Q2 2022 Lions Gate Entertainment Corp Earnings Call

Monopoly Nora toe the Highlander and the ninth Circus are all in active development intellectual property, which will drive value across our business. It's also a broad and varied slate with inspiring stories like American underdog opening on Christmas day White bird of Wonder stories starting.

Helen Mirren, and Gillian Anderson and the follow up to the breakout hit Wonder and are you there God. It's me Margaret.

<unk> from Judy Blume Classic novel, directed by Kelly Freemen, Craig and produced by Academy Award winner James L. Brooks Big event movies like Roland Emmerich sci-fi epic Moon fall, starting Halle Berry, and Donald Sutherland, and Star driven films, including shotgun wedding with Jennifer Lopez, and the unbearable weight of massive.

Talent with Nicholas Cage.

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

Turning to television it was a very impressive quarter for a television group as they leaned into a number of emerging opportunities and strengths.

Ramping up content for new Avon buyers with Zoe is extraordinary Christmas for Roku and shows in the works for I M. D. B T V and to be.

Creating shows for broadcast where we just secured in order for the back half of the first season of ghosts. The highest rated new comedy on C. B S and a second season renewal of home economics, the highest rated new comedy on a B C.

Deepening our streaming relationships with the debut of Acapulco, and the renewal of seasons, three and four a mythic quest on Apple with five series either streaming on or in production for H B O Max.

Rolling out a slate of inclusive content with B M F Blind Spiting run the World Ghost, raising Cain and force and the first offering from the 16 19 project.

And of course, continuing to supply stars with 15 premium scripted series currently airing or in the pipeline.

$3 billion this year and scaling our film television and Starz businesses into one of the largest independent content platforms in the world, while still generating positive adjusted free cash flow and strong adjusted OIBDA.

Now I'd like to turn the call over to Michael.

Thank you John as you may have seen in an 8-K filing we made this afternoon Lionsgate Board of directors has authorized management to explore potential capital market alternatives for Starz.

While we continue to realize substantial synergies from bringing Lionsgate and Starz together, we also see the opportunity to potentially unlock significant shareholder value under a scenario where investors have the ability to value our studio assets and stars separately.

<unk> transaction multiples in the media space gives us confidence that exploring alternate paths is prudent. Additionally, we believe that a number of the structures. We're considering would also allow lionsgate and starz to preserve many of the operational benefits. We're currently achieving within a single corporate structure.

Now I'll turn things over to Jimmy.

Thanks, Michael and good afternoon, everyone I'll briefly discuss our second quarter financial results and update you on our balance sheet.

Second quarter, adjusted OIBDA was $108 million with total revenue coming in at $888 million, driven by new and returning television series deliveries and continued demand for library content.

Reported fully diluted earnings per share was <unk> <unk>, a share and fully diluted adjusted earnings per share came in at $15 a share.

Adjusted free cash flow for the quarter was $195 million.

Now, let me briefly discuss the fiscal second quarter performance of the underlying segments compared to the previous year quarter.

Media Networks' quarterly revenue was 385 billion and segment profit was $5 5 billion.

Excluding Penn tier in the last year's second quarter revenue was up 3%.

Segment profit was down year over year on higher content and marketing spend associated with the successful premieres of Starz originals.

We ended the quarter with $30 million total global subscribers total global media networks OTT subscribers grew sequentially by $1 3 million to $18 million, which represents a year over year subscriber growth rate of 40%.

Turning to motion Pictures revenue was up 28% to $331 million, while segment profit of $102 million was up 23% and reflects strength from strong home Entertainment and library sales.

And finally television revenue was up 70% to $336 million driven by new series deliveries, including raising Kanan Hills BMS high town in Acapulco.

If you're using a speaker phone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

And the first question comes from Alexia <unk> with J P. Morgan. Please go ahead.

Hi, This is Anna on for a lot yeah. Thank you. So much for the question first I was wondering if you can just elaborate a little more on the timing of this thing or split of stars and when you may need to move forward with that and also why did you come to the decision now and then my second question is and how you talk to in the past about your.

I haven't been in calendar, 20th twenty-three breakeven for stars International and I was just wondering if that target is still achievable about three years into that thank you.

Oh, okay.

The the timing it really would depend on exactly what path we choose.

So really the.

Opening question as we say in the filing we're starting.

And in the process and the answer really why is pretty simple that.

Even though we don't normally talk about equity value, it's pretty clear to us that we're not getting the value some of our.

And we and the board field now with the right time to really shine value on on those assets.

And I think this disclosure emphasises, we're going to start that process.

And frankly.

Our obligation to create shareholder value very serious.

The International Jetsons, Yeah, I'll take the second question hire a great question.

As you spend a quarter Cubs continue to be strong and we still feel really great about our long term so I've guidance, but as you saw some of the industry headwinds some of our costs are higher and so the breakeven is going to slide out of calendar twenty-three to early calendar 24.

Okay. Thank you so much.

Yeah.

Upgraded could we get the next question please.

The next question comes from Thomas Yeah, with Morgan Stanley. Please go ahead.

The issues that we got ahead of we've done some work technical work with our partners around that.

Worst is behind US now and so we think that will normalize as we get through the next couple of quarters. So we feel really good about the content strategy and how that reflects into subscriber growth, but more importantly, and pretension.

Thank you very helpful.

Thanks, Thomas operated could we get the next question. Please.

The next question comes from Matt Thornton with true Securities. Please go ahead.

Hey, good afternoon, guys, maybe maybe two questions if I could.

First one maybe either for John or maybe Jeff you guys had previously talked about subscriber growth being incremental sub ads being better.

People were getting a negative value.

On our investments.

And so if you just was zero that out and just say it's.

Even with stars played Arabia, which we think is quite the early but if you. If you said that we are zero that in our opinion as $1 billion of value driveway and so so yeah. We are looking at the multiples the way other business are being valued.

And we just think we're way off.

Okay.

Thanks, Matt operator could we get the next question. Please.

The next question comes from Rich Greenfield with like Chet Partners. Please go ahead.

Hi, Thanks for taking my question when.

When you think about sort of Disney Fox and Warnermedia discovery, Viacom, Cvs and I guess, even Amazon M. G M. It it sort of feels obvious that I.

I guess quote unquote, winning in the future of media is gonna take sort of major <unk>.

Massive screaming subscribers scale and sort of a depth and breadth of content like we've never seen before.

You know I I know that you're sort of exploring strategic alternatives I read the the filing up for stars, but you know obviously that creates many different you know things that could happen in terms of M&A I guess.

Taking that a.

The market has changed more than Starz has over this a several year period, where you've been together because it it seemed at the time of the bat merger.

That starz had a very nice, but very steady stream of OIBDA that was not varying a lot and therefore was not gonna be valued as highly as some of them are growth oriented one.

Do you think you've done anything to change that that mix that would make it more attractive or is it just that having that sort of property would be more.

Appealing to one of the potential buyers at this stage.

I think that that Jeff and his team has done a fantastic job and in their demo as Jeff talked about earlier. The world has certainly changed because you've got to an enormous competition and a lot of streamers.

Around the globe, but we as Jeff mentioned before we think we're very well positioned in that world and again 60, plus countries internationally domestic subs are or are in a really good place as we migrate more into the digital over the top space.

[laughter].

You can think of American underdog at Christmas Borderlands that are right in that sweet spot, but we also release over 60 films a year across our whole business in that platform agnostic business because of all the appetite and homeless is starting to really grow.

And we've also been working very closely with stars, which has a real impact on.

On what we're green lighting, so that we can really.

Serve that customer with precision so.

It's a really interesting time for us and I think we're set up really nicely.

Okay, and one last thing where you also basically implying that if stars is able to be.

Sold are partnered with someone else that they would.

Sort of options would also apply to the.

The remaining.

Film business.

Well I mean I think.

Look the simple the simple answer is.

There's a lot of ways. This could go but the pay one deal that we have exists. We just made it so dismayed of Lions gate films would be securely in a historic per view for a number of years and again it would be our intention of course to continue to grow synergies that are both.

That are beneficial for both sides.

Alright, Thank you very much.

Thank you Jim operator could we get the next question. Please.

Next question comes from Alan Dude with loop capital. Please go ahead.

Hi, guys. Thanks for taking my neck.

I've got two questions first my past the various ways of going this option but.

Amy you've been highlighting the trailing 12 months migrate number for number of quarters now maybe a couple of years now it's up to 784 million can you refresh my memory as to what kind of either EBITDA margin or free cash flow marching you typically have on the library and the second question is for Jeff.

Jack you seem to be your sweet spot of one franchise show rolling into the next franchise. So can you tell us what the trend and churn has been not what the turn is but it turned coming down a little bit.

Given this go into the 12 shows and having.

And for the next one.

Oh, Thanks, Allen appreciated great question, particularly in the context of some of the parts and significantly undervalued assets and.

People watching the shows.

But.

How difficult is it gonna be in this world to really get a credible number of episodes was talking about like ghosts, assuming that it continues to get traction and really get this break out long term value and then secondly.

Yeah, I know John's been on the board Televisa since I think 2015 or 2016.

What are the possibilities off the Televisa Univision Joy.

Joint venture and all of the.

Production, there are going to need their given your your relationships with television so over the years and Univision. Thank you.

[laughter].

I'll start with a question about getting to enough episodes to syndicate empty well for continuing back and so we you know the broadcast.

Model is one that we've been out of for a lot of years and with some new templates and models and just fantastic content, we've really broken back into it goes is a great example, it's a huge success. It's the number one comedy in the fall across all broadcast network and they order the back episodes to give it a full season order and.

We hope.

Like you would with any comedy that you use successively get new season renewals and that moves very quickly to get to scale.

Ditto with home economics, It was a midseason show for a B C.

If you will a theory that are actually subtitled and I think there's going to be really interesting opportunities where duty by four or five Spanish language co productions right now out of Spain were doing for original is right now in India.

And we think that given that we're doing golf high value programming. We think there is going to be a lot of opportunity to use programming and create programming and library.

L U.

How you're thinking about theatrical it seems like a lot of the.

Success, that's coming back and theatrical as with a lot of really big budget films Big experiential you know sort of periods and how do you think about how lionsgate fits into maybe a more premium format theatrical experience. We've seen some smaller studios like a 24 sort of go to a smaller budget, but straight to streaming strategy and I think that's a much.

More profitable sort of approach for you as well so I'm just curious how youre thinking about theatrical versus versus in home.

Thanks for the question right.

Jeff laid out pretty clearly.

All of the value.

And he and his team have created.

Transforming.

Storage into a really a modern global screamer.

I think that'd be a very foolish Oh, if I were to tell you.

But I think the value is and I'm also.

To achieve the same level of box office.

Thanks, Steve operator could we get the next question. Please.

We currently have nobody in our question queue. So I will remind our listeners if he would like to ask a question Press Star then one to join the queue.

Yes.

Okay.

Okay.

Again that is star then one to join the queue.

Got it.

Thanks, operator, and thanks, everyone. Please refer to the press releases and events tab under the Investor Relations section of the company's website for a discussion of certain non-GAAP forward looking measures discussed on this call. Thank you and have a good evening.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

Great.

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Thanks.

No.

All right.

Yes.

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Okay.