Q4 2020 Earnings Call
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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.
As a reminder, 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 Lionsgate fiscal 24th quarter Conference call will begin with opening remarks from or CEO, John Self Harbor, followed by remarks for CFO Jimmy barge after their remarks, well open the call for questions also joining us on the call today are waste.
Sure Michael Burns COO, Brian Goldsmith.
Chairman of the TV group, Kevin Beggs <unk> chairman of the motion picture group jokes Rick.
Starz, we have president and CEO, Jeff Hirsch CFO Scott Mcdonald.
If you have international support of 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 a result of various factors. These include the risk factors set forth in line.
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 seeing safe and healthy.
A few months ago I could never have imagined some other things you'd be talking about on this call our employees working from home film and television production suspended movie theaters closing all over the other emergency adjustments, we've made due to the pandemic.
But as we report a strong quarter to in 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.
Let me share 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 this new normal.
Got a streaming business is thriving in the at home environment. As we reached 6.8 million paid domestic over the top subscribers in the quarter well in excess of our projection and it has continued its strong growth since then.
Our 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 pass the 5 million more at fiscal year end.
10 times 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 hunger games prequel the balance of its own burdens me.
To be directed by France's they learn the new book is already driving triple digit sales growth of the hunger games titles in our catalog.
American Hopefuls, Eric Warren singer is writing now you see three and we're comparing to begin production on John Wick for.
Spiral our re imagining a thought teaming Chris rock and Samuel L. Jackson opens next to me and in television we remain a supplier of choice for new buyers with romantic comedy Loveless, starting Anna Kendrick debuting on H.B. on that next week.
They have already announced the series will be a centerpiece of their first any campaign.
As a global pandemic accelerate secular changes already in progress our businesses are 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 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 extend 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 company.
Today that effort is achieving results.
Our global streaming business reached more than 10 million worldwide over the top subs at the ended 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 nationally 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 all our card 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 a premium destination for women and diverse audiences with a mix of proven hits like outlandish, which completed its fifth season.
Outperforming season for an earning rave reviews, returning favorites, such as Steven Soderbergh as the girlfriend experience in a second installment 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's event, we valves are in lead Davenport.
Family drama healed set in a world of small town wrestling and the next two highly anticipated series in our expanding power universe franchise ghost and raising Kane.
As we end the first full year of our international expansion I'm pleased to report that we have launched in 50 countries ahead of schedule and exceeding our subscriber target.
That growth is driven by slate of Starz originals first running library features and best in class acquisitions that make up an attractively priced that's the global S. Vod content offering for consumers positions us as a complimentary premium tier to other on T. services and allows us to.
Align ourselves with top distributors from Amazon to Apple low crude or launch air tell to total play all granted by the Starz play App 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 Makuch mares, the great starting l. spanning and Nicolas whole normal people based on the bestselling book and the award winning anthology series Yeah.
Combined with an anticipated ramp up of our local production will continue to diversify our slate and differentiate our platform.
We've started this core funded it out of our own free cash flow.
Our growth is on schedule, an outsize value creation is within our site.
Turning to our motion picture group.
We pivoted quickly during the quarter showing that 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 price points, including especial Easter promotion, followed by an early debut on packaged media electronic sell through in traditional video on demand to mitigate it lost theatrical revenue.
When theaters reopened we will be ready.
Our slate at stop 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 comedies like the unbearable weight of massive talent, starting Nicholas Cage, and Barbin Star go to Vista del Mar starting Kristen when it includes the hard thriller antebellum during Janell money. The Dean Taylor directed Hillary swing thriller Phase now and the Neal Burger directed Cy five feature voyagers.
And it had uplifting stories for our times like the Irwin brothers, inspiring American underdog, Kurt Warner story.
And though our feature film production operations have been pause the processes, we filling 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 canister 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 release schedules are caveated by the uncertainties in the movie business right now.
Questions about when production will resume what kind of protocols will need to put in place when theaters will reopen and how moviegoer habits will change.
But 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 talented we'd 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.
What we repositioned ourselves quickly keeping cats and crews safe shifting our focus from production to development and setting up over a dozen virtual writers rooms to keep talent engaged.
We've already seen a significant uptick in backup script orders for pilots in currency paving the way for our productions to shift into high year, 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 pilots and picked up the first television series from our point Great 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 and foreign 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 all run the world and the next three power inspired series or just a few of the shows ready to resume or begin production and production can resumed 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. This long running hit daytime talk show Wendy Williams to a fully remote production filming from her living room and three are executed acquiring team episode of mythic Quest Raven banquet.
Film entirely on cast members iPhone that debuts tomorrow.
In closing I want to say, how proud I am of our employees for rising to the challenge of these unprecedented times with optimism I can do attitude and the collaborative team spirit that is our trademark.
Often talk about our culture being our secret sauce and 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 plane 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 owning 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 2001 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.
To 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 T. subs, including stars Starz play International Starz play Arabia implant 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 the performance in our film group was largely due to strong ancillary performance and lower PNM 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 in Gnh 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 resilient business model that is well positioned to benefit from the shift to 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 cobot 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 2001 by segment as we did on our last call.
First in media networks as 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 where 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 2001, with the midpoint, representing 30% plus growth.
Now looking at motion picture in TV recall, our pre co vivid 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 in 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 a potential negative impact of a recession.
Now I'd like to turn the call over to James for QNX.
Great. Thanks, Jamie we're ready to go with Q and at this stage.
Ladies and gentlemen.
Thank you didn't kill you may price one zero now.
One zero for any question and one moment for our first question.
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They've now your line is open.
[noise], yeah, sorry about that some technical issues technical issues over here Ah Hey, guys. Congratulations on the stellar results.
Jimmy a 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 there were some negative working capital effects going on I in the quarter, particularly with receivables do you think that that.
Tribute or wasn't more amortization.
Just a I'd 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 I couldn't tell whether you had your legal counsel on or not if you're wanting to chime in on that I would appreciate and then 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 to another 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 absolutely feel that are reduced working capital needs are 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 you know fairly regularly over the last two or three months I mean, who's going to show up as you're going to be millennials is it going to 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 take children in a co, but 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, you know films 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 in 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.
Audiences to feel safe uncomfortable in theaters the we.
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 but one of the exhibitors. This morning, and they're going to extraordinary lengths to make sure 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.
They are dated 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 it will.
We have places to put them if we have to shift so.
As I say I think that we're going to I think that 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 spear experience at top of mind I know you're aware of Lionsgate, why which is a program re we ran in conjunction with our exhibitor partners and in conjunction with you to Ben and.
And then go on 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 on there.
As it relates to I hope that answers. The first part of your question I'm happy to answer morph. If there is more there the on the second part yes. They are you know theaters are I'm 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 on that line up and that's both.
To get people comfortable back going into theaters as well is to make sure that the protocols are in place and Theres, 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 ideas to provide a soft launch to work out the cakes and really create a great experience.
Hey, wonderful thank you very much.
Thank you and I was reminder, if you'd like to ask a question you may do so by pressing one zero.
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 If I 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 that Youve dated I mean, you mentioned you've got you find movies in place that don't require long lead time from media to give yourself flexibility makes a ton of sense, but what are you looking forward to say two weeks out it's a go.
So.
We're obviously.
Taken as deep into data as we can about.
Consumer habits, and what sort of proxies, we can use for appetites I'm coming back to 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 launch as happen.
What kind of capacities and how audiences are showing up.
To 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 will start to monitor.
And.
And 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.
The sort of volatility and 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 there's 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.
Yes, 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 say I've never been busier in my life I'm too busy I have about 10 conference Webex is I have a 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 the conference as 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 for Lionsgate television Lionsgate television has restores the ability to build our bid.
Yes on a global basis to be able to provide our first run movies at the Starz play International then.
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 starz.
Turns out to has been I think it really smart investment 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 that's 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 input costs together.
If you look at who you're looking at Hawesville and FX and APC 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 in 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 NR 20 financials and the rollover in 21 that we expected.
So what we found obviously is there's 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 and 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 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 I just a couple of questions. The first one on just can you can provide a bit more color on their reopening our production I know you talked about opening comments, but in terms of you know how you prioritize what gets no no. Thank on go Green again in terms of where do you start and then do you have flexible.
LDL locations in the South deep open up that's where the others.
Can you kind of pull those elaborate there to kind of get emailed everything and process. However, again.
Hi, again and my second question is really just on the Comcast relationship with Starz, how that any comments you gave in terms of how the I'm going.
The bundle Kaila cart, how that Kens question sort of going thank you great on production I'm going to have Kevin and Joe start and Jeff can answer your second question.
Hi, Alex said, Kevin speaking.
Yes, just speaking to our stuck in a serious 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 are 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 on the local some commissions and the various skills in union.
To have a countdown to production, which we.
See happening in terms of camera work in mid to late August and 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.
The team got actually ahead of us before the shutdown and anticipation of this I think did a great job of.
Both hiatus thing, but protecting those production so 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 are required onset and housing feeding meals in every than travel.
Down too.
Looking for alternative locations, so that as things open upward 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 elaborate at the end of power, but heading into the premiere of Outlander. We work very closely with Comcast almost every day to put plans in place to grow the business.
Happy to report that in the first six weeks of the transition we grew to well over 1 million subs on both on the traditional platform and on their flex product, which has been a really we've seen 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 and did you benefited all in the fourth quarter from just not having any theatrical releases in the PNM related and have a quick follow up on production cost. Thanks.
Sure.
First of all I 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 that stores play international.
In terms of covenants as you know.
They differ significantly in a favorable way from headline.
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.
Five times, which is well exceeding the two and half time threshold. So we're in up so we're in good shape there.
Great and then just on the production side I think in the release it looked like there was about 50 million in Opex just related to cope with 19 I've seen a press article that productions could have like a 20% cost increase in order to keep everybody Safend set. So I was wondering maybe Kevin or Joe if you could cause.
Comment on what sort of cost increase or margin pressure can.
Impacted by when you are ready to reshoot and if that it really starts to change the way that you think about the business in any meaningful way. Thank you.
Yes look we factored into.
Our plan, what we think our operations call store. These are this charge. The 50 million that you references. These are direct costs. Okay. This 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 were 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 21 and will be further and meaningfully mitigated through insurance proceeds in cost savings, maybe Joe and Kevin.
The to the other part of that question in terms of future production costs.
So this is Joe us given the on the production cost 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 the like so it's going to vary, but it's nowhere near that level as well as it's very early days there 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.
Thank you 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 sum up for raw for realizing any update there I would assume that networks are fairly hungry for for content do those end up on star as do those end up elsewhere any thoughts there secondly.
Trials, obviously get kind of Cove, it really kicked off late March so lot of the impact has been since March I'm. Just curious if there's any framework you could give us or 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 that and then 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 first ours versus other buyers and getting the top dollar from participants and our shareholders.
So we will again, we'll have more to say about that when we can announce where whereas whereas roundup domestically and internationally, we still another year out.
But again as we've seen and John alluded to the value of library continues to go up in 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, we had guided the ended the year to be about 6 million OTI T. subs domestically, we were well pass that number through the first two 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 was lower and so we looked at the the the pandemic and said this is going to be a little more elongated and just 30 days and we went out with five dollar offers for three months or $25 upfront for six months.
And 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 Matt do with regards to your questions with regards to production insurances 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 to me 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 or is that it'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 disruption insurance do they cover pandemics.
We do have production.
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 RTT adds obviously since.
I will turn plant started as you look to the data, particularly from.
Your direct consumer App is there anything about those cohorts. It looks different 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 in the first quarter, we actually saw a large spike in people finding those franchises for the first time, so we saw.
Benzing of season, one and two of Outland or spike almost 38% the same on power as well and so you know the value of people being stuck at home or they're 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 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 Ross. Please go ahead.
Yes. Good afternoon. Thanks for taking my questions Ron Howard, Yes, it's been a while from Uh huh.
Welcome back.
Yeah. Thanks.
First question given the change it seems as though you know what eventually theatrical releases may not be theatrical maybe direct to home kind of like we're seeing Amazon already doing with a few things okay with the Premier cinema. We you can run a moved for 20 Bucks, Although it's limited.
Curious is there anyway that you guys could do that and just take releases is low budget low risk than say, the DNA and related directly.
To the consumer at home, where they could enjoy it given we don't know how long it will be four theaters get back to what they weren't.
And such and no one's done yet that way, but I would think it'd be kind of cooling eventually someone will because that's when you talk about you know kind of a direct to home literally where people branded from Lions Gate day, you and for for movies.
Thanks, Tom.
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 come any company has done 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.
Just seems like eventually someone will like that will be the theatrical release will pay a lot of money watch from the house and how technologically work I don't know and platform wise. We would seem you guys are the perfect wants to try that.
Just kind of makes sense.
Second question, given what's happened Glenn theatrical does open up again do you plan to spend the same amount and Pn Asia, we're going to before the pandemic because you really think that that's going to make a difference. It would seem people want to go to movies are going to go given the don't aren't so it would seem you can save a lot of money by coming back material on P. and I spend in the future with theatricals just been.
As of this situation, which would really help your cash flow.
Under the 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.
So I think what you'll see I think I think you may notice that were we delivered a in a really strong margin. This this year and that's a result of a lot of decision very strategic decisions that were made by a leadership team that is.
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 and we'll continue to do so we think that 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.
Do you think you need to spend that much and let me give wonder moves if you'd be doing anything get their 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 thats an opportunity for you, but I don't know what David you have.
You know if we could do some the could really help your non but thats kind of the angle I was looking at.
Does the incremental dollar after a certain amount make a difference like it would have previously.
No I guess, we don't know.
And in the last question have you seen so.
Do you see any opportunity for doing things like like American Express just announced that they're getting $20 a month till the end of year for anybody for screening services incentive for any of it they'll credit your account give a gold card platinum or Centurion 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 sort from now till the end of year to really grow subs and also penetrate and partner with someone 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 is an opportunity for you or no.
It's a great question, we think it's there it's a really big opportunity for US we are in talks with Amex, we aren't talks with credit card for other credit card companies.
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 there's a great partnership there and we will continue to talk to almost.
Every whether its reinsurance companies that have large subscription 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 your service. So I think it's a great opportunity and we continue to lean into those in a big way.
Right, Okay, yes, because lastly on I'll say, what I've heard managers myself as people now, we're getting frustrated not much as or home, but the running out of seems to watch it doesn't matter, how fast Amazon can pick or Netflix and bookings up there, they're really running out of seems to watch and a lot of people have never.
Experienced star. So we've seen you have a real opportunity there given.
People seem just about everything that's out there now given the share recently.
We've had a great benefit of having out later on and then bringing beat on an coming in just premiering hi town. So we've got a lot of fresh content coming on coupled with the stony pay one movie. So once upon a time Hollywood came on in Zombie land. We also have 4000 titles in our library at a very economically set price for the value. So that's.
Part of what we're seeing it 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 asphalt that we're seeing and so we're also seeing viewership.
Expanding in the international markets and to the point, where the value than partners are seeing the value of our services and 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 reaching even further.
That's what I. So that's I would think it makes sense and its present to you know the perfectly positioned for that so that's great. Thank you very much of any premier. Thanks.
And our next question will come from Todd younger. Please go ahead.
Thank you Hello, everybody.
Jeff.
Hi.
So.
Jeff If you don't mind.
Well to well just a little bit on the.
The teams definition of star 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 something to do that mission. We can read that I think we understand those are the six deal.
And the subs, we get it.
Question is can you help us understand at all what the direct economic benefit to stars water.
From those 11, and a half million subscribers was or is and how that trails and then on the other side.
I don't think we can calculate it can you help us understand what the ARPU is our viewer you're now direct linear NTT subs, we can sort of understand that.
The breakeven there and then finally I don't I promise is the last part is.
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.
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 does that just subscribers were heavily bundled very low ARPU subscribers to the breakeven is about I think that third on those.
Subscribers.
I think the interesting that we've seen it as 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 all the card 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 into customer there. So as we continue to kind of captured this transition we've become a much more profitable part of that got an overall company.
On the ARPU question.
MVP uses of TD, yeah. 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's a little noise in the quarter because of the Comcast transition.
But we will continue to see our ARPU increase as we continue to go into that.
Into that.
Digital side, our own direct to consumer happens over 2 million subs right now and so that does a lot of great things for us it 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 really have been able to collect a lot of data that makes us much more efficient and acquisition much more efficient and retention we've seen churn.
Come down year over year, 4% because of the way we're managing the business. We've seen post powered churn from season six this season five come down, 10%, which is one of our churning or pieces of content and we've really been able to harness that data to make not only marketing decisions the content decisions going forward as well.
Great.
Thanks Todd.
And the 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.
Couple of callers ago regarding.
Theatrical window and direct their release are you threaten your theatrical window access if you are.
You know too much one way or another in terms of what wed like to via ever theatrical window when do you.
Moving to a like a direct to video.
Type 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 to.
Stars or did you think the returns were much better going to experiment.
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 of 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 are planning or are you know as soon as is over a plan to gear up.
And and as I said before we're 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 window in question.
No 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 love life, which were obviously super proud of and is coming HTM axle 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 lineup. How we can be helpful. What we can source and fine for them.
I think Jeff is an amazing brand builder and if it's not right in line with the brand. They are building no matter, who is coming from its not going to be something he he moves on so we're always focused on what is the exact right creative fit.
And when it's not where 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.
And any onetime 2030 shows.
That and that's not even including our pilgrim shows that we attract a tremendous amount of talent and Kevin has said over and over is most important buyer is obviously stars at critical.
Component of our company, but the fact that he has such significant access to talented cost 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 is incredibly focused.
And curated brand.
Okay type for one more question here I think operator.
Yes, and that one comes from Matt Jordan.
Hey, guys that things are back in here just on one one quick follow up your I don't maybe this one's for John but you got to talk a 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 and early this year and now we've had to Colgate pandemic, which is ongoing but I'm just curious if thats still something.
That you're thinking about if there's still opportunity there or maybe just kind of where you where your head is around of around that as we as we sit here now. Thanks, guys. Yes, yes, great question, you kind of answered it because there are two criteria to that raise we talked about before one is.
Clearly our emphasis on de leveraging 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 well.
We keep saying off to the right.
But again, absolutely no urgency, we're throwing off cash we're finding around businesses.
And we are continuing to look at a transaction or transactions that actually fulfill the three criteria.
Great. Thanks, Pat.
And any I just had one final closing statement here I just want to ever to refer everyone to our press releases in events tab under the Investor Relations section of our company's website for discussion of certain non-GAAP forward looking measures discussed on this call. Thank you very much so next quarter.
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