Q2 2022 Lions Gate Entertainment Corp Earnings Call

Linear business, we've been able to successfully expand into a premium service complementary to other platforms in both the traditional and streaming worlds and our value proposition will only continue to grow as this transition continues.

Internationally three years into the rollout of Starz play we're in more than 60 countries with 80 distribution partners and $7 5 million subscribers not counting in the nearly 2 million subscribers at Starz play Arabia.

Subscribers grew by over half a million dollars in the quarter driven by the success of a hit third party acquisition, Dr death in Italy, Spain, and Mexico, and the Starz original series raising kanan in the UK, France and Brazil.

After a fast start in India Lionsgate play has expanded into four new markets in South and Southeast Asia, where we're poised to rollout our first slate of original programming, we're continuing to strategically invest in more local language original striking new partner alliances and leaning into a wholesale model that we believe offers the.

The Napoli 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 story, starring Helen Mirren, and Gillian Anderson and the follow up to the breakout hit Wonder and are you. There God. It's me Margaret adapted from Judy blooms 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.

<unk>, 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.

$1 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 Starz separately <unk>.

A recent transaction multiples in the media space give 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 continue.

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 cents 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.

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

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time your question has been addressed and you'd like to withdraw. Your question. Please press Star then two.

At this time, we'll 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 Alexia. Thank you so much for the question.

First I was wondering if you can just elaborate a little more on the timing of the spin or split of stars and when you move forward with that and also why did you come to the decision now and then my second question is and you know you talked in the past about you are exiting calendar 'twenty 'twenty three breakeven for Starz International I was just wonder.

If that target is still achievable about three years into that thank you.

I'll take the first question.

The.

Timing it really would depend on exactly what path we choose.

And so really that's the opening question is as we say in the filing we're starting.

During the process and the answer really as to 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 parts.

And we and the board feel now is the right time to really shine value on.

Those assets are and I think this disclosure emphasize as you know we're going to start that process.

And frankly, if we take our obligation to create shareholder value very seriously.

The international Jeff Yeah, I'll take the second question I already great question.

As you saw in the quarter subs continue to be strong and we still feel really great about our long term sub 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 into early calendar 'twenty four.

Okay. Thank you so much.

Operator can we get the next question please.

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

Hi, Thanks for taking my questions.

Michael a little bit more on the capital markets alternatives, you're exploring and where you see the most opportunity there to unlock value. How are you weighing the benefits of maybe greater scale with an outside partner versus retaining the synergies you mentioned, it's on structure and then one for Jeff on the Starz segment profit.

The 12 original so this is an investment ear and original.

We're trying to really lineup and original every week 52 weeks a year for our two chord demos that ultimately will bring churn down extend lifetime value and accelerate revenue and so this is a low margin point of the year, we expect for a full year to be in the mid twenties in terms of marketing costs. We did see the headwinds that the rest of the <unk> has seen we saw it.

Increased cost due to some of the privacy issues that we got ahead of we've done some work technical work with our partners around that.

<unk> 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 <unk>.

First one maybe either for John or or maybe Jeff you guys had previously talked about subscriber growth being incrementals saw bad as being better.

The negative value.

On our investment.

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

Even with stars played Arabia, which we think is quite valley, but if you. If you said that was 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 light shed partners. Please go ahead.

Hi, Thanks for taking my question.

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

Quote unquote, winning in the future of media is gonna take sort of major for massive streaming 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 things.

The.

The market has changed more than stars has over this several your period, where you've been together because it it seemed at the time of the that merger that the stars had a very nice, but very steady stream of a web does that was not burying a lot and therefore was.

Not going to be a valued as highly as some of the more growth oriented. One do you think you've done anything to change that to 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 team has done a fantastic job and in their demo as she I've talked about earlier the world has certainly changed because you've got an enormous competition and a lot of streamers you know 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.

Subs are are are are are in a really good places we migrate more to the digital over the top space.

Let let me add to that when we did the deal we had somewhere less than four or 500000 over the top screamers me are primarily a linear domestic many your cable network today, we have over 53% of our domestic revenue comes from over the top we have more global over the top streaming services and we have linear services.

I think that.

Yeah look the simple the simple answer is.

There's a lot of ways to go but the page one deal that we have exists we just made it.

Later of Lions Gate films would be securely in the stores 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.

Yeah.

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

The next question comes from Alan Gooed 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 doing this option but.

Amy you've been highlighting the trailing 12 month migrate number for.

<unk> 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 Cashflow marching you typically have on the library and the second question is for Jeff Jeff you seem to be your sweet spot of one franchise show rolling into the next.

<unk> 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 have it run.

Excellent.

Oh, Thanks I.

In the shows.

But how difficult is it going to be in this world to really get a credible number of episodes for something like goes consuming that it continues to get traction and you really get this breakout long term value.

And then secondly.

I know John has been on the board of Televisa since I think 2015 or 2016, what are the possibilities off.

Televisa and Univision joint.

Joint venture and all of the.

Production, they're going to need there given your are your relationships with Televisa over the years and Univision. Thank you.

Yeah.

I'll start with the question about getting to enough episodes to syndicate SQL on for our continuing back and so 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 as the number one comedy in the fall across all broadcast networks and they order the back episodes to give it a full season order and we hope like.

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

Ditto with home economics, It was a mid season show for ABC.

Premiered again this fall renewed for the full 22, so those move fast.

The Netflix or <unk>.

Premium shows often are in the eight to 10 episode order range for the first season, but like many shows when they're working I find that the platform is one as many as they can get it as quickly as they can get because they're driving audience.

And every time, we turn around there's an emerging player that's jumping into the Fray we're excited to have Joe.

Always extraordinary Christmas on Roku, that's an Avon player moving into the original space one of the great things about our partnership with Starz is really Jeff mindset and thinking about series is longevity, that's quite different than a lot of the other streamers streaming players who are interested in two or three seasons and out in the power versus obviously goes through.

Long running hit.

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.

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 them.

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 the value.

And he and his team have created.

Transforming.

Starz into a really a modern global screamer.

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

At 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 you would like to ask a question Press Star then one to join the queue.

Okay.

Yeah.

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.

Yeah.

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

Okay.

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