrounds.

Forward-Looking Statements

This news release may include forward-looking statements. All such statements constitute forward looking information within the meaning of securities law and are made pursuant to the “safe harbour” provisions of applicable securities laws. Forward-looking statements may include, but are not limited to, statements about anticipated future events or results including comments with respect to the Company’s objectives and priorities for 2019 and beyond, and strategies or further actions with respect to the Company, its business operations, financial performance and condition. Forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions and are identified by words such as “will”, “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” or similar expressions concerning matters that are not historical facts. Such statements are based on current expectations of the Company’s management and inherently involve numerous risks and uncertainties, known and unknown, including economic factors.

In particular, the statements set out in the Outlook section of this press release regarding our expected Adjusted EBITDA for the year ending December 31, 2019, our expected financial performance for the remainder of 2019 and our expectations regarding the performance of our production and distribution segments for the remainder of 2019, constitute forward-looking statements. These statements are based on management’s current strategies, assumptions concerning growth and assessment of the outlook for the business. In particular, such statements assume that: (i) our production companies will continue to develop, produce and deliver successful productions in a manner consistent with past experience and on expected delivery schedules as outlined under “Outlook” in the press release; (ii) the product mix of the Company’s revenues will continue to be skewed towards higher margin titles; (iii) we will continue to acquire and distribute content in a manner consistent with past experience; (iv) our operating and overhead costs will be within budget; and (v) that the companies we have acquired will meet or exceed our performance expectations. We consider the foregoing assumptions to be reasonable in the circumstances given the time period for such outlook. However, readers are cautioned that KEW’s actual results may vary from these forward-looking statements and that variation could be material. The forward-looking information contained in this news release is presented for the purpose of assisting readers in understanding the Company’s business and strategic priorities and objectives as at the periods indicated and may not be appropriate for other purposes. A number of risks, uncertainties and other factors may cause actual results to differ materially from the forward-looking statements contained in this news release, including, among other factors, those referenced in the section entitled “Risk Factors” in the Company’s annual information form for the year ended December 31, 2018, a copy of which is available on the SEDAR website at www.sedar.com under the Company’s profile. In particular, KEW’s results of operations fluctuate significantly quarter to quarter depending on the number and timing of content delivered or made available to various media. As in past years, KEW anticipates that its 2019 financial results will be heavily weighted in the fourth quarter and as a result, KEW may not have visibility on its ability to meet the 2019 guidance until the end of the fourth quarter of 2019.

Forward-looking statements contained in this news release are not guarantees of future performance and, while forward-looking statements are based on certain assumptions that the Company considers reasonable, actual events and results could differ materially from those expressed or implied by forward-looking statements. Readers are cautioned to consider these and other factors carefully when making decisions with respect to the Company and not place undue reliance on forward-looking statements. Circumstances affecting the Company may change rapidly. Except as may be expressly required by applicable law, KEW does not undertake any obligation to update publicly or revise any such forward-looking statements, and as a result of new information, future events or otherwise.

Non-IFRS Measures

This news release contains references to certain measures that do not have a standardized meaning under International Financial Reporting Standards (“IFRS”) as prescribed by the International Accounting Standards Board and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing a further understanding of operations from management’s perspective. Accordingly, non-IFRS measures should not be considered in isolation nor as a substitute for analysis of financial information reported under IFRS. This news release makes reference to Gross Profit, Gross Profit Margin, Adjusted Net Income, Adjusted EBITDA, Free Cash Flow, Net debt, and Adjusted Net Debt, each of which is a non-IFRS financial measure. The Company believes these non-IFRS financial measures are frequently used by securities analysts, investors and other interested parties as measures of financial performance and it is therefore helpful to provide supplemental measures of operating performance and thus highlight trends that may not otherwise be apparent when relying solely on IFRS financial measures.

The Company’s definitions of non-IFRS financial measures are as follows:

  • Gross Profit is revenue less cost of sales.
  • Gross Profit Margin is gross profit as a percentage of revenue.
  • Adjusted Net Income is Income (Loss) before income tax recovery then includes add-back adjustments for items such as transaction costs, reorganization and exceptional costs, share-based compensation, deferred compensation, other intangibles amortization, gain on change in fair value of financial liabilities, and (gain) loss on sale of subsidiary.
  • Adjusted EBITDA is also provided to better analyze trends in performance and present a truer economic representation on a comparative basis. Adjusted EBITDA is Adjusted Net Income including additional add-back adjustments for Interest Expense, net of Interest Income, Depreciation and any non-cash amortization (to the extent not added back to Adjusted Net Income).
  • Free Cash Flow is Adjusted EBITDA adjusted for additions to Property and Equipment, Interest and cash taxes.
  • Adjusted Free Cash Flow is Free Cash Flow adjusted for additions to film and television rights, net of amortization.
  • Adjusted Net Income after tax is adjusted net income less income tax recovery.
  • Adjusted Net Debt is Net Debt less intra-group interim production financing and adjusted for the impact of foreign exchange
  • Adjusted Earnings Per Share is Adjusted Net Income divided by weighted average number of common shares in the capital of the Company

Please see the Company’s management’s discussion and analysis for the three and six months ended June 30, 2019 for a detailed description of these measures and a reconciliation of these measures to the nearest IFRS measure.

Selected Comparative Information

Below is selected information from the consolidated statements of loss for the three and six months ended June 30, 2019 and the three and six months ended June 30, 2018.

 

 

Three months

ended June 30,

2019

Three months

ended June 30,

2018

Six months

ended June 30,

2019

Six months

ended June 30,

2018

Revenue

 

 

 

 

Production and distribution revenue

69,087

 

49,769

 

121,088

 

89,551

 

Cost of sales

47,801

 

36,364

 

85,796

 

63,346

 

Gross profit(1)

21,286

 

13,405

 

35,292

 

26,205

 

Expenses

 

 

 

 

General and administrative expenses

13,608

 

11,585

 

27,664

 

22,129

 

Amortization of other intangible assets

2,158

 

2,169

 

4,315

 

4,337

 

Amortization of right-of-use asset

1,404

 

 

2,726

 

 

Transaction costs

 

1,828

 

 

2,760

 

Deferred compensation

1,075

 

1,703

 

1,977

 

1,703

 

Share-based compensation

455

 

553

 

1,378

 

598

 

Interest expense, net of interest income

2,254

 

1,355

 

4,755

 

2,513

 

Depreciation

503

 

209

 

878

 

399

 

Gain on change in fair value of financial liabilities

(205

)

(1,253

)

(171

)

(3,150

)

Foreign exchange gain on financial liabilities

(32

)

(600

)

(71

)

(149

)

Total expenses

21,220

 

17,549

 

43,451

 

31,140

 

Income (loss) before income tax recovery

66

 

(4,144

)

(8,159

)

(4,935

)

Income tax recovery (expense)

90

 

(845

)

431

 

(233

)

Net income (loss) for the period

156

 

(4,989

)

(7,728

)

(5,168

)

 

 

 

 

 

Net income (loss) attributable to:

 

 

 

 

Equity holders of the parent

(478

)

(5,339

)

(9,040

)

(6,029

)

Non-controlling interest

634

 

350

 

1,312

 

861

 

Net income (loss) for the period

156

 

(4,989

)

(7,728

)

(5,168

)

 

 

 

 

 

Loss per share attributable to equity holders of the parent:

 

 

 

 

Basic and diluted loss per share

(0.03

)

(0.45

)

(0.66

)

(0.51

)

 

 

 

 

 

Weighted average number of Common Shares outstanding

– basic and diluted

13,761,152

 

11,825.913

 

13,761,152

 

11,821.228

 

 

 

Three months

ended June 30,

2019

Three months

ended June 30,

2018

Six months

ended June 30,

2019

Six months

ended June 30,

2018

 

 

 

 

 

Calculation of Adjusted net income (loss) (1) and Adjusted

EBITDA: (1)

 

 

 

 

Income (loss) before income tax recovery

66

 

(4,144

)

(8,159

)

(4,935

)

Amortization of other intangible assets

2,158

 

2,169

 

4,315

 

4,337

 

Transaction costs

 

1,828

 

 

2,760

 

Deferred compensation

1,075

 

1,703

 

1,977

 

1,703

 

Share-based compensation

455

 

553

 

1,378

 

598

 

Gain on change in fair value of financial liabilities

(205

)

(1,253

)

(171

)

(3,150

)

Foreign exchange on financial liabilities

(32

)

(600

)

(71

)

(149

)

Corporate reorganization costs (2)

 

 

 

315

 

Exceptional costs (2)

1,271

 

1,241

 

1,935

 

1,878

 

Adjusted net income for the period

4,788

 

1,497

 

1,204

 

3,357

 

Depreciation

503

 

209

 

878

 

399

 

Amortization of right-of-use asset (3)

1,404

 

 

2,726

 

 

Interest expense, net of interest income, on long-term borrowings

1,799

 

1,355

 

3,974

 

2,513

 

Interest expense on lease obligations (3)

455

 

 

781

 

 

Adjusted EBITDA before NCI

8,949

 

3,061

 

9,563

 

6,269

 

Non-controlling interest

(1,188

)

(410

)

(1,948

)

(1,143

)

Adjusted EBITDA after NCI

7,761

 

2,651

 

7,615

 

5,126

 

(1)

Refer to the “Use of Non-IFRS Financial Measures” section of the MD&A.

(2)

Included in general and administrative expenses.

(3)

On January 1, 2019, Kew adopted IFRS 16, Leases. No adjustment was made to the six-month period ended June 30, 2018. The amounts reflected in the three and six months ended June 30, 2019 reflect the relevant changes under the standard. As noted in the interim condensed consolidated financial statements, payments made under lease obligations for the three and six month period ended June 30, 2019 were $1,212 and $2,397 respectively and having factored in the impact of NCI were $1,000 and $1,961 respectively

Contacts

Investor Relations:

Steven Silver

Chief Executive Officer

647-957-2194

investors@kewmedia.com

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