Q2 2021 Lions Gate Entertainment Corp Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Lionsgate Entertainment fiscal second quarter 21 earnings call.

At this time all lines are in a listen only mode. Later, we will have a question and answer session. If you'd like to ask a question. Please press one than zero at any time during today's call.

As a reminder, today's conference is being recorded.

I'd now like to turn the conference over to Executive Vice President of Investor Relations James Marsh. Please go ahead.

Good afternoon. Thank.

Thank you for joining us for the Lionsgate fiscal 21 second quarter Conference call. We'll begin with opening remarks from our CEO Jon fell Tyler followed by remarks from our Vice Chairman, Michael Burns and CFO Jimmy barge after their remarks, we'll open the call for questions.

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 Sparta Kelly Hello.

Those are not only driving subscriber growth, but boosting subscriber retention with record levels of engagement.

Starz 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 territories around its global footprint.

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

Together, our 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.

Has the agility to successfully embraced alternative released strategies when needed as we did with antebellum run and the secret.

We accomplished all this while executing on our commitment to de lever and strengthen our balance sheet risk.

To control our own destiny.

Digital or linear we've positioned our platform for faster growth, while also reducing our risk.

Second.

Our model is proving to be resilient both in ways that we planned for as well as 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.

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've 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.

Gene we've seen topline growth for four of the last five years, our library is big fresh growing in size and most importantly growing in value.

It came in at 33 cents per share.

Adjusted free cash flow for the quarter was $113 million now.

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.

In addition, as John mentioned, we've already achieved the midpoint of our full year global OTI subscriber range six months into the year. Accordingly, we expect to be at the top end of the 13% to $15 million range by the end of the fiscal year.

Representing 40% plus growth year over year.

Our first question will come from the line of Thomas <unk>. Please go ahead. Your line is open.

Thanks, and congrats on the stellar results.

Netflix has talked about kind of a pull forward effect on their subscriber growth given the extraordinary shift to streaming that we've seen this year can you maybe share some of the characteristics of the new customer joins that you've seen and any insights about retention or usage of that cohort. What do you think is kind of the 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 Colgate has structurally changed the studio business and how.

Bout of only accelerated and this has created.

Real distribution opportunities for us and so.

When we went into work from home we started to look at what the future was going to look like and for US. It was about really strategically aligning to capture what we see and what we hope, but we expected to be in we're now certainly seeing is really as real new opportunities to monetize our content.

And.

And we do see your question about whether they're sustainable I would tell you that.

Many of the changes I think the supply demand curve is going to be in favour content suppliers for a long long time.

Those are going to continue to evolve.

And we see we just see a ton of opportunity.

Moving forward in our business.

Thanks Thomas.

And Ryan next question please.

Okay, ladies and gentlemen, if youd like to ask a question. Please press one than zero.

Our next question comes from the line of Alan Gould. Please go ahead. Your line is open.

Thanks for taking the question.

Huh.

Two questions. One can you discuss your thoughts these days on theatrical Windows and second for Jimmy can you discuss how we should start thinking of cash flow a year out when your start.

Spending and investing cash more on productions and there is not quite as much of a backend coming in given the.

The draft that cobot as costs this year.

Sure Alan look on theatrical Windows.

It's a really interesting question, we do fully expect the theatrical business to come back probably 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.

And will 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 and we've deleveraged substantially as you can tell already.

Thanks, So much Joan Jimmy.

Like how.

Our next question will come from the line of looks Quadrantid. Please go ahead and your mind is open.

Hi, This is Anna on for Alex Yeah. Thank you. So much for the question I was just wondering if you can provide us with an I see I'm. Your recent progress in production, both domestically and internationally.

Sure and your question about theatrical or television or what.

[laughter].

Okay.

That would be great.

Sure, we'll start with Kevin.

Hey.

Thanks for.

Asking the question, where I mean, the outcome of the presidential election is not clear, but one thing I know, we're doing is making out loads of television.

We are back in full production on 12 shows right now moving through 20 by next March and more orders to come we just had a nice announcement last week with Fox and that doesn't include nonfiction.

And another 20 nonfiction productions on top of that our focus of course.

Is growing our stars business. We now have 12 shows together and then I touched on and more I'm a it's a real great contrast to where we were even over a year and a half ago. When we had one together.

We feel that working closely with our our partners really gives us a strategic advantage in the in the industry and together, we got back to production four to six weeks ahead of our studio competitors.

And the results of Jeff touched on about the shows working I think speak for themselves and we have a really robust third party business as well with HBO, Max and Showtime and our broadcast partners all across the business and we're moving into production Covid.

Has been a road bumped, but a speed bump, but it is not flowing is down ultimately.

All right I would say the same as the same is true of the feature business. We made a strategic priority between the whole company to be back to production.

Early and fast and ahead of many of our competitors with state of the art.

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 a theatrical release for a combined theatrical Vod release people not only in a number of other scenarios, including streaming.

Streaming sale, whether that be globally certain territory certain rights.

The thing to really take away here is that when.

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 what we're doing is looking at all of the various opportunities and.

Measuring those against.

How do we maximize the value 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 shift in supply and demand and new windowing strategies and distribution Optionality.

We're able to.

Have a we're 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 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 selman its 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.

I come up with ideas now in terms of how long the retention rates 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.

Thank you very much.

Okay sure.

Yeah.

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 cut gun 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 wear lion's 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.

<unk> to that as the pandemic has a pandemic and it's knock on effects have continued continues to ripple through has your thinking on M&A of all 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 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 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.

Some 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.

I think we will hope to take advantage of it.

And they said thanks, so much I mean, I only have 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, Ryan.

I'd like to thank everybody for joining us on the call today. 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.

Ladies and gentlemen that does conclude today's conference. Thank you for your participation.

May now disconnect.