Nancy Chan-Palmateer - IR Michael Donovan - Executive Chairman Dana Landry - CEO Keith Abriel - CFO David Reagan - EVP, Strategy and Corporate Development

Rob Goff - Echelon Adam Shine - National Bank Eric Wold - B. Riley & Company Bentley Cross - TD Securities Tim Casey - BMO Jeff Fan - Scotia Bank

Thank you, operator and thank you everyone for joining us today. Speaking on the call with us today are Michael Donovan, our Executive Chairman, Dana Landry, our Chief Executive Officer; and Keith Abriel, our Chief Financial Officer.

Also with us on the call and available during the question-and-answer session during the question-and-answer session is David Reagan, our Executive Vice President of Strategy and Corporate Development. Turning to slide 2, we have some standard cautionary statement.

The matters discussed on this call include forward-looking statements under applicable securities laws with respect to DHX Media, including, but not limited to, statements regarding the company’s ongoing strategic review, the integration of the acquisitions of Peanuts and Strawberry Shortcake and the expected financial and other impacts associated with such acquisitions, including synergies, cost reduction initiatives and the resulting financial and other income associated with such initiatives, the strategic priorities of the company, the company’s plans for deploying cash flow in the market and demand for kids content and the business strategies and operational activities of the company. Such statements are based on information currently available and are subject to a number of risks and uncertainties.

Actual results or events in the future could differ materially and adversely from those described in the forward-looking statements, as a result of various important factors, including the Risk Factors set out in the company's most recent MD&A and Annual Information Form. For the question-and-answer session that will follow, we ask that each analyst keeps to one question with one follow-up.

So that everyone has a chance to ask a question. If you would like to ask an additional question, please re-join the queue.

Turning to slide 3, I will now hand the call over to our Executive Chairman, Michael Donovan.

Thank you, Nancy. I’m happy report the company has resumed its growth truck, and that our first quarter for 2018 is on plan.

I’m also pleased to report that the integration of the recent Peanuts acquisition is also on track, and we are now positioned to execute on the unprecedented global demand we’re experiencing for kids and family content. As announced on October 2, the Board of Directors met and on the recommendation of management formed a special committee of the Board.

I’m pleased to report that special committee and its advisors have been working very hard since then. The mandate of the special committee is to review strategic options to enhance shareholder value.

Bankers have been hired and have been actively assisting that special committee in this important work. We will update shareholders when the process is complete.

I’ll now turn the call over to Dana.

Thank you Michael, and thanks (inaudible) on the call today. Turning to slide 4 now please, management is encouraged by the growth in Q1 fiscal 2018.

With the addition of Peanuts and Strawberry Shortcake, we were seeing evidence of the transformation of our business, which was the key strategic reason for the acquisition. Revenues in the quarter, were up 83% compared to Q1 last year.

This increase reflected 16% organic growth and 67% acquisitive growth. We are also pleased with the progress being made on the integration of Peanuts.

We are now implementing cost synergies which put us on track to achieve our target this year at $5 million for Peanuts. In addition, we have taken this opportunity to examine all aspects of the business to undertake company-wide SG&A cost cuts of $6 million.

Overall, we anticipate these measures will deliver $11 million in annualized savings by the end of fiscal 2019. Turning to slide 5 now please, I’d like to remind everyone of what our three-part mission is; first, we continue to produce engaging and entertaining content for kids and families at our two animation studios and our live action studious.

Secondly, we distribute shows from our leading independent content library to hundreds of broadcasters and streaming platform worldwide. And third, we license key brands from our library for consumer products opportunity globally.

This has been our goal from day one and we remain committed to creating, distributing and licensing content and brands that inspire and entertain children and families worldwide. Turning to slide 6 please, with Peanuts now board, our business model is more diversified, stable and growing.

Over 40% of our revenues now come from licensing consumer products, compared to18% during the same period last year. We are capitalizing on the global market in content for kids and family, and we have the brand to realize now on that opportunity.

The plan is to leverage our expertise to grow our existing brands through new original content. This includes current brands like Peanuts, Strawberry Shortcake and the Teletubbies, and shows in the pipeline such as Mega Man, Polly Pocket and Fireman Sam.

This will allow us to add new categories and new territories in our consumer product support portfolio. Turning now to slide 7 please, content budgets from major video-on-demand services are expected to double from 10 billion in 2016, reaching 21 billion US in 2018.

These video-on-demand platforms reflect our largest customers, and of course potential customers. Turning now to slide 8 please, to understand what’s driving this demand for content, we only need to look at kids in our own lives, whose consumption of content is transitioning massively to digital.

We expect these digital trends to continue. Turning now to slide 9 please, as we capitalize on this expanding environment for content, management is also committed to improving the bottom line.

We have already implemented cost synergies from the Peanuts acquisition that put us on track to achieve our $5 million in annualized synergies. Simultaneously, we are implementing further company-wide SG&A savings with a full year target of $6 million to grow our bottom line.

As we said, we anticipate these measures will deliver $11 million in annualized savings by the end of fiscal 2019. In fiscal 2018, we expect to realize $5.8 million in savings.

Turning now to slide 10 please, management is also focused on generating predictable free cash flow. We’ll use this to de-lever the balance sheet, while continuing to selectively invest in new content for the long term.

Given the strong demand for kids and family content, we’ve invested approximately $150 million over the past three years to build up our library. We’ve now reached a steady state of production and we are starting to see returns on these investments which will improve cash flows.

Going forward, net content spending will not really moderate, as we focus production on key brands that will drive revenue across multiple streams. T Turning now to slide 11 please, positive free cash flow is a high priority for us.

Management is committed to our free cash flow guidance for fiscal 2018. We’ll use the cash flow to de-lever, while continuing to build the business for the long term.

As we tighten our focus on cash generation and execute against our business plan, we have a range of levers at our disposal to achieve our targets over the next few years. Some of which have already begun, these include realizing cost synergies on the Peanuts acquisition, managing our investment in content, and further cutting SG&A costs.

Turning to slide 12 now, I’ll hand the call to Keith for an overview of the Q1 numbers.

Thank you Dana. Q1 2018 was a good quarter and on plan.

Historically, Q1 is a seasonally light quarter. We are on page to achieve our EBITDA target.

I’m also happy to report that Peanuts performed as management expected. Now let me touch on some key metrics and highlights for the quarter.

Revenues for Q1 2018 were 98.6 million, up 83% from 53.8 million for Q1 2017. On an organic basis, revenue grew 16% in the quarter, and on an acquisitive basis, revenue grew 67%.

Other highlights for the quarter included proprietary and production service rose 45% organically compared to Q1 2017, traditional distribution revenue was up 18% organically compared to Q1 2017, and WildBrain increased 79% organically compared to Q1 2017. Now, turning to gross margin; total gross margin for Q1 2018 was 42.9 million, an increase in absolute dollars of 11.8 million compared to 31.2 million for Q1 2017.

It’s important to note that overall gross margin at 44% of revenue was on plan and as expected compared to 58% of revenue for Q1 2017. Gross margin for the quarter was impacted by, among other things, the acquisition of Peanuts which is a lower gross margin as a result of the talent fees paid to the estate of Charles M.

Schulz, higher than normal third party distribution revenues for the quarter, which are expected to revert to historical norms for the remainder of the year, growth in WildBrain, which is being driven increasingly by third party brands, and the blend of production service work currently being completed at our animation studios. Adjusted EBITDA is tracking on-plan at 22.8 million, up 7.9 million or 54% over Q1 2017.

Net income was 8.1 million for the quarter or $0.06 basic and diluted earnings per share, compared to net income of 1.4 million or $0.01 basic and diluted earnings per share for Q1 2017. Free cash flow for the quarter was a use of cash of $32 million, which was affected by three items; first, payment of 13.5 million in early redemption penalties related to the repayment of our senior unsecured notes on July 11, 2017.

Second, payments of 5.1 million in debt issued costs and acquisition costs related to the Peanuts and Strawberry Shortcake transaction; and third, payments of 14.7 million related to our strategic partnership with Mattel. We are on track for our annual outlook for free cash flow.

For further specifics of our fiscal 2018 Q1 results and various other information including a reconciliation of GAAP and non-GAAP financial measures, I would refer you to the company’s fiscal 2018 Q1 MD&A, which was posted on SEDAR and EDGAR this morning. I will now hand it back to Dana.

Thank you Keith. Turning to slide 13 now, management’s encouraged by the strong start to fiscal 2108.

Going forward, we are focused on delivering growth, executing on Peanuts and implementing cost synergies, generating free cash flow, and de-leveraging our balance sheet. Now lets’ take some questions.

My question would be on Teletubbies, could you talk to a bit of the traction that you’re seeing on Teletubbies in the US when it comes from the AVOD side and could you talk to how you might see the Teletubbies traction gaining from an M&L cycle?

Rob, the second part of the question, was that related to the US as well or was that a general question?

Probably more on the US as well Dana.

So it’s important to note that in the Teletubbies, right now we are still executing on the traditional plan that we have which is through Nick and we are in conversations to contemplate our AVOD strategy in the US going forward. So we’ll update listeners at that point in time.

In terms of traction, we’re sure about the same places we were at the end of the year. So no real update there, in terms of the US, but in Germany and in the UK for instance, the brand continues to perform above expectations.

We are also getting quite excited about China going forward.

Could you perhaps expand on the Chinese outlook then?

Sure. For China you’ll probably noticed that we’ve announced a series of deals over the last year or so on a number of the platforms, and we are working on our strategy to rollout consumer products in the near term in China in most categories.

So stay tuned.

When I look at the guidance disclosures, I guess there’s an extra sentence with respect to free cash flow, a bit of a qualifier saying adjusted or ex 20 million to 25 million of cost related to the acquisition of Peanuts and Strawberry Shortcake. So maybe just elaborate in the context of Q1, in Q1 is the related spend at 5.1 million which obviously further takes the free cash flow in Q1 to the minus 32 million context such that you haven’t sort of made that adjustment and you’ll adjust or we should simply adjust for five time four effectively during the course of the year.

May be just provide a bit color on that since it’s a new disclosure.

So the number in free cash flow essentially is a normalized number is what we have for our guidance. We want to just to make sure that we are clarifying that.

And so in the quarter, as Keith said in his prepared remarks there’s two individual components that relate to the Peanuts acquisition, 13.5 million in early redemption penalties on the bond and 5.1 million of debt issue and acquisition cost. So call it a total of about 18.6, about 25.

So you’ll see another 5 to 7 in the next quarter or so. And we obviously view those as sort of one-time cost related to the acquisition which were all recorded in the previous fiscal year.

Obviously that’s the working capital rolling out on that.

Now I understand how you look at it. So I appreciate that Dana.

Another point of clarification just relates to cost and synergies. At the time of the Peanuts transaction, the expectation was 5 million synergies per year times five years, right?

And right now you’re talking about $11 million, call it 5, 8, or 6 by the end of 2019. So should we really be tracking towards a $16 million by the end of 2019, maybe give us some of the puts and takes on cost savings and synergies?

Thank you for that question. Happy to provide some clarity on that.

So, you’re right, when we originally announced we had two targets, the $5 million Peanuts target and the $25 million Peanuts target over five years. So far on that $25 million target, we’ve achieved – we’ve got line of sight in 11 million and 11 million of that on the cost side which includes some SG&A costs of about $6 million will be in full effect by end of 2019.

The balance, let’s call it, roughly 14 million will cascade over the next five years as individual agency contracts come off from the outside parties and in to DHX’s CPLG. And so it’s not unfortunately a perfect 5 million per year, so that the cascading of the balance will come over that five year period to get to the total of 25 million.

First question, I guess, can you give a sense of how much revenue if any generated in the first quarter was previously expected to be generated in the fourth quarter and kind of got pushed on the timing in to Q1?

Maybe what I’ll do, if you don’t mind, is I’ll ask Keith to have a look at that and we’ll come back to that. And maybe we’ll queue back up them to make sure that we get back in to that.

So maybe we’ll ask you to maybe go on to the second question while Keith looks in to that.

Sure. And secondly just kind of a larger picture, we’ve seen at the Strawberry Shortcakes, where are you on negotiations with where we can just kind of alter licenses, contracts to give more of an opportunity to kind of accelerate the move of Peanuts and Strawberry Shortcake in to WildBrain platform or new content development that doesn’t fringe [your own] contracts that are in place prior to the acquisition.

So just so I’m clear, your question was related to where are we with respect to the acceleration of content on WildBrain for Peanuts?

Yes, in terms of some of the previous [like] as part of the acquisition is kind of restricted you from new content development that either free to kind of license everyone else is going to be in someone else’s hands or to pull a digital rights for Peanuts under the AVOD platform given what (inaudible).

So, yes when we acquired Peanuts, we stepped up in to the shoes of a number of various contracts. We’ve gone through all those and brought in-house as many as possible, and we were at the market in October right fitting those out.

So we’ve already started to do that on the, what’s called the traditional side. And on the digital side, where rights were available in each territory, there we’ve already started to go through WildBrain and we’re already started to see some synergies come out of that.

In terms of new content, we are obviously working with the family to come up with a plan for that, and stake it.

Wanted to ask on Peanuts, can you give us a sense of the seasonality; is it fair to assume that Peanuts is now year-on-year for this reported period?

No, no, that’s exactly on our plan. In terms of the – obviously their seasonality with Peanuts as well, and our second and third quarter or the fourth quarter of calendar and the first quarter are typically strongest quarters, because we’re in the licensing business and obviously Christmas is a big, big, big factor in this.

And so our quarter ended September will typically be a seasonally length quarter for Peanuts as well. It’s exactly tracking to plan.

And the on the [blend], there are few major hurdles coming up. May be you could just talk about any progress you’ve made so far with MetLife in trying to replace those revenues?

So first of all, I want to make sure that everyone is aware that we normalize the MetLife contract out of our acquisition cost. So we didn’t pay for that.

That’s important to point out, number one. Number two, we’ve had a series of individual discussions going on in each and every territory of the world to try to replace that.

So there’s timing issues with respect to when those would be able to come to be agreed to, because MetLife deal goes another couple of years or so. So we’ll be able to update in the coming quarters and years on that progress.

But we’re very optimistic.

Adam just give me one second, I just want to go back to [Eric’s] question on what the timing difference was. So the total was around $4 million to $6 million depending on how you want to look at it, call it $5 million.

About 75% of that related to distribution and the balance related to the production. So sorry for that, go ahead Adam.

Let me just go back also to my question on the cost, and let’s just use table 9 or page 9 of your deck. Again we’re thinking of 25 million of synergies, obviously subject to timing and not necessarily 5 million per year.

And then over and above that it’s going to be the 6 million of SG&A reductions, which I think at the time of Q4 reporting was indicated to be tracking towards sort of three out of the six already realized. So I’m just wondering, so we just been thinking about the realization of actual Peanut synergies, maybe taking a little bit longer and pushing out in to 2019, because I think we might be talking apples-to-oranges.

Good question. So I’d be absolutely clear, the total charges is $11 million, which includes 5 from Peanuts and 6 from SG&A.

Of that 11, 5.8 million will be annualized synergies at the end – for fiscal 2018. The full 11 million, you’re right, will then be realized in 2019.

The balance of the Peanuts synergies this will cascade through years two, three, four, five of the future.

Just wanted to clarify that. And then maybe just one more on Mattel, a lot of noise around Mattel just in regards to the company specific issues we won’t touch on some of the rumors over the weekend regarding any Hasbro merger.

But I guess as I read through the MD&A, its very much business as usual with you as it relates to the specific partnership you have Mattel, right?

Yes, absolutely. We’re seeing incredible engagement on that front.

We’re very, very encouraged by a number of the shows and particular Polly Pocket and Fireman Sam. We’re very clear about those.

The others continue to perform, but certainly no slowdown. In fact, I would say, as fast or even ahead of expectations.

I’m wondering if you could just provide a little color on the discussions you’re having with the family with respect to content and some of the longer term initiatives. In the context that, you’re also conducting a strategic review where everything’s on the table, and how willing are these partners or potential partners, how willing are they to engage in long term discussions with really some uncertainty as to what form the company will be in when these projects would come to the play [ground].

Just wondering there seems to be a bit of a challenge there, I’m just wondering if you could talk to that.

I think I have all of your points here. So I think what I will do is, I’ll first turn to Michael vis-à-vis, the strategic review, and then maybe Michael will comment on the content and the other aspects of the question.

The sub-committee is conducting a thorough, deliberate, strategic review to explore all options at this point to enhance (inaudible) development and this is in the context of this large transaction which, and it was on the recommendation of the management that we review our strategy going forward in that context. But Peanuts is a core part of our strategy performing as expected, and we’re tremendously excited about its growth going forward.

Dana?

Thank you, Michael. So in respect of the content side, since the beginning we’ve had extraordinarily positive conversations with the family and their advisors and the entire team over there, and it’s very much business as usual.

Our conversations are accelerating, in fact we have a new content session happening within the next week or so and making progress on a number of development initiatives. So we’re very optimistic we’ll be able to have some new news on the content side going forward.

With respect to the business as usual, what I would say is the company is very solid. We’re off to a very good start to Q1.

We’re focused on executing on the business and we’re definitely excited about the positive market environment.

Just a quick one actually, it’s with respect to your balance sheet. With the new debt that’s coming in on the acquisition, you got some countermeasures, I think you’re 7.25 right now on net leverage, but you are stepping down by half a turn starting next year, and continue to step down after that.

Just wondering based on your guidance, where do you expect to end up either at the end of fiscal 2018 or September 2018, can you just give us some sense of where you think you can end up in terms of leverage over the next 12 to 24 months, thanks?

So I think what we have publicly stated and what we’re going to stick to is that our management is a 100% alive and committed to our target of 3.5 times by fiscal 2019. Obviously our definition of 3.5 times is total net debt-to- EBITDA at that moment which is 2020, we’re going to focus on both sides, growing the EBITDA by cutting cost, continue to execute on our cost reduction program, realizing our synergies on Peanuts and continuing to grow our revenue through WildBrain and the new content that we have coming online.

In terms of – but we won’t be commenting on any targets over the next 12 months or so.

I suspect I know the answer to this one, but I’m going to ask it anyway. Michael you said that you will give us some information when the process is complete on the strategic reviewing.

Any idea of when that might be, or how long do you expect that process to take?

The special committee will take the time it takes to conduct a thorough review. And we will not discuss the details of the process other than to say that the special committee is conducting a thorough and I believe excellent process, and we’re committed to exploring all options to enhance shareholder value.

We’ll update shareholders when the process is complete.

Dana your comments with respect to production where you said, now we’re at a steady state of production and you also commented that your net content investment would naturally moderate. Could you address that within the context of your guidance of net investment in film and television programing of 20 million to 30 million?

I would take it as confirmation of that guidance.

Yes, that’s exactly Rob, you’ll recall over the last couple of years we are in excess of the net $50 million of [investment], but we’d now have we believe the shows that we need. And so we’ve started to moderate that.

As we said in our script, we got back to a steady state of production, and we’re looking forward to having increased returns on those investments in near quarters.

Thank you very much everyone for joining us today, and we will report to update you at our next quarterly call. Thank you.

Have a good day.