Q4 2020 Earnings Call
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Your conference will begin momentarily please continue to hold.
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Ladies and gentlemen, thank you for standing by and welcome to Lionsgate Entertainment fourth quarter 2020 earnings call. At this time all participants are in listen only mode. Later, we'll have an opportunity for your questions instructions will be given at that time.
That's very minor today's conference is being recorded I'd like to turn the conference over to Jay Mars Head of Investor Relations. Please go ahead.
Good afternoon. Thank you for joining us for the Lions gate fiscal 24th quarter Conference call will begin with opening remarks from our CEO. John So farmer, followed by remarks were CFO Jimmy barge after their remarks, well open the call for questions.
So joining us on the call today, our Vice Chairman Michael Burns.
Well, Brian Goldsmith.
Chairman of the TV group, Kevin bags, and the chairman the motion picture group jokes Rick.
Starz, we have president and CEO, Jeff Hirsch.
CFO Scott Mcdonald.
VP of international supported Kelly.
The matters discussed on this call today include forward looking statements, including those regarding the performance or future fiscal years, such statements are subject to number of risks and uncertainties actual results could differ materially and adversely from those described in the forward looking statements as result of various factors. These include the risk factors set forth in.
It's gets most recent annual report on form 10-K, the company undertakes no obligation to publicly released the result of any revisions to these forward looking statements that may be made to reflect any future events or circumstances with that I'll turn it over to John John.
Good afternoon. Thank.
Thank you James and thank you all for joining us in these extraordinary times I hope, you're staying safe and healthy.
Months ago, I could never have imagined some of the things you'd be talking about on this call our employees working from home film and television production suspended movie theaters close and all over the other emergency adjustments, we've made due to the pandemic.
But as we reported strong quarter to end the fiscal year in line with our forecast.
I'm also struck by how much we're continuing to accomplish moving the company forward on all fronts. Despite all of the challenges around them and generating a lot of momentum heading into our new fiscal year.
Sure a few recent highlights and then I'll drill down on each of our businesses and talk about how we're transforming them to continue to operate successfully in the new normal.
Does screening business is thriving in the at home environment as we reached 6.8 million paid to domestic over the top subscribers in the quarter well in excess of our projection and it has continued its strong growth since then.
Starz play International platform is showing strong gains as well, but viewership up 20% since the pandemic began driving international subscribers, including the does play a radio platform and Canada passed the 5 million Mark at fiscal year end.
Anti a more than doubled its subscriber base from 315000 to nearly 700000 paid subs in the fiscal year as it continues to deliver on its promises the premium over the top destination for Spanish language movies and original programming.
We extended some of our biggest franchises announcing the big screen adaptation of Suzanne cone, whose games prequel the ballot in its own burden snake.
To be directed by France's they learn the new book is already driving triple digit sales growth at the hunger game titles in our catalog.
American households, Eric Warren singer is writing now you see three and we're preparing to begin production on John Wick floor.
Spiral our re imagining a thought teaming Chris rock and Samuel L. Jackson opens next to me and the television we remain a supplier of choice for new buyers, but the romantic comedy Loveless, starring Anna Kendrick debuting on H. feel Mac next week.
They have already announced that the series will be a centerpiece of their first and the campaign.
As a global pandemic accelerate secular changes already in progress our business is already well positioned to whether the current disruption and emerged stronger than ever in the new normal.
The star we have a great subscription platform. It started as a profitable growing at a major contributor to earnings.
In this current environment, our content that has already been produces more valuable than ever with library revenue hitting a record $600 million in the fiscal year and our key brands generating higher licensees as we continue to extending them.
We have full film and television pipeline poised to resume production and a slate of movies ready to distribute and theaters reopened and we have plenty of financial flexibility and liquidity with over 300 million and available cash at the end of the quarter and an undrawn revolver of $1.5 billion.
The goal of combining Lionsgate and Starz was to build a premium global subscription platform backed by the food resources of our companies.
Today that effort is achieving results.
Our global streaming business reached more than 10 million worldwide over the top subs at the end of the quarter and we'll continue to grow to between 13 and 15 million paid subs by the end of the fiscal year.
In a world where the value of making great content is matched only by the importance of determining how with monetized.
We are increasingly able to control our destiny through the continued rapid growth in the direct to consumer stars App, which is now our third largest distribution platform in the United States.
We continue to apply a consumer facing data driven strategy to the benefit of our over the top and MPD partners alike.
Our success in transitioning our shared Comcast customers to olive garden efficiently and effectively in the quarter allows us to continue to build on our long standing partnership.
On the programming from we've established ourselves domestically as the premium destination for women and diverse audiences with a mix of proven hits like out lander, which completed its fifth season outperforming season for an earning rave reviews, returning favorites, such as Steven Soderbergh as the girlfriend experience and a second installed.
But of the Spanish Princess and exciting New series like the recently debuted crime drama high town from producer Jerry Bruckheimer that is resonating with our subscribers.
These will be followed by the sexy and spirited comedy series run the world from Dear White people to eventually Bauserman leaves Davenport.
Family drama healed sitting in a world of Smalltown Wrestling and the next two highly anticipated series in our expanding power universe franchise ghost and raising kanan.
As we end the first full year of our international expansion I'm pleased to report that we've launched in 50 countries ahead of schedule and exceeding our subscriber target.
That growth is driven by slate of Starz originals first run in library features and best in class acquisitions that make up an attractively priced best of global S. Vod content offering for consumers positions us as a complimentary premium tier to other on T.T. services and allows us to.
Align ourselves with top distributors from Amazon to Apple well Koodo Rollins Eric held the total play all granted by the Starz play at already live and eight countries. As we continue our March towards our target of 15 to 25 million international subscribers by 2025.
Recent additions like Tony Mcnamara's, the great starting l. spanning Nicolas hope normal people based on the bestselling book and the award winning anthology series. The Act combined with an anticipated ramp up of our local productions will continue to diversify our slate and differentiate our platform.
We started this course funded it out of our own free cash flow outgrowth is on schedule, an outsized value creation is within our site.
Turning to our motion picture group.
We pivoted quickly during the quarter showing their kind of strange and agility that has transformed us into a top five domestic box office market share leader.
When theater shut down two days into the release of the Irwin brothers I still believe.
We immediately reposition the film to launch in an exclusive premium video on demand window with structured pricepoint, including especial Easter promotion, followed by an early debut on packaged media electronic sell through in traditional video on demand to mitigate it's lost theatrical revenue.
When theaters reopened we will be ready.
Our slate its stock with big brands and properties like spiral.
Hitman bodyguard to starring Brian rentals, Samuel L., Jackson, Salma, Hayek, and John Wick for.
It is deep in comedy is likely unbearable weight of massive talent, starting Nicholas Cage, and Barbin Star go to Vista del Mar starting Kristen when it includes the horizontal or antebellum starring Janell money. The Deeni Taylor directed Hillary swing thriller Phase now and the Neal Burger directed Cy five feature voyagers.
And it has uplifting stories for our times like the Irwin brothers inspiring American underdog, the Kurt Warner story.
And though our feature film production operations have been pause the process of refilling, our pipeline with exciting Blue chip properties has not.
During the quarter, we launched landed excuse me the movie writes the Judy blooms iconic bestseller are you there God. It's me Margaret the first time one of her books has been brought to the screen added two time Academy Award winner Cate Blanchett to the caster Borderlands and won an auction for 16 states the zombie zombie thriller.
To be directed by evil dead set a alvarez.
Obviously, our theatrical production and release schedules are caveated by the uncertainties in the movie business right now.
Questions about when production will resume what kind of protocols will we need to put in place when theaters will reopen and how moviegoer habits will change.
We address all of these issues with an agile data driven and forward looking film business that continues to extend and expand our biggest franchises collaborates with our talent to create bold original new properties.
And brings to all of our distributors the uniquely diverse and flexible slate.
Turning to television we shut down nearly 20 series and pilots virtually overnight when the pandemic hit.
But we repositioned ourselves to quickly keeping cast and crew safe shifting our focus from production to development and setting up over a dozen virtual writers room to keep talent engaged right.
We've already seen a significant uptick in backup script orders for pilots and currency.
Paving the way for our productions to shift into high gear, when it's time to restart.
The residents of our premium content continues to open doors with new buyers on the heels of our partnership with Atria Maxim Love life. They will launch our docking soap the health of Ho on July 16.
Ordered two more production pilot and picked up the first television series from our point Grey partnership the Christmas themed adult animated comedy Sante Inc., featuring the voices of Seth Rogan and Sarah Silverman.
And our television groups emphasis on creating great programming for Starz continues.
A year ago, we have one lionsgate television series on the aired stars in four in development.
Today, we have over 20, Lionsgate television series either in production post production or development for our platform exciting properties like he'll dangerously as long run the world and the next three power inspired series or just a few of the shows ready to resume or begin production when production can resume safely.
Against that backdrop of economic disruption.
We are the beneficiaries of diversification across our Ben businesses and within each of our groups.
And the TV group Pilgrim will be one of the first companies going to camera. The competition reality series most likely in late June Denmar Mercury transition its long lending hit daytime talk show Wendy Williams to a fully remote production filming from her living room and three are executed acquiring team episode of Mystic class Raven banquet.
Filmed entirely on cast members iPhone that debuts tomorrow.
In closing I want to say, how proud I am up our employees or rising to the challenge of these unprecedented times with optimism I can do attitude and the collaborative team spirit that as our trademark.
Often talk about our culture being our secret sauce in during these past few months it has driven our company forward.
We responded to the global pandemic with a simple four point plan first protecting our flanked by making sure that everyone was safe and good work effectively from home second returning to the old normal by making plans to allow people to come back to the office and get our film and television shows up and running again under new protocols.
Third defining the new normal by re imagining our businesses and how will operate going forward and finally identifying the opportunities that are emerging all around us.
Everything in our plan is centered around our employees our talent in our production and distribution partners as we continue to navigate unchartered waters with a view towards emerging from the current crisis, even stronger than we were before.
And in this process, we're guided by the same Northstar principles that have always guided us.
Being financially and strategically diversified.
Creating and only iconic intellectual property with tremendous evergreen value.
Positioning ourselves, where the parties going not where there's already been.
And reaping the benefits of our collaborative and entrepreneurial culture.
Thank you all very much and now I'll turn things over to Jimmy.
Thanks, John and good afternoon, everyone I'll briefly discuss our fiscal fourth quarter financial results and update you on our fiscal 21 outlook.
Fiscal fourth quarter, adjusted OIBDA was $126 million, while revenue was up 3% to $944 million.
Reported fully diluted earnings per share was a loss of 20 cents and fully diluted adjusted earnings per share came in at 21 cents.
Adjusted free cash flow for the quarter was $175 million for the full year adjusted free cash flow was $349 million.
Now, let me briefly discuss the fiscal fourth quarter performance of the underlying segments compared to the prior year quarter.
One follow along in our trending schedules have been posted to our web site and show greater detail around our global media network subscribers.
Media networks quarterly revenue of $358 million was relatively flat from last year and segment profit came in at $26 million.
Globally on a pro forma basis, and including Starz play Arabia. The company added 4.4 million subscribers year over year up 22%.
Reaching 24.6 million global subscribers at the end of the quarter.
Domestically total subs were 18.9 million, which was up 2.1 million from the prior year pro forma which was adjusted for changes in distribution packaging.
You can see more detail and the new Saab disclosures included in our trending schedules.
Now looking at sequential performance for fiscal fourth quarter total global subs were up 2.3 million pro forma driven by strong domestic OTI TV subscriber gains.
Importantly, we now have over 10 million OTI subs, including stars Starz play International Starz play Arabia infant tie up.
I should also note that our sub counts all represent paying subscribers.
Now turning to motion picture group revenue increased 10% in the quarter, the $393 million and segment profit came in at $101 million.
Motion picture group turned in a very strong year, improving segment profits by more than 60% to $209 million.
In the quarter performance in our film group was largely due to strong ancillary performance and lower DNA spend that more than offset box office underperformance related to theater closures.
And finally TV production revenue came in at $258 million, while segment profit was $22 million.
Segment profit increased 10% year over year as the strength of library titles and Gionee savings more than offset the prior year quarter tough comp for Orange is the new black.
Now I'd like to provide an update on our fiscal 21 outlook as well as our balance sheet.
As everyone on this call is aware the impact of the covert 19 pandemic and the governmental response to the pandemic has been unprecedented.
Accordingly, we have a limited framework with which to assess the ultimate impact on our business model and forecasts.
We believe we have a diversified and a resilient business model that is well positioned to benefit from the shift the in home consumption. So there could be disruptions to our business as we navigate workplace safety government regulation and evolving consumer trends.
Accordingly, due to the heightened uncertainty and limited visibility related to the co bid 19 situation. We don't believe it is prudent to provide specific forecast for adjusted OIBDA. At this time, rather we will be providing some inputs to help you build your models.
So let me provide some color for fiscal 21 by segment as we did on our last call.
First in media Network says you know, it's our largest contributor to segment profits recall. This is a subscription based business with heavy in home consumption. So we have pretty good visibility and we like what we see was significant increases in viewership and over the top subscribers.
On both our domestic and international services.
That said, we have potential disruptions to content deliveries are cycling through a new distribution deal and are fully investing in our international opportunity.
So our previous flattish segment profit view is largely on track.
As John mentioned, we expect media networks over the top global subscribers of between 13 to 15 million for fiscal 21, with the midpoint, representing 30% plus growth.
Now looking at motion picture in TV recall, our pre co bid commentary on motion picture Group segment profit for fiscal 2001 was down due to difficult comparisons and timing of the slight.
And at the TV would also see significant profit growth in the year.
In part driven by the licensing of preexisting IP.
That year over year comparison is largely intact.
But production delays and theatrical disruptions will result in some uncertainty and a shift in business to the right as some revenue and profit move from fiscal 21 into fiscal 2002.
Now on the balance sheet, our leverage ended the year at 5.2 times, adjusted OIBDA or 3.9 times, excluding our investment and Starz play International.
During the year net debt decreased over $300 million ending at 2.4 billion.
We were opportunistic in the quarter and purchased some term loan b bonds and a modest amount of stock during the market dislocation and we will continue to allocate capital in a thoughtful manner.
We ended the year with ample liquidity with well over $300 million of cash on hand, and a 1.5 billion dollar undrawn revolver.
In addition, we have no maturities until the very end of fiscal 2003.
We remain committed to paying down debt with the bulk of our excess free cash flow.
Lastly, we remain comfortable with our maintenance covenants based on our revised forecast and having further stress tested them for longer production and theatrical delays as well as the potential negative impact of a recession.
Now I'd like to turn the call over to James for QNX.
Great. Thanks, Amy we're ready to go with Q and at this stage.
Ladies and gentlemen.
To get into Q, you may price one zero now.
One zero Randy.
And one moment for our first question.
Okay.
They've now your line is open.
Yeah, sorry about that some technical issues technical issues over here Ah Hey, guys. Congratulations on the stellar results Jimmy couple of questions for you and then Joe Drake if you're on I have a couple of questions for you. So Jamie I'm on the free cash flow number just outstanding even for a fourth quarter it looked like.
Like there were some negative working capital effects going on I in the quarter, particularly with receivables do you think that that.
Attributed or wasn't more amortization.
Just love to get your comment there and then Jimmy could you also comment.
Plus the physical 21, what should we be modeling for corporate costs as it applies to the legal spat you guys have with MGM holdings on I couldn't tell whether you had your legal counsel on or not if you're willing to chime in on that I would appreciate and I've a follow on for Joe. Thank you.
Well first of all with regard to see any legal cost not going really comment on that likely be a one time item and obviously.
I can speak to that but with regards to the free cash flow in the quarter. Thanks. It was a strong quarter, but I'd also point during a strong year right. We finished over 300 or right around $350 million of free cash flow for fiscal 20.
No particular changes in the monetization program they were relatively small and we always have swings in working capital, but we actually feel that are reduced working capital needs for sustainable and we'll continue to benefit us into the future.
Okay, Great and then Joe Drake, if you're on once these theaters reopen whether it's late June early July whatever to date is what do you think this thing is going to look like and I assume you've been in touch with the theaters.
Fairly regularly over the last two or three months I mean, who is going to show up as it could it be millennials isn't gonna be couples without children is it going to be call. It soccer moms from the suburbs that will show up with children I'm I'm, particularly worried about the animated films and or children's films and we'll families.
Hey children in a cobot 19 environment and so that's how the first part of the question in the second part of the question is we've heard from some of the theaters that.
Certain old films will be licensed for sort of this late call. It mid late June early July time period.
Fills from the 80 90 is what have you maybe they charge five box just to get people in the door just to get revenue in the door given your extensive library. Our you involved in that at all with the theaters. Thanks so much.
Thank you David that's a lot of question, but I will attempt to I will tell to cover it. So on the first part of it no no. It's good I'm glad you asked that on the first part of it yes. We're in touch with we're in touch with our exhibitor partners literally daily and weekly and so very working very closely with them.
We believe that people are anxious to get out of their house and do things.
We're bullish on on people coming back to theaters, but we're not naive about environment, we're entering and that we're in a fluid situation and there's a lot of things that have to happen.
For audiences to feel safe and comfortable in theaters.
The we you know the exhibitors everybody's doing a great job of preparing for that and making sure safety protocols and that people feel safe going back into that environment. I was on the 20 exhibitors. This morning, and they're going to extraordinary lengths to make sure that that it's a great and safe experience.
We as it relates to audiences I can tell you how we I can tell you how we're handling it which is.
We have dated some films as early as August as you've probably seen and September and October.
We're very specific about the films, we put in there from our perspective, you have to operate now in a very flexible agile way and we put a lot of plans in place to do that and we were approaching our business and so if you look at the first few films there specifically chosen and dated we think they're great dates for the movies in general but.
Their data it also because their targeted audiences that don't require the and their targeted movies that are going to requires long lead.
As long lead of a media spend and so they are actually set so that we can get a lot of data before we actually trigger expenditure and have the ability to move quickly if things are opening quite as high as aggressively as we hope they will.
I'd have places to put them, if we have to shift so.
As I say I think that we're going to I think the audience is coming back.
And so we've certainly done you know, we've certainly done our share to try to keep that theater spirit experience at top of mind I know you're aware Lionsgate why which is a program re we ran in conjunction with our exhibitor partners and in conjunction with you to Ben and.
And Fandango and a whole bunch of partners to keep alive the idea of theatrical experience.
And it was a huge success and that helps it helped raise some money for the furloughed workers. So lots of good work going there.
As it relates to I hope that answers. The first part of your question I'm happy to answer more if theres more there.
The on the second part yes. They are you know theaters are going to be playing legacy movies. We have a whole program of those were very much a part of that and we have put that together with them couple of months ago actually to start to kind of when that lineup and that's both to get people comfortable back going into theaters as well is to make sure that the protocols are in place then.
There's obviously a lot of training of theater workers and a lot to do to get this right and that will give a that will kind of provide it's about a question for exhibitor, but I noticed the idea is to provide a soft launch to work out the cakes and really create a great experience.
Hey, wonderful thank you very much.
Good afternoon.
Thank you and I was reminder, if you'd like to ask a question you may do so by pressing one zero. Our next question will come from Ben Lundberg. Please go ahead.
Thanks, Good afternoon, everybody I have a couple of questions that I just wanted to come back Joe on those comments you were just conversation with David I thought it was really interesting.
How are you trying to you how do you decide whether you're ready it's ready it's time to release. The films you have data I mean, you mentioned you've got you find movies in place that don't require long lead time for media to give yourself flexibility makes a ton of sense, but what are you looking for the say two weeks out it's a go.
So.
We're obviously.
Taking his deep into data as we can about.
Tumors habits, and what sort of proxies, we can use for appetites im coming back the theater, but additionally.
You'll notice that currently on the schedule were about six weeks out from.
The first big wide release movie and that's that that will give us an opportunity to see how audiences are reacting leading up to that and on that opening weekend.
And sort of triangulate all of those data points than anything else, we can get our hands on.
As well as we're obviously monitoring.
Well, obviously monitor it will be monitoring as those soft launches happen.
What kind of capacities and how audiences are showing up.
So those theaters and.
That's a part of it obviously, we're also running we are always running our own.
Tracking studies and the like.
On our material itself and how it's working in the level of interest and we'll be doing some extra polling to understand.
Audiences willingness as we're tracking as as our movies are starting to track we'll start to monitor.
And in unique ways audiences.
Willingness to come back the theater.
Got it.
And then maybe for John if you just when you step back from all of.
Sort of volatility at anxiety over the last few months and look at changes to the business. What do you think the long term implications are for Lionsgate and how it operates.
Strategy and how the business runs as a result of this what did you guys learned that you think will last beyond what we're going through right now as you sort of think about the business.
Yeah, just from the way our employees work I think we certainly have learned that we can operate in a.
More modern fashion using technology I can tell you I've never been busier in my life I am too busy.
I have about 10 conference Webex is I have one start every single day. This a crisis group that we have together and then we communicate with employees all during the day.
So just from the overall way we operate looking at how much money we spend on travel.
Looking at.
Looking at other conferences, we go to do we have to be there from an expense perspective I can tell you we're pulling money out of our business.
Constantly and we're up to over a million and a half dollars.
A month has run rate on on things that we normally would have considered normal expense.
In terms of sort of all of our operations. Our business is number one again in this environment going forward Super happy to be diversified.
Diversified again financially that's important from year to year, sometimes one one group outperforms, the others might not but at the end of the day strategically the way that are three core businesses operate together. The priority that started has for Lionsgate television Lionsgate television has for stores the ability to build our bid.
And that's on a global basis, so to be able to provide our first run movies at the Starz play international than that.
In the UK in India, and some other territories were looking at including obviously the U.S.
I think that diversification both financially strategically will put us in a very very good place clearly having stars on turns out to have been I think a really smart investments we made years ago.
And in this at home environment.
No I think.
I think that we're going to continue to build that business.
It's doing exactly what we hoped it would do.
And great partnerships, we create them every single day with partners and understand the value of it and so thats working out really well in terms of television is going to be interesting.
You know the buyers are all now becoming sort of they're all looking a little different if you look at MDC right. Now I think you have to look at NBC NP cost together.
If you look at Houllier, looking approval and FX and ABSSSI together.
So so TV, we're going to have to have some new.
New kinds of deals new calculus that makes sense for the buyers and for US as we look at the back end value.
As we look at the back end value of those businesses, whether we need to take more money upfront.
And give up some of the back end.
So so I think pretty much every business is going to be a little bit different I think certainly the experiment that we did just team Joe and his team did a fantastic job pivoting on I still believe I mean, we're out in the marketplace for three or four days and all the theaters shut down and we're going to pretty much get back to even on that making up a huge.
In a huge hole in our and our 20 financials in the rollover in 21 that we expected.
So what we found obviously is theres an at home audience for movies as well, we still believe entirely in the partnership with exhibition.
But.
But we do see that these models could potentially change and hopefully we can find a smart way to do that with all of the various constituencies and the last thing I would say is the one thing for sure.
Matt This whole thing proof is that library has incredible value growing value. It's something we've talked about a lot. We call here accrete, which is every time, we do an ultimate it goes up in value. The next time, we do the ultimate end you you've seen spectacular increases in the value of evergreen.
That I believe having so many distribution outlets having so many.
Basically the audience is watching more and more content than ever before.
With a better technology that allows them to to view it in a better way.
I think overall, we're pretty well positioned for this new world than that we're watching it every day and we're trying to to adapt with it.
Thanks for your thoughts.
Thank you.
And our next question will come from Alexia Quadrani. Please go ahead.
Hi, Thank you just a couple of questions. The first one on.
You can provide a bit more color on their reopening of production I know you talked a lot of your opening comments, but in terms of you know how you prioritize what gets yeah no. Thank God go Green again in terms of where do you start and then do you have flexibility on location for Netapp data opened that that's where the others.
Can you kind of pull those leverage there to kind of yes, you know everything in process. However, again get Kelly again and my second question is really just on the Comcast relationships like Starz, how that any comments you gave in terms of how the I'm going.
Bundle to Alan Carr, how that transition sort of going thank you.
Great on production nominate half, Kevin and Joe start and then Jeff can answer your second question.
Hi, Alexa Kevin speaking.
Yeah, just speaking to our theory is kind of plant there flag somewhere and then stay there for years and years happily our portfolio is pretty regionally spread around with New York Atlanta.
North Carolina, La Vancouver, right now.
And several in the UK. So we were looking closely at the rural states it seem like they're going to open first.
And have developed plans on several of those are in common with stars and Jeffs team.
And we're kind of holding hands and working with the local officials in the local some commissions and the various Gildan Union.
To have a countdown to production, which we.
See happening in terms of camera work in mid to late August in earliest and prepping in late June and July pretty excited about the places that we think our opening up and our feeling good about what we can do that.
And on the motion picture side.
You know the team got actually ahead of us before the shutdown and anticipation of this I did a great job.
Both hiatus thing, but protecting those production so that they can ramp quickly.
Across across Lionsgate and Starz together, there's been an incredible collaboration to.
Figure out the protocol so that we can all move quickly back into production and it's everything from safety protocols or you are required on set an housing feeding meals and every been travel.
Down too.
Looking for alternative locations, so that as things open up or in a position to move productions to the places that we can operate safely but quickly and so we are.
We're really well poised as soon as as soon as locations open up to get back it back to it.
In terms of the con Comcast transition just to levels that everybody, we transitioned to an all a car model with Comcast on February 11th.
The end of power, but heading into the premiere of Outlander, we worked very closely with Comcast almost every day to put plans in place to grow the business I'm happy to report that in the first six weeks of the transition we grew to well over a million subs both on the traditional platform and on their flex product, which has been a really we're seeing great growth on flex and we feel really strong great about that.
That was really pre before the end homestay. It and then since then we've seen great engagement on our services. So linear viewership is up 33% Appia were ship is up 44% and so we've seen we've continued to see that transition to this revenue share Ellicott Myrtle Grove.
Thank you very much.
Thanks Roger.
Our next question will come from Steven Cahall.
Thanks, maybe first Jimmy So you said the covenant.
You don't really foresee any issues can you just remind us where you are on that and if you expect to be free cash flow positive in 2021, because I expect you do it did you benefited all in the fourth quarter from just not having any theatrical releases in the PNM related and I have a quick follow up on production costs. Thanks.
Sure.
First of all would expect to be positive on.
On free cash flow, but we are investing substantially in our ramp up of content.
As well as the opportunities at Starz play International.
In terms of covenants as you know.
They differ significantly in a favorable way from headline level.
Leverage if you will in particular, they exclude all of the stores play international.
Investment losses there.
And likewise in light of Kobin 19, as I mentioned in my remarks, we we have stress tested these covenants over and over and.
We don't see significant risk there, we still have plenty of room and to give an idea where we came in as our first lien ratio came in at 2.2 times under the covenant calculation, which is well below the four and a half time threshold the interest coverage.
Came in at 3.95 times, which is well exceeding the two and a half time threshold. So we're in so we're in good shape there.
Great and then just on the production side I think getting their release. It looked like there was about 50 million in Opex just related to cope with 19 I've seen a press article that production could have like a 20% cost increase in order to keep everybody safe on that so I was wondering maybe Kevin or Joe if you could cause.
Comment on what sort of cost increase or margin pressure, Ken I might be impacted by when you are ready or reshoot and if that it really starts to change the way that you think about that business than any meaningful way. Thank you.
Yes look we factored into.
Our plan, what we think our operations cost or these are.
This charge.
50 million that you references these are direct costs. Okay is primarily related to the delayed productions. The theatrical release schedules that Joe mentioned as well as development projects. A large majority of this as you would expect is related to theatrical product where development cycles are longer and projects.
Tend to be more material.
As you can imagine we're working on mitigating this cost everything from production insurance, where we have coverage negotiating contracts and overall cost containment. So.
In terms of looking ahead, we expect any remaining cost will be substantially smaller certainly less than half.
That would be weighted to the first half of fiscal 2001 and will be further and meaningfully mitigated through insurance proceeds in cost savings may be Joe and Kevin could speak to the other part of that question in terms of future production cost increases. So this is Joe stieven the on the production cost stolen.
A little bit to be figured out, but it is not anywhere near 20%.
We've been.
We have.
Gone very deeply into what is going to be required some and a thesis around how you would run a safe production frankly, it's a little bit different production to production, depending on the movies and locations in the moves and how much talent in crowds and alike. So it's going to vary, but it's nowhere near that level as well as it's very early days there are a lot of ideas around how we go about.
Mitigating a lot of those costs. So I think it's going to have an impact but.
I don't think it's anywhere in that range.
Thanks very much.
Thank you. Our next question will come from Matthew Thornton.
Hey, good afternoon, everyone. Thanks for taking the question.
Maybe a couple if I could first you talked a little bit about the value of library content earlier, I think you've got Mad men and we've both 'em up for raw for re licensing any update there I would assume that networks are fairly hungry for for content do those end up on Starz do those end up elsewhere any thoughts there secondly.
Trials, obviously get kind of Colvin really kicked off late March so while the impact has been since March I'm. Just curious if there's any framework you could give us more sizing you can give us in terms of what the trial base.
Looked like versus a normal quarter or kind of where we are right now versus.
The end of March any color there would be helpful. And then thirdly, Jimmy you talk a little bit about.
Insurance I'm just curious when you think you'd have.
Line of sight into what that might look like and then how material that that could be hypothetically just any color there would be great. Thanks guys.
All right, Kevin first and then Jeff.
Sure.
So on Mad men, we've been Jim Packer and his team have been in kind of a four month sales process, which has gone really well exceeded our expectations and.
And probably benefited from the.
Covance suspension and the lack of fresh originals coming so nothing to comment on officially yet, but coming together nicely and we think we're going to have very good news to report in all those processes, we work closely with Jeff and his team.
Valuating.
In a market.
Free market fashion, what may be good for starz versus other buyers and getting the top dollar from participants and our shareholders.
So we'll again, we'll have more to say about that when we can announced where where the whereas roundup domestically and internationally. We are still another year out.
But again as we've seen and John alluded to the value of library continued to go up and up enough.
We're encouraged by what we're seeing with Mad men and looking forward to monetizing weeds further on its fourth cycle.
In terms of trials you know we had guided the ended the year to be about 6 million OTI T. subs domestically, we were well past that number through the first few months of the quarter and then it accelerated as we got into March.
Unlike.
Some of the peers our peers in the industry. We've stayed away from long free trials, we've never really like 30 day free trials. The data shows that the conversion is lower the lifetime value is lower and so we looked at the the the pandemic and said this is going to be a little more elongated then just 30 days and we went out with five dollar offers for three months or $25 up front for six month.
To try to give some economic breaks this people that are in challenging times.
What we've seen historically from those two offers that weve used in our in our normal business is great conversion to full pay and we expect that to be the same.
And Matthew with regards to your questions with regards to production insurance. It look it's still early stages, but we absolutely have coverage there would expected to be really meaningful and we'll focus on that we're already focused on it.
Thank you. Our next question will come from Alan Gould. Please go ahead.
Thank you have got a few first Jimmy with no production is it fair to obviously revenue is going to be low, but I would assume any video or any library product will be coming in at very high profit margin you typically lose typically cost money upfront for your new production is that fair to assume.
Yes.
Okay and the last three years, Jimmy you've invested about a billion half a year and keep film and TV any idea how much you're going to spend this year. That's all a function of when you start up again.
Well I think we're expecting even with the delays that will be increasing our content spend probably $200 million plus relative to this year going into the year. So we're clearly investing in content and our growth in the future.
Okay and the last thing do you typically have completion bonds on all of your production I assume completion bonds are different than business the disruption insurance do they cover pandemics.
We do have production of bonds, and we plan on finishing or productions and that not being a factor.
Okay. Thank you.
Thank you our next question will come from.
Doug. Please go ahead.
Thanks.
Let me talk about the you had a lot out TTR obviously since.
I will turn plant started as you look to the data, particularly from.
Your direct consumer App is there any about those cohorts. It looks difference you then the cohorts that you'd added before that point or their their usage patterns and what they are what they are watching look pretty similar.
Great question, what we've really seen is actually more and new customers coming into franchises. So while we had a record season on Atlanta parties in five we continue to have record viewership on the end of our and the first quarter, we actually saw a large spike in people finding those franchises for the first time. So we saw.
Binge eating of season, one and two of outland or spike almost 38% Sam on power as well and so the value of people being stuck at home or they are finding our big shows and they're continuing to reach into the content in a big way.
And so we expect that to continue we expect those customers to stay with us as they continue to get up to speed on season, five and six and go and both of those shows and so we've seen a lot more customers coming to the franchise than we had before.
Great. Thank you.
Thank you our next question.
Robert Roth. Please go ahead.
Yes, good afternoon, and thanks for taking my questions Robert.
Henry Yeah, it's been a wild.
Welcome back.
Yeah. Thanks.
First question is given the change it seems as though.
Eventually theatrical releases pretty not be theatricals, and maybe direct to home kind of like we're seeing Amazon already doing with a few things with the Premier cinema. You can render moved for 20 Bucks. Although it's limited I was curious is there anyway that you guys could do that and just take released as low budget low risk and say the DNA and release it directly.
To the consumer at home, where they can enjoy it given we don't know how long it will be four theaters get back to what they were.
And such and no one has done yet that way, but I would think it'd be kind of cool and eventually someone will because that's when you thought about you know kind of a direct to home literally where people branded from Lions Gate day, you and for for movies.
Please films.
Sure there look they're all kind of models that we look at one of the things that this country. This country. This company prides itself on is being flexible and agile.
As we still believe the theatrical is a big driver of our business and are going to continue to continue to play aggressively in that space and yet when we see opportunity for direct to home.
And if theres an opportunity there I don't think any companies on a better job of exploiting niches and opportunities with audiences and we'll continue to do that so it's certainly a possibility in the future.
It seems like eventually someone will like that will be the theatrical release will pay a lot of money watch from your house and I have technologically work I don't know platform. Once we receive you guys have the perfect wants to try that.
Just kind of makes sense.
Second question is given what's happened Glenn theatrical does open up again do you plan to spend the same amount and PNM as you were going to before the pandemic because you really think that that's going to make a difference would see people want to go to movies are going to go people, who don't aren't so it would see you can save a lot of money by coming back material on PNM spend in the future with theatricals just because.
As of this situation, which would really help your cash flow.
I'm going to run, but does that make sense or do you think you still need to spend the same amount.
Huh.
As you would have had had the corner bunge never happened.
I think what you'll see I think I think you may notice that were we delivered a.
A really strong margin. This this year and that's a result of all of a lot of decision very strategic decisions that were made by a leadership team that is.
The special and hitting on all cylinders and those that was driven a lot by data.
Data driven decision, making we brought data into the equation.
And in addition to restructuring the organization and a content strategy that really identify specific movies for audiences. It continually informed how we get our spend then we'll continue to do so.
Thanks said, we think thats part of the secret sauce, Yes, I agree and I have the management team very well Trust me on that one day. The question is more matter of a.
Thank you need to spend that much and let me give wonder moves if you'd be doing anything together houses they can they're going to do it and others. It doesn't matter what you're spending is going to do it. So we think that's an opportunity for you, but I don't know what data you have.
If you could do some that could really help you are not as but that's kind of the angle I was looking at.
Does the incremental dollar after a certain amount make a difference like it would have previously.
I guess, we don't know.
And in the last question obviously is.
Do you see any opportunity for doing things like getting into like American Express just announced that they are giving $20 a month till the end of year for anybody for streaming services incentive for any of that they'll credit. Your account you have a gold card platinum or centuri and I was thinking that fits perfectly with what you guys do is there any opportunity for partnering with someone like an amex visa Mastercard with their basically opinion anyway.
Anyone who signs up short from now till the end of the year to really grow subs and also penetrate and partner with some solid seems you guys could do that for starz better than HBO or Showtime could given the independent nature stars relative to the other two in their size is is that there's an opportunity for your are now it's a good.
A question, we think it's there it's a really big opportunity for US we are in talks with Amex, we arent talks with credit card for other credit card companies.
No. We are in talks with our our billing platform to expand in terms of whether its prepaid or an in store couponing.
We're also have a program going right now with Red box, we think some of that consumer base overlaps we think theres a great partnership there and we will continue to talk to almost.
Every whether it's you know insurance companies that have large prescription bases that we can or airlines like we havent program with United where we can be in their their loyalty program as ways for consumers and economically challenged times to get our service and enjoy service. So it's a great opportunity and we continue to lean into those in a big way.
Yes, good lastly, on I'll say, what I've heard not pictures myself as people now getting frustrated not because their home, but the running out it seems to watch it doesn't matter how fast Amazon can prepare netlist superconductor, they're really running out of seems to watch and a lot of people have never.
Experienced star. So we're seeing you have a real opportunity there given.
People are seeing just about everything that's out there now given this yet.
We've had a great benefit of having out later on and then bringing beat on an coming in and just premiering on high town. So we've got a lot of fresh content coming on coupled with other stony pay one movie is so once upon a time Hollywood came on in Zombie land. We also 4000 titles in our library at a very economically set price for the value. So that's.
Part of what we're seeing and then internationally I think it's the same kind of point of view, where we've got great Starz originals, coupled with best in global Escalade that we're seeing and so we're also seeing viewership ex expanding in the international markets and to the point, where the value that partners are seeing the value of our services.
So we're now getting inbound calls in different countries like UK and Germany to start to bundle our services with other partners to even expand our reach even further all right. That's what I think it makes sense and its present to you guys are perfectly positioned to that so that's great. Thank you very much I really appreciate it. Thanks.
And our next question will come from Todd younger. Please go ahead.
Okay.
Thank you Hello, everybody.
Jeff Hi.
So.
Jeff If you don't mind would love to focus a little bit on the.
The change definition of Starz subscribers I, just want make sure I understand it correctly so.
It looks like latest we have at end of December.
Under your new definition of what counts as a reported stars domestic subscriber. We we lost about 11 million subs 11, and a happening so it's under new depth mission. We can read that I think we understand those are the six deal.
The subs, we get it my question is can you help us understand at all what the direct economic benefit to stars water.
Those 11, and a half million subscribers was or is and how that trails and then on the other side. Since I don't think we can calculate it can you help us understand what the ARPU is.
Our viewer.
You're now direct linear and RTT subs, we can sort of understand that.
The breakeven there and then the finally I don't I promise at the last part is.
Yeah, I wonder what data or information we've been have about those does 11 or so million subs in terms of how much the star service.
And your expectations that how many of them based on that you expect.
You might come back and actually start paying for it. Thanks.
Great question, we think it was actually about 6.8 million subscribers that pivoted off of a bundle.
Two quick I'm, sorry, 6.2 million subscribers that pivoted off a bundle through the change in that deal as I said earlier, we pivoted. We've now captured back about a million in those subscribers in the first six weeks.
But the those risk subscribers were heavily bundled very low ARPU subscribers to the breakeven is about I think that third on those subscribers I.
I think the interesting is that that we've seen it added the businesses that transition from this traditional linear business to the kind of digital side of the world.
Our customers become more profitable as we transition and we've captured that base really significantly by the end of the fit this fiscal year, a little over 70% of our subscriber base will be revenue share our ILEC, our customers, which are much more profitable customer for us.
As John alluded to in his prepared remarks.
Our direct to consumer App, our retail App, where we control the on data we pay some processing fees is now our third largest distributor and that's the most profitable evolve the customers because we are closer to the customer there. So as we continue to kind of capture this transition we've become a much more profitable part of that got an overall company.
On the ARPU question.
The MVP abuses of TT, yes, so on the ARPU question again, if you look in the quarter, you'll see you'll continue to see ARPU increase that again is because of the transition from a traditional world to the digital world. There is a little noise in the quarter because of the Comcast transition.
We will continue to see our ARPU increase that we continue to go into that.
Into that.
Digital side, our own direct to consumer Apis over 2 million subs right now and so that does a lot of great things rather throws off a ton of data as part of the reason why we were slow to do wholesale when we launched it for an app years ago, and we've really had been able to collect a lot of data that makes us much more efficient and acquisition much more efficient and retention we've seen.
Our income down year over year, 4% because of the way we're managing the business we've seen post our churn from season six this season five come down, 10%, which is one of our cherny or pieces of content and we've really been able to harness that data to make not only marketing decisions, but content decisions going forward as well.
Great.
Thanks Todd.
And then next question will come from Jim growth.
Hi.
Several questions first I'm wondering if the annual slate objective.
Numbers have.
Changed at all in the new environment.
Also.
Regarding some questions that came up.
A couple of callers ago regarding theatrical window and correct the release or your threatening youre.
Theatrical window access if you are.
You know too much.
One way or another in terms of but once you would like to be a ever theatrical window when did you.
Moving to a like a direct to video.
The access.
And then lastly.
I was wondering about prioritizing programming for starz versus other other considerations.
Specifically say, the and Andrew Kendrick series, Anna Kendrick series would you have a more likely gone twos.
Stars or did you think the returns were much better going to scale Max.
Thanks, Jim so on the on the theatrical question.
Obviously as a result of the theater shutdown weve.
Our lineup or our slate pushed to the right and and so we will have less films this year.
Also as a result of that have less expenditure this year in well bookless expense and so.
The impact on the year shouldn't be significant other than revenue will be down, but so we'll expense.
And yet we in our planning our as soon as is over a plan to gear up.
And and as I said before we're still very bullish on the on the theatrical marketplace and just paying very close attention to how it's going to open up and and the data that that gets us as it relates to the windowing question.
We're in contact with our exhibitors every single day, we believe in that business and we're going to we're going to continue to make movies and and participate in that business.
At the absolute highest level and so im nothing's changing there as you as you talk about when doing for US. We're obviously going to at the same time, if other opportunities direct to consumer open up that could potentially be an extra leg of our business.
That is a business that we traditionally looked at as a segment to business we today.
Today, we're releasing 30 films a year out of that business.
That may not be the noisy films, you hear about but a very consistent very high margin very low risk piece of our business that will continue to do great business had a record year. This year and we certainly see opportunity to grow it going forward, but not at the expense of our our theatrical business our exhibition partners.
Hi, Kevin answer that second question.
Yeah.
I mean, basically that was no life, which were obviously super proud of and as coming days feel Max as part of their launch we're very excited about but sold and put into development almost two years ago, So kind of a different era.
In the Lions gate stars relationship, but but we speak constantly with each other about what their needs may be what we have in the line up how we can be helpful. What we can source and fine for them.
And the timing has to be right and to create if it has to be completely in line.
I think Jeff is an amazing brand builder and if it's not right in line with the brand they're building no matter, who is coming from its not going to be something eight a. moves on so we're always focused on what is the exact right creative fit.
And when it's not we're obviously out in the larger marketplace.
Well the add one more thing, which is the fact that lionsgate television is so proactive and so prolific in a television business applying.
At any one time 2030 shows.
That said and that's not even including our pilgrim shows that we attract a tremendous amount of talent and as Kevin has said over and over isn't as most important buyer is obviously star as a critical.
Component of our company, but the fact that he has such significant accessed a talented costs. We have so many buyers. It gives the actually started the opportunity to see things early see a tremendous amount of things and then by the things that are right for their brands right for their audiences that is an incredibly focused.
And curated brand.
Okay. Okay type for one more question here I think operator.
Yes, and that one comes from Matt Gordon.
Hey, guys I'd answer that back in here just on one one quick follow up your I don't maybe this one for John but you guys have talk little bit in the past about maybe kicking the tires on.
Some type of a a capital raise transaction maybe at the stars level, but I think the intent there was really to maybe shine a light on valuation as well as help you.
Maybe accelerate de leveraging obviously, we had the on the Comcast.
Issue late last year in early this year and now we've had the covina pandemic, which is ongoing but I'm just curious if thats still something.
Hey, you're thinking about if there's still opportunity there or maybe just kind of where you where your head is around around that as we as we sit here now. Thanks guys. Yeah. Yeah. Great question, you kind of answered it because there are two criteria to that raise we've talked about before one is.
Clearly our emphasis on deleveraging, but the second is unlocking value.
And any transaction that we do should do both of those things that frankly should be with great partners, particularly if they can be strategic partners. We are having a lot of really interesting conversations I would say the co bid in terms of actually completing any transaction probably from a timing perspective does push things as.
We keep saying off to the right.
But again, absolutely no urgency, we're throwing off cash we're funding our own businesses.
And we are continuing to look at a transaction or transactions that actually fulfill the three criteria.
Great.
Thanks, Matt.
And just had one final closing statement here I just want ever to refer everyone to our press releases in events tab under the Investor Relations section of our company's website for a discussion of certain non-GAAP forward looking measures discussed on this call. Thank you very much so next quarter.
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