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Title Fiscal 2022 Q2 Earnings Call Transcript

11/08/2021 | 12:08pm EDT

Lionsgate Entertainment Corp

Third Quarter 2021 Earnings Conference Call

Friday, November 5, 2021, 5:00 PM Eastern


Nilay Shah - Executive Vice President & Head of Investor Relations

Jon Feltheimer - Chief Executive Officer

Michael Burns - Chief Operating Officer

Jimmy Barge - Chief Financial Officer

Joe Drake - Chairman of Motion Picture Group




Good day and welcome to Lions Gate's Second Quarter Fiscal Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing "*" then "0." After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press "*" then "1" on a touchtone phone. To withdraw your question, please press "*" then "2." Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah. Please go ahead.

Nilay Shah

Good afternoon, everyone. Thank you for joining us for the Lions Gate Fiscal 2022 Second Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon Feltheimer, followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; and Chairman of the Motion Picture Group, Joe Drake. And from STARZ, we have President and CEO, Jeffrey Hirsch; CFO, Scott MacDonald; President of Domestic Networks, Alison Hoffman; and President of International Network, Suparna Kalle.

The matters discussed on this call include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in Lions Gate's most recent Annual Report on Form 10-K as amended in our most recent quarterly report on Form 10-Q filed with the SEC. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. I'll now turn the call over to Jon.

Jon Feltheimer

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. Before I talk about another strong quarter. I want to note the Board authorization in regard to Starz. Following my remarks, I'll turn things over to Michael, who will discuss our filing. Now I'll go through a few highlights of the quarter then drill down in each of our businesses.

We returned to domestic subscriber growth at Starz, driven by a strong content quarter and we continue to grow our Starz international subscriber base. Overall, we added 1 million global subscribers in the quarter and remain on track for our long-term subscriber targets. Our Television Group had a very active quarter launching six new television series, three at Starz and three for other platforms. In addition to rolling out new shows, we're securing valuable renewals of current shows was six Lions Gate television series recently renewed for new seasons.

We started production on nine new films in the quarter as we continue to assemble a strong feature slate for theatrical distribution, ancillary platform monetization, licensing to streamers, and our theatrical output agreement with Starz. Our film and television library continue to perform at record levels with an all-time high of $784 million in trailing 12-month revenue.

We're already seeing contributions from the Spyglass library acquired in the quarter, and we have great early momentum in our partnership with Gary Barber Spyglass production and distribution company, and we continue to advance our all-important diversity, equity, and

Lionsgate Entertainment Corp. Friday, November 5, 2021, 5:00 PM Eastern


inclusion initiatives with inclusive hiring policies, a diverse internship program, an inclusive vendor pool, the continued ramp of inclusive new film and TV content, and the expansion of Starz's groundbreaking Take the Lead initiative.

Beginning at Starz, Power Book III: Raising Kanan, and the Crime Family Drama BMF launched in the quarter to the second and third best premier weeks ever on the Starz platform. We continue to diversify the slate with the successful debut of the critically acclaimed drama Heels with early renewals for all three series.

Looking ahead, we expect returning tentpoles Power Book II: Ghost and Outlander, and new

series Power Book IV: Force, the Courteney Cox starring horror comedy Shining Vale, the Star- Studded Watergate Drama, Gaslit starring Julia Roberts and Sean Penn, and the period drama the Serpent Queen to continue to drive subscriber growth and retention as we continue to rollout our strongest slate ever. In the quarter for the first time, domestic revenue from our streaming business exceeded our traditional linear revenue. With the advantage of a strong linear business, we've been able to successfully expand into a premium service complementary to other platforms in both the traditional and streaming world and our value proposition will only continue to grow as this transition continues.

Internationally, three years into the rollout of STARZPLAY, we're in more than 60 countries with 80 distribution partners and 7.5 million subscribers, not counting the nearly 2 million subscribers at STARZPLAY Arabia. Subscribers grew by over 0.5 million in the quarter driven by the success of the hit third-party Dr. Death in Italy, Spain and Mexico and the Starz original series Raising Kanan in the UK, France, and Brazil.

After a fast start in India, Lionsgate Play has expanded into four new markets in South and Southeast Asia where we're poised to roll out our first slate of original programing. We're continuing to strategically invest in more local language originals, striking new partner alliances and leaning into a wholesale model that we believe offers the best long-term return on our investment and the greatest advantages to current and future partners while strengthening our unique position in the ecosystem as a premium service that can sit on top of any platform.

Turning to our Motion Picture Group, the breakout performances of recent theatrical releases and the appetite from streaming platforms makes one thing certain; that overall demand for movie content across multiple platforms is greater than ever. Following an active production year, we're putting the finishing touches on a slate with strength and balance in a number of critical areas built not only to meet the needs of a rebounding theatrical exhibition business and ever-growing demand for home viewing as well as driving value in our library and Starz.

It's a slight loaded with bid valuable brands led by John Wick Chapter 4 starring Keanu Reeves, Borderlands with a world-class cast of Cate Blanchett, Kevin Hart, Jamie Lee Curtis and Jack Black, The Hunger Games prequel, Ballot of Songbirds and Snakes, adapted from Suzanne Collins' runway best seller and expendables for with the who's who cast of action stars. And behind those tentpoles, iconic brands Dirty Dancing, Now You See Me, Monopoly, Naruto, the Highlander, and the Night Circus are all an active development. Intellectual property, which will drive value across our business.

It's also a broad and varied slate with inspiring stories like American Underdog opening on Christmas Day. Whitebird: A Wonder Story starring Helen Mirren and Gillian Anderson in the follow-up to the breakout hit Wonder, And Are You There, God? It's Me, Margaret adapted from Judy Blume's classic novel directed by Kelly Fremon Craig and produced by Academy Award

Lionsgate Entertainment Corp. Friday, November 5, 2021, 5:00 PM Eastern


winner James L Brooks. Big event movies like Roland Emmerich's Syfy Epic Moonfall starring Halle Berry and Donald Sutherland, and star driven films including Shotgun Wedding with Jennifer Lopez and The Unbearable Weight of Massive Talent with Nicolas Cage.

And finally, as we launched slate with true global appeal. We're currently out to the international market with our biggest offering in years, over $400 million of movies generating a voracious response from buyers across all distribution platforms.

Turning to television; it was a very impressive quarter for our TV group is they leaned into a number of emerging opportunities and strengths. Ramping up content for new AVOD buyers with Zoey's Extraordinary Christmas for Roku and shows in the works for IMDB TV in Tubi. Creating shows for broadcast where we just secured an order for the back half of the first season of Ghosts, the highest rated new comedy on CBS, and a second season renewal of Home Economics, the highest rated new comedy on ABC.

Deepening our streaming relationships with the debut of Acapulco and the renewal of Seasons three and four of Mythic Quest on Apple with five series either streaming on or in production for HBO Max. Rolling out a slate of inclusive content with BMF, Blindspotting, Run The World, Ghost, Raising Kanan, Force, and the first offering from The 1619 Project. And of course, continuing to supply Starz with 15 premium scripted series currently airing or in the pipeline.

Just this morning, we started production in Hungary on the continental series for Starz, our exciting expansion of the John Wick Universe into television. The origin story of the young Winston features a world-class cast and we will roll out in three big 90-minute events on the platform, serving as a reminder of the value of great intellectual property. The Continental becomes part of a slate of nearly 70 Lions Gate television series and 600 hours a programming spanning dozens of platforms. We will be able to further support this production activity with our new Lions Gate studio in Yonkers, New York.

With demand for content greater than ever and prime studio space at a premium, the new state- of-the-art facilities will become an East Coast production hub, increasing our ability to control costs, and manage scheduling. Our half hour scripted series, Run The World, for Starz is slated to be our first production to use a studio early next year.

In closing, we've been consistent and creating value across our businesses quarter after quarter. In the past year alone, we've added over 500 titles organically and through acquisitions to one of the largest and freshest film and television libraries in the world, renewed our greatest number of television series ever in a single year as our Television Group continues to excel in making new shows for the network streamers and Starz, expanded and extended one of the largest portfolios of valuable brands and franchises in the industry with sequels, prequels, spin- offs, branded attractions, interactive games and digital collectibles, and created tremendous value with Starz by growing subs, adding valuable new shows, building our brand, and scaling our platform around the world.

And we've accomplished all this ramping our content marketing spend over $3 billion this year and scaling our film, television, and Starz businesses into one of the largest independent content platforms in the world while still generating positive adjusted free cash flow and strong adjusted OEBITDA. Now, I'd like to turn the call over to Michael.

Michael Burns

Lionsgate Entertainment Corp. Friday, November 5, 2021, 5:00 PM Eastern


Thank you, John. As you may have seen in an 8-K filing we made this afternoon, Lions Gate's Board of Directors has authorized management to explore potential capital market alternatives for Starz.

While we continue to realize substantial synergies from bringing Lions Gate and Starz together, we also see the opportunity to potentially unlock significant shareholder value under a scenario where investors had the ability to value our studio assets and Starz separately. Recent transaction multiples in the media space give us confidence that exploring alternate path is prudent. Additionally, we believe that a number of the structures we're considering will also allow Lions Gate and Starz to preserve many of the operational benefits we're currently achieving within a single corporate structure. Now, I'll turn things over to Jimmy.

Jimmy Barge

Thanks, Michael. And good afternoon, everyone. I'll briefly discuss our second quarter financial results and update on our balance sheet. Second quarter adjusted OEBITDA was $108 million with total revenue coming in at $888 million driven by new and returning TV series deliveries and continued demand for library content. Reported fully diluted earnings per share was $0.03 a share and fully diluted adjusted earnings per share came in at $0.15 a share. Adjusted free cash flow for the quarter was $195 million.

Now, let me briefly discuss the fiscal second quarter performance of the underlying segments compared to the previous-year quarter. Media Networks quarterly revenue was $385 million in segment profit was $5.5 billion. Excluding Pantaya in the last year's second quarter, revenue was up 3%. Segment profit was down year-over-year on higher content marketing spend associated with the successful premieres of Starz Originals. We ended the quarter with 30 million total global subscribers. Total global media networks OTT subscribers grew sequentially by $1.3 million to $18 million, which represents a year-over-year subscriber growth rate of 40%.

Turning to Motion Pictures, revenue was up 28% to $331 million while segment profit of $102 million was up 23% and reflects strength from strong home entertainment and library sales. And finally, television revenue was up 70% to $336 million driven by new series deliveries, including Raising Kanan, Heels, BMF, High Town, and Acapulco. Segment profit came in at $29 million, up nearly 190% reflecting the delivery of several series and the licensing of Weeds. Our total library revenue across our Motion Picture and TV businesses hit a new all-time high of $784 million on a trailing 12-month basis, which reflects a 6% increase over the $737 million of trailing 12 month library revenue reported in the second quarter last year.

On the balance sheet, we ended the quarter with leverage at 4.7 times, or 3.4 times excluding our investment in STARZPLAY International, reflecting the impact of library strength, tempered by a return to P&A spend and higher content marketing costs. We continue to retain significant liquidity with $443 million of cash on hand and $1.25 billion of an undrawn revolver after reducing our unused commitments by 250 million after quarter end. We remain committed to strengthening our balance sheet and paying down debt while continuing to fund our investment in content marketing with positive free cash flow as we refresh our library and drive subscriber growth. Now, I'd like to turn the call over to Nilay for Q&A.

Nilay Shah

Thanks, Jimmy. Operator, can you open up the call for Q&A?


Lionsgate Entertainment Corp. Friday, November 5, 2021, 5:00 PM Eastern

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Net income 2022 -120 M - -
Net Debt 2022 2 230 M - -
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Jon Feltheimer CEO & Non-Independent Executive Director
James W. Barge Chief Financial Officer
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