Q2 2021 Lions Gate Entertainment Corp Earnings Call

Also joining us on the call today, our COO, Brian Goldsmith Chairman of the TV group, Kevin Beggs attributed the motion picture Group, Joe Drake and from Starz, We have president and CEO, Jeff Hirsch CFO, Scott Mcdonald and EVP of international support of Cali.

On the strength of a focused content strategy and the launch of successful new series.

Our new shows are not only driving subscriber growth, but boosting subscriber retention with record levels of engagement. So.

<unk> International business also achieved record over the top subscriber growth in the quarter following strong content and distribution launches in the UK, Brazil and other key territory surround it's global footprint.

Our best of global <unk> content strategy is resonating with consumers, while our partnerships with top global streaming platforms and local distributors are creating exciting new bundling opportunities.

[noise] together or domestic and international platforms reached a record 13.7 million global streaming subscribers at the end of the quarter, including 800000 from our pants higher Spanish language platform.

Organization has the agility to successfully embrace alternative really strategies when needed as we did with antebellum run and the secret.

We accomplished all this while executing on our commitment to delever and strengthen our balance sheet.

Reducing our leverage ratio by over one five turns in the past 12 months and we ended the quarter with more than $450 million in cash on hand.

Today, I want to widen the aperture and speak to the strategic vision of landscape.

It was in ways, we never imagined.

While significant portions of our industry are impacted by skyrocketing costs were sports rights close theme parks and exposure to a bearish ad market.

In a resilient culture that is rising to the challenge of these extraordinary times.

Now I'd like to turn things over to Michael.

Thanks, John I want to share a few thoughts about the disconnect between what we have been building and the recognition of that value in our stock price.

I believe that our growth opportunities are a big part of our value creation story.

Today I'd like to highlight three areas in which we saw strong growth in the quarter and expected to continue first our streaming business.

Yes.

We've had over 500 additional titles generate revenue in fiscal 2000.

Then in 19.

Reported fully diluted earnings per share was a loss of eight cents per share and fully diluted adjusted earnings per share came in at 33 cents per share.

As soon as our fiscal fourth quarter with profits to follow some time after.

We believe we will continue to be an industry leader in the transition to direct to consumer and expect between 25% to 30% of our total consolidated revenue to come from direct to consumer by the end of calendar 2022.

More than any other traditional media company.

Drawn rybolt or.

I'd also like to remind you that we have no maturities before the end of fiscal twenty-three we've.

We remain committed to strengthening our balance sheet and paying down debt.

Lastly, we remain very comfortable with all of our covenants based on a 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 Q&A.

Okay. Thanks, Jimmy.

Right, we can open up questions now.

Okay, ladies and gentlemen, if you would like to ask a question. Please press one then zero at this time.

Once again, if you'd like to ask a question. Please press one zero.

Our first question will come from the line of Thomas Yea. Please go ahead you line is open.

Thanks, and congrats on the stellar results Uhm Netflix has talked about kind of a poll for it effect on their subscriber growth given the extraordinary shifts the streaming that way seeming. This here can you maybe share some of the characteristics of the new customer joins that you've seen in any insights about retention or usage of that cohort and what what do you think is kind of a <unk>.

Next driver for the next leg of growth and then secondly on motion picture in light of the recent news of restructuring. This morning can you share your updated views on how Covid has structurally change the studio business and you know how much of that might be permanent or a strategic shifts going for thank you.

Thanks for the question you know I, I think first and foremost with where it really drives great subscriber acquisition and growth is great content and we launched three new shows in the quarter that ever had outside success. Our first power universe spinoff ghost with performed about 42% higher than the last season of power.

Although a year out when your start.

Spending and investing cash more on productions and Theres not quite as much of a back end coming in given the.

The drought that cobot as costs this year.

Sure Alan look on theatrical Windows.

It's a really interesting question, we do fully expect to theatrical business to come back probably is not going to look exactly like what it looked like before.

Before we went into co bid and I don't I don't know exactly the timing of it.

But to add on to what I was saying earlier I think theatrical windows are shifting but I think windows up and down the revenue stream are shifting and what it is actually creating is just more optionality.

And more opportunity in different ways to monetize content, Michael talked about the value of library and the shift in value there what we're seeing is that.

Monetizing in these new windows, whether it is leading with theatrical wetter weather, it's going to be theatrical and p., but combined or whether you go direct appeal or other.

Our other ways of exploiting.

For sure demand is up supplies down.

And and the values are there for us to go.

Go go would monetize.

Thanks, Alan for the question will for sure you can see that we generated strong free cash flow. The first half of this year, we de Levered 1.3 times in the first half so.

Really strong there I would say in terms of the motion picture group changes the dynamics here that Joe has talked about is it's becoming really a less capital intensive business, we were able to drive cash flows earlier in the curve certainly.

We're generating strong positive cash flows expect continued to do so we're fully investing in our content not only ultimately in a re ramp on the theatrical side of the business, but also in TV in stores content and fully funding no forget we're fully funding the investment in stores play International So I would expect that as we go.

Forward, we're going to continue to to fully fund the business I think the cash flows are going to continue to be strong and we'll obviously be ramping a lot of that out for future growth, but we've already been ramping up content spend so I think we're in really good shape than we've deleveraged substantially as you can tell already.

Thanks, So much John Jamie.

Thanks.

Our next question will come from the line of Alex Quadrani. Please go ahead. Your line is open.

Hi, This is Anna on for Alexia. Thank you. So much for the question I was just wondering if you can provide us with an update on your recent progress in production both domestically and internationally.

Sure good question about theatrical or television or well.

Sorry.

Okay, let us let us that would be great.

Sure, let's start with Kevin.

Hey, Matt.

Thanks for asking the question were.

In lieu of a theatrical window.

Before a specific window with retention of future rights.

So I think.

Thank you for the question, Jim I think that.

The way to stick to that is that when we're looking at green lighting a film today. We go through a process. We look at it frankly on a platform agnostic basis, we create a strategy and plan and model for theatrical release for a combined theatrical svod believes people not only in a number of other scenarios including stream.

Streaming so whether that be globally certain territory certain rights.

The thing to really take away here is that wed.

Whether you're a streamer most downstream platforms acquire films in a whole variety of fashions and a majority of what they ultimately broadcast is acquired in one form or another and we're a supplier that content. So.

What we're doing is looking at all of the various opportunities and measuring those against.

How do we maximize the value of that film how do we use that film to bifurcate rice and maximize the value of library added how do we grow our brands and.

The the silver lining in this moment is that.

Between the shifts in supply and demand and new windowing strategies and distribution Optionality.

We're able to.

Have we are able to have a variety of options for each piece of content.

Which is which is just to kind of go back to the first question I was asked part of our restructuring was to take 10 groups.

And turn them into four distinct verticals.

That are built around.

That are built around skill sets so that our our.

Our executives here live across the lifecycle of a film so we're able to have some.

Subject matter experts live regardless of platform, regardless of how we're going to monetize that live across that whole lifecycle fulfillment, it's helping us move faster.

Make better decisions and unlock more value.

Okay, and one of the things sort of an ancillary.

Notion.

You've you've had some pretty good demonstrated success in the past with contributing to the success of Netflix and AMC with some of the series you are created and I'm wondering how you approach those sort of things as you.

Come up with ideas now in terms of how long the retention of rights is to those serve.

I know there is not one question or one one version of all of this but.

How are you looking at how long you would.

Stability, a better Roy upfront.

Alright, great <unk>, great way to think about it and thank you very much.

Thanks.

And as a reminder, if you would like to ask a question. Please press one then zero.

Our next question will come from the line of.

Morale. Please go ahead you line is open.

Great. Thank you not a novel question, perhaps but I wanted to ask about your updated perspectives on industry consolidation and where lions gate might fit into that I think there are plenty of strategic mirrors for M&A in the context of how rapidly the ecosystem involving as we're all aware, but perhaps in the dish.

One to that as the pandemic has and Pandemics and it's knock on effects of can cheat continues to ripple through has your thinking on M&A evolved whether it's across the premium networks business, Our T V and film Studios.

The.

I'd answer it this way obviously, we don't tend to talk about M&A.

But we've been pretty consistent in the past looking at at certainly bolt on acquisitions, particularly again, we'd love Library Cvs Library numbers. Most of the latest increase has been organic if you will but we're always looking for bolt on transactions I would say overall, we have everything that we need right now.

To be very effective building two sides of our business the studio side, including library and the star side, but I will tell you that Michael and myself and the number of the key executives here Brian Goldsmith.

Are always looking at everything and I think if there are opportunities I would say, particularly if.

Because of some of the consolidation at a very high level that has happened recently, if some pieces of other people's business come.

Fall out I can promise you again, we've got a lot of powder dry right now we've got a lot of cash on our balance sheet I can promise you. We will look at everything and if it's accretive and most importantly, if its strategic.

We will hope to take advantage of it.

And that's it. Thanks, so much I mean, I only ask just because a lot of chatter on certain deals seems to have died down a bit for a variety of reasons, but one would think that as we've seen some pressure elsewhere across your peers perhaps.

Certain deals can make sense, but I appreciate the perspectives.

Okay. Thank you.

And we have no further questions in queue. Please continue.

Great. Thanks, Brian.

Like to thank everybody for joining us on the call today and please refer to our press releases and events tab under the Investor Relations section of a company's website for discussion of certain non-GAAP forward looking measures discussed on this call today. Thank you again for joining us.

Yeah, maybe some gentleman that does conclude today's conference. Thank you for your participation you may now disconnect.