Q3 2023 Lions Gate Entertainment Corp Earnings Call
Speaker 1: The John Wick franchise is set to drive outsized value across all of our businesses.
Speaker 2: In addition to John Wick, the slate includes new chapters of our Saw, Expendables, and Dirty Dancing franchises. And the Hunger Games Ballad of Songbirds and Snakes arrives in theaters in time for the holiday season with a November 17 global rollout. We're looking forward to the releases of the original new properties on our slate. Are you there God? It's me, Margaret. The retelling of Judy Blume's classic novel.
Speaker 3: Crazy Rich Asians writer Adele Lim's fun, freewheeling and raunchy directorial debut Joyride, premiering at South by Southwest. And Tim's story is The Blackening, a horror comedy in the vein of screams slated for the Juneteenth holiday weekend.
Speaker 4: And we're heading into production on Michael, produced by Bohemian Rhapsody's Graham King, directed by training days Antoine Fuqua, and starring 26-year-old Jafar Jackson, who will portray his uncle Michael Jackson in the never-before-told and in-depth portrayal of the complicated man who became the king of pop.
Speaker 5: Turning to television, we reported another strong quarter of series renewals, launches, and new series pickups. The hit comedy series, Ghosts, for CBS reached an all-time series high in viewership last week and has become the number one half-hour comedy on television.
Speaker 6: It has been renewed for a third season and is poised for a long and profitable run. The O'Haney O'Darebes comedy Acapulco has been picked up for a third season on Apple TV Plus, where our hit series Mythic Quest from Rob McElhaney has already been renewed for a fourth season, with a companion series mere mortals heading into production.
Speaker 7: PowerBook 2, Ghost, P-Valley, and B-MF. We're all picked up by stars for additional seasons during or immediately after the close of the quarter.
Speaker 8: We also continue to fill the pipeline with new series. The wildly inventive Paul T. Goldman made a splashy debut on Peacock.
Speaker 9: The critically acclaimed first project from our 1619 partnership with Nicole Hanna-Jones, Oprah Winfrey, and The New York Times, a six-part docky series on Hulu, is a reminder that great content is not only extremely valuable, but can also make a thought-provoking contribution to the national conversation.
Speaker 10: The HBO True Crime limited series, Love and Death, from the Big Little Lies team of David E. Kelly and Nicole Kidman will have its world premiere at South by Southwest next month. And Apple TV Plus recently ordered a half hour comedy series starring co-written, directed, and produced by Seth Rogen.
Speaker 11: Financially driven by three-three years of strong television slates, our TB segment profit is growing 50% this year, with similar growth expected next year. Importantly...
Speaker 12: These contributions are coming from every part of our television business. Lionsgate Television with one of its most robust slates of premium scripted series ever. 3 Arts, the number one talent management and production company continuing its very strong performance.
Speaker 13: Kilogram Media, a nonfiction leader with 21 shows on a dozen networks.
Speaker 14: And Deb Marmercury, a top distribution and syndication company that recently renewed two of its biggest syndication properties, the Sherry Shepherd Dayton talk show, and Freemantle produced game show family feud for multiple years.
Speaker 15: The value of great intellectual property grows with every prequel, sequel, spin-off, remake, and adaptation. And in that regard, I'm pleased to announce this afternoon that Lionsgate Television will produce an expansion of one of Star's most celebrated and groundbreaking original series, Spartacus.
Speaker 16: Spartacus writer and creator Steven S. DeNite will return to showrunner and executive producer.
Speaker 17: big bold and fiercely premium Spartacus adds another great stories franchise along the power verse
Speaker 18: Outlander, P Valley, and BMS franchises.
Speaker 19: Turning to stars, the streaming world is transitioning to an environment for which we've been preparing. More rational content spend, a focus on profitability instead of chasing subscribers, and greater receptivity to bundling and packaging.
Speaker 20: The bundling of Paramount Plus and Showtime, the evolution of the HBO Max and Discovery Plus offerings, and the emergence of new retailers are indicative of a landscape that plays to our strengths as a complementary, pure-play premium service with a focused content strategy — that played aStep Jimmy Carter Voice DesignDad
Speaker 21: and two valuable and scalable core demos that can sit on top of every platform and be part of every bundling and packaging conversation. In this regard, we will announce our first major domestic bundling agreement next week.
Speaker 22: Against this backdrop, we'll continue to prioritize three things. First, continuing to execute Star's focused content strategy.
Speaker 23: Stars return to subscriber growth this quarter with the launch of BMF.
Speaker 24: With season 3 of PowerBook 2 Ghosts and the long-awaited Remiable of Man Favorite Party Down, we expect our subscriber growth trajectory to continue this quarter. Looking ahead, we have confidence in a slate with over 80% returning series.
Speaker 25: strategically scheduled with tent poles every quarter, and combined with a lineup of fresh studio movies from its pay one and pay to theatrical output deals from Lionsgate and Universal respectively.
Speaker 26: Second, reducing our exposure to linear headwinds as our transition to digital continues, with 73% of star as subscribers and 64% of our revenue coming from digital in the quarter.
Speaker 27: And finally, continuing to take costs out of every part of STAR's business domestically and internationally, as we remain focused on our most important metric, profitability.
Speaker 28: In closing, our plan to separate Lionsgate and Stahrs by the end of September remains on track.
Speaker 29: Separation will give our two core businesses the opportunity to pursue strategic and financial paths that make sense for each of them. And unlock greater value by operating as pure play entities.
Speaker 30: We're exploring a number of financial strategies to leave both companies with strong balance sheets at the time of separation.
Speaker 31: With our film and television studio business, operating a full throttle and stars establishing itself in a streaming ecosystem as a complimentary bundling partner of choice.
Speaker 32: Operating on a standalone basis will give both companies a chance to shine.
Now I'll turn things over to Jimmy.
Thanks John and good afternoon everyone. I'll briefly discuss our third quarter financial results and update you on the balance sheet.
Third quarter of Justin O'Habitat was $168 million and total revenue was $1 billion.
Revenue was up 13% year over year, while adjusted to EBIT I was up 83%.
The year-over-year revenue increase reflects studio strength across both TV and motion picture, while the adjusted O'Ebidai increase reflects studio segment profit improvement at television and motion picture, as well as Landscape Plus.
Reported fully diluted earnings per share was $0.7 a share, and fully diluted adjusted earnings per share was $0.26.
Adjusted free cash row for the quarter was $30 million.
These financial results put us in position to deliver on the fiscal 23 and fiscal 24 financial outlook ranges we provided a last quarter's earnings call.
Now let me briefly discuss the fiscal third quarter performance of our studio and Media Networks businesses as well as the underlying segments compared to the previous year quarter.
Media Network's quarterly revenue was $380 million and Segment Profit was $50 million.
Revenue was down 2% year-over-year as favorable shifts in subscriber mix that drove continued OTT revenue growth was more than offset by domestic linear pressure.
Domestic revenues was down 6% year over year, while international revenue was up 46%.
Media Network's segment profit was up 74% and primarily reflects lower marketing spend, lower content expense, and foreign exchange.
As we had outlined earlier in our fiscal year, content amortization expense peaked in the first quarter and it continues to trend toward a more normalized level.
territories by the end of fiscal 2023, and the year-on-year improvement in the international segment profit reflects the progress towards our commitment to reach break-even exiting calendar year 2024. We ended the quarter with 37.2 million total global subscribers, including StarsPlay Arabia.
At excluding the subscribers in the international markets that will be exited in March, our global subscriber count was 28.7 million at the end of the quarter.
focusing specifically on our OTT subscribers in the remaining markets we We ended the quarter with 18.5 million global media OTT subscribers.
A modestly quarter sequential decline in global subscribers reflects a lighter slate of originals and pay-one titles. As John mentioned earlier, the domestic business has already returned to subscriber growth as we move into the March quarter. Now I'd like to talk about the studio business in aggregate. During the quarter, studio revenue and segment profit growth was driven by both television and motion picture. Revenue of $800.94 million was up 25% year over year, while segment profit of $148 million was up 71%.
Library Revenue for the Quarter was a record $277 million, up 55% from the prior year quarter.
On a trailing 12 months basis, library revenue at the studio was a record $845 million. Up 13% compared to the prior quarters trailing 12 month library revenue. Breaking down the studio business between motion picture and television, let's start with motion picture.
Motion picture revenue was up 5% year over year to $289 million while segment profit of $77 million is up 13% year over year on the strength of multi-platform releases such as Fall and Clorch's 3 as well as Foreign Exchange. Revenue and segment profit trends in the quarter reflect continued strength in our library.
as well as our multi and direct to platform business.
and direct a platform business. In addition, the organisation is based in relating to the
We have been preparing for the return of our larger theatrical titles over the next 18 months.
In this regard, we are already seeing success with the recent release of Plain and expect to finish our fiscal year strong with the releases of Jesus' Revolution and John Wait for.
And finally, television revenue was up 38% to $605 million, driven by continued growth and output, which included both new and returning series, as well as strong library sales, including the licensing of Schitts Creek.
Segment profit was $72 million and was up over 270% year over year, reflecting solid performance across scripted, three arts, Pilgrim and library sales.
Now let's talk about our ballot sheet. Excluding the Restructured Lines Gate Plus territories from trailing 12 months adjusted to Ibidah, leverage for the quarter improved almost a full turn to 4.7 times.
We also continue to retain significant liquidity.
with $425 million of unrestricted cash on hand and $1.25 billion of an undrawn revolver.
This level of liquidity is particularly strong after having utilized over $100 billion of cash in the quarter to reduce the amount of bonds outstanding.
In particular, we acted on a highly attractive opportunity to deliver our business by purchasing some of our unsecured bonds in the open market at a substantial discount.
As you can see from our disclosures we purchased $124 million of our bonds for $82 million representing a $42 million reduction in net debt.
Our cash position was further enhanced in the quarter with the receipt of $43 million from the partial sale of our interest in StarsPlay Arabia.
As a reminder, the cash proceeds from the Gaines on Starr's Play Arabia and Bonnary purchases were effectively tax-free as we utilize a small portion of our $1.4 billion of NOLs.
In summary, we finished a strong quarter with significant liquidity and we have no no materities until the fourth quarter of fiscal 2025.
We remain committed to strengthening our ballot sheet and continuing to pay down debt while funding our investment in content and marketing from adjusted free cash flow.
Now I'd like to turn the call over to knee-lay for Q&A.
Thanks, Jimmy. Operator, can we open the call up for Q&A?
Good thing.
We will now begin the question in the answer session.
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Our first question will come from Steven Cajal with Wells Fargo. You may now go ahead.
Thanks. Good evening, everybody. Maybe you could start by talking about what drove the uptick in the library revenue. You mentioned Schitt's Creek in there. Was that a big component of that increase or was it more broad-based, including things like AVOD rights or just TV deliveries or anything else? We'd just love to get...
and where the NOLs are going to sit. Thank you.
Sure, Stephen, I appreciate the question. First of all, in the library, Schitt's Creek was a benefit in the quarter, but it was widespread. And AVOD continues to be a growth area for us. And library sales is just great demand across the board. What I would say, too, is to remind you that URI
We also have more and more of our film slate coming online, and we effectively haven't had so much of our films refreshing our libraries in the last three years. We really have a lot coming up, obviously the John Wick and Hunger Games franchises moving into the end of this quarter and fourth quarter for John Wick and Hunger Games next year.
of the capital structures there, but what I would say is with regards to leverage. We're in a very good position. You saw we delivered a full turn this last quarter, and we're in a good position to further deliver in terms of overall cost.
And corporate overhead, I would just note that we have quietly reduced our workforce by approximately 150 full-time employees or approximately 10% of our workforce. We've done this through restructuring and managing open positions. So that boats well as we go into 24 for continuing to manage costs across the board.
I don't think I'm going to get into what we may do there. I feel very confident, though, that in separation, Stephen, that the bonds will travel with stars. If you can see, we've already started to take some steps already to right-size that, if you will, for a separation.
And we will then refinance the Terminal Nays and Bs, and we have some substantial, as you know, substantial unsold library rights on the studio side, which would facilitate that.
Thank you.
Operator, could we get the next question please? Thanks, David.
Our next question will come from Barton Crockett with Rosenblatt Securities.
You may now go ahead.
Great. Thanks for taking the questions. I guess two really. One, on the process.
Could you just give us kind of a summary of...
to this degree you can of what's advanced since last quarter, since everyone's focused on this and what kind of remains to be done for this to kind of move ahead. That's one thing. And then, secondarily, you gave us some color around star subs recovering.
I was wanting to get a little bit more kind of granular on that, and that would be
You know you said there's growth is this growth off of what we had before this quarter This is just growth off of where we exited the quarter Trying to get a sense of how much has already come back with this late kicking in
In terms of the timing of separation, we've been doing a lot of work here preparing separate financial statements, discussing matters that would relate to a reverse spin of the studio with our auditors and with the FEC.
We're on track to file our initial form 10 before the end of March. And as John has said, we will conclude separation. We're on track by the end of September .
Hey, Barnett, Jeff, however you think for the question, we had a very strong financial quarter of the use. You pointed out we had some softness and subs. We had two shows that premiered in the quarter that underperformed our expectation. A couple of dope pay-one movies which resulted in the softness. We have, as John said, in his prepared remarks. We have, as John said, in his prepared remarks.
Premier BMF, we're into one of our strongest content quarters. We've returned to growth. To answer your question, we've returned to growth as we've exited the quarter, but we do expect on a full year basis to have a really strong year based on the 10 polls per quarter and the way that we've scheduled our content for 24.
Okay, that's helpful. Thank you.
Thanks, Martin. Apryd, can we get the next question, please? Our next question will come from Cutgun Morel with RBC Capital Markets.
You may now go ahead.
Great, thanks for taking the questions. Two, if I could, first can you provide a bit more color on the restructuring charge in the quarter at the domestic media networks?
And second, as we approach this spin, it's interesting because it seems more and more investors are kind of sharpening their pencils around the studios business. So I want to ask you about motion pictures. And if you could maybe flesh out the opportunity you see ahead over there. It's been quite a few years since you had such a strong lineup. And if I go...
way, way, way back in my model to maybe a comparable year of late strength. The profit profile of motion pictures was quite attractive. So I know it's too early to get specific and we still need to see these films actually perform, but if you just provide any guardrails or call it around your expectations.
That would be very helpful. Thank you. Sure, appreciate the question. With regards to the restructuring charge on STARS, it's primarily domestic related to the curation of the domestic programming lineup.
And I would just point out that in the quarter, there were no benefits to our adjusted results as a result of the restructuring charge. And the restructuring charge was excluded from the adjusted results to help normalize the trends. I would also point out that we similarly excluded from the adjusted results.
amounts that were almost completely offsetting that, which would be the below-the-line gain on a sale of a partial interest in Stars Play Arabia, as well as the gain on the repurchase of the bond.
I can give you a little bit of, oh this is Joe, thank you for the question, I'll give you a little on the slate. So.
I want to first talk about the multi-platform and streaming business leading into our wide release slate because it's all lined up in a pretty extraordinary fashion. We've talked in past conference calls about growing our multi-platform business. That business is doubled. We've stood up a streaming business and those two businesses alone combine, cover the cost of the motion.
and what a strong contributor was. And we've been talking about this for a few calls, the actual fundamental economics of the motion picture business, the actual release had improved.
And they've improved for a number of reasons. They've improved because you can just be much more prescriptive on every dollar of PNA. You spend for a customer that comes in the door and theatrical films have become scarcer and therefore they are more valuable. And so whether it is our digital conversions which are...
some of the strongest we've ever seen, whether it's the value of our pay television, whether it's various television windows, how we window them. John mentioned moving up P-BOD. And so without giving you specific numbers, what I can tell you is the green lights that we ran the green light films three years ago.
At similar levels of box office have significantly improved.
And so we're going into this year very bullish on the trajectory of the business. Yeah, I'd say sort of to finish that thought. If you think about that Joe's what we used to call segment two business creates the foundation for the business pays for
pays for most of the motion picture group overhead. Then you put on top of that a very robust, wide release slate. I would say that we've given you an outlook for 24 that's strong. I would say we didn't put in any huge.
Grand Slam home runs and our movies, that's not to say that you should start thinking they're going to be. But I would say, when you look at that outlook, I would say that you think that's certainly an achievable outlook. And I think you could say that with big home runs.
You know, you might have a fair amount of success above that. Is that helpful?
Thank you all for the call. I really appreciate it.
Our next question will come from Thomas Yee. We'll work with Morgan Stanley . You may now go ahead. Thanks so much. One on stars for Jeff. Any more color you can share on the domestic button link agreement? Is that with another complimentary streaming service? Is the consumer price point different on a bundle basis? This is how should we kind of think about the unit economics and maybe the co-marketing approach? And then great studio results. John , you mentioned television strength across the unit and mentioned three arts as well. Any color on what you see is?
Hey Thomas, it's Jeff, thanks for the question. We've been talking for a long time about how STARZ is a great complementary bundling partner all and I think finally it's here. We're excited about it. The partner obviously is another complementary streaming partner that we're excited to go to market with and as in any bundle we will have a joint price point that's cheaper than the two individual parts to give consumer value but in exchange for lower ARPU on that business you get better churn characteristics, lower SAC and all the benefits that you would see in the bundle linear world from the past. So we're excited to kick that off, we're excited to have more down the pike and we can't wait to see how it goes.
All right, thanks. Another thing on the ethical business, there's then somewhat of an even return of content to the calendar. I'm wondering what sort of approach you're taking to the theatrical calendar in terms of how much of it offers legitimate opportunity. It seemed like there was some...
holes in the calendar last year and potentially looking forward this year there might be. Is this an opportunity for you?
You know, as I've indicated earlier, we see enormous opportunity. We've got, I believe, 12 films in this current calendar. What we're seeing, to speak to the idea of opportunity, is there aren't a lot of competitors left playing in that mid-budget space, and the economics, as I said, have improved. I can't announce it on this call.
our focus on other segments of the business, and it gives us a ton of opportunity. So where we see openings in the calendar that match with either content that we're making or content that we acquire, we'll take advantage of it. I mentioned earlier our multi-platform business. We have a title called CISU that we acquired in Toronto.
that is a movie that we acquired, think he was going to be kind of a multi-platform release. We actually seen the title, and it too offers an opportunity to leverage our infrastructure go theatrically. The economics by doing that will improve, and like any title that goes out, if the audience falls in love with it, we can have a breakout success.
Okay, maybe one other, I think we talked about this perhaps in prior calls, but are there some additional films that you intend to go more direct to streaming that might warrant a week or two?
in a theatrical window just to create greater value for you and the purchaser.
We always wanna maintain flexibility with our partners. We are building movies that are built specifically for streamers. We have conversations with them all the time about how can we add value? And are there different models that will help them and be good for all of us?
And so we would remain open to that as an opportunity. But whether we do that or not, there's an incremental leg of our business that we intentionally set out to build two years ago that's now a really meaningful contributor.
All right, thank you very much.
Thanks Jim. I probably could we get the next question please.
Sure thing. Again, if you have a question, please press star then one. Our next question will come from Matthew Thornton with two assicurities.
You may now go ahead.
Good afternoon. Thanks for taking the question. I just had a couple of housekeeping ones guys.
You mentioned Schitt's Creek license in the in the court is wondering if you're able to quantify that Secondly in the release you talked about the OTT subs and international in the remaining Markets, I think was 8.5 million. Is that meant to be?
the bedrock number, that's the go forward OTT number that we can then work off of, or is there still more to kind of come down as you normalize those markets? That's the second question. And the third question was around the John Wick AAA title that you mentioned. Does that have a home? Does that have a studio that is...
taking on that project or is that still in negotiations? Yeah, on the international side of things, excluding remaining territories, we look to finish the period right around seven million subscribers, which is what we said in the prior call.
lumpiness relative to quarter to quarter in library revenues but you know we have a lot of library and expect to fill that hole if you will as a tough comp going forward so really feel good and as I alluded to earlier we have a lot of strong film titles that will be replenishing the library.
Matthew, operator, could we get the next question, please?
The next question will come from Rich Greenfield with lightshed. Keep me now, go ahead.
Hi, thanks for taking the question. I got a couple. So just maybe the first one for Jeff, just when we think about the domestic business, which I think, you know, subscribers sort of sitting around 20 million, I know it's down sequentially, but like as we look out over the next.
know, a few years and I asked this from the context of, you know, as the business separates later this year, how should we think about what the trajectory is of that 20 million sub base? And what are the puts and takes as you look at over the next couple of years? And then I just want to follow up that earlier question on three arts.
I know it's obviously early in the process, but when you think about sort of the revenue and earnings impact of three arcs, how big of a business is this and how integrated it is into the rest of Lyon's gate meaning, are there obvious strategic people that this would fit with if you were to sell this?
Just how do we think about sort of the importance of 3R to the overall Lions Gate and how much that business is generating today? Any color would be great.
Hey Rich, thanks for the question. I think I'll start globally and work my way back into the domestic business. We think in the fiscal 25, 26 timeframe the global business should be in the mid 30s in terms of subscribers. The domestic business really continuing to pivot from
linear to OTT, so really driving profitability and, you know, swapping subs to be more digital, then they are linear. As John said in his prepared remarks, 64% of our revenue is already digital today. And then, you know, really pure growth internationally to get to that kind of mid-dirties number.
Yeah, on three are done. I appreciate the question, Rich, but I'm not going to give you that much of a color, as I say. We're just starting discussions, which essentially are both a combination of strategic discussion and I would say negotiation at the same time. So I'm not going to show you sort of all the cards in the deck if you will.
I would say in general, the color I could give you, the three arts is a pretty much standalone business in terms of its management company. Again, it's been a great opportunity for us to work able to some of their talent, but also to help build them into kind of a mini studio and they've done a great job in working really closely together. They've got...
Some shows on stars, one actually on the air, Serpent Queen, which is great. Another one that's in very advanced negotiation that we're very high on, that business and that relationship will continue no matter what. So we're going to have a lot of business together. Again, there's a lot of options in different ways.
This can play out, I think, and virtually all of them is going to be extremely positive. We're going to do it together with them as partners and just to figure out how to both extract the value we've already created and to continue to create additional value.
And maybe just to follow up on that, could you just help us understand, because everyone may not be totally familiar with three arts in terms of like its talent representation, but do they actually own the unlike, when works get created, who owns it? Like are those line-up gate control shows, are those three arts control shows, do they have direct ownership?
Just like what exactly is inside of three arcs with catalog or not would be just trying to understand it
Yeah, one of the benefits that we had for them is having, rather than, you know, sort of participations that they have with their clients as executive producers, we've made them more owners. I don't know, Kevin, if you'd like to.
expand a little bit on that. Sure, just to add to that, you know, we have four or five series together and we're really essentially co-studios. Co-owned Lionsgate continues to do the things we do really well with our talented distribution team, our creative teams that work hand in hand with their group and that really improves the overall economics in kind of long range.
participation and up-siding back in for everybody in the house including the talent clients, three arts and ourselves. So we want we have five of those we'd like to have 10 or 15 and we intend to do so. I think you could simply say on those shows I reached their shared economics.
Thank you very much.
Thank you very much. Welcome.
Thanks for it.
We have a follow-up from Matthew Thornton with true securities.
Hey guys, two quick ones, I guess, housekeeping slash follow-ups. The sale of shotgun wedding, just remind us that's fiscal 4Q this year, so I'm sure we have that right. And then just coming back to the John Wick video game title, I had access earlier, but took the vaccine to feld out the pharmacy and informed that ??????? Normally you can volunteer with the
Is that something that a studio has already picked up or are you still in negotiations with a studio to build that to build that game thanks again.
Oh, game. We are in negotiation for AAA game. We're not at the stage that we would announce. The game, I believe shotgun is... That's the third quarter. Yeah, that's the third quarter for shotgun wedding. So that was pulled forward from the fourth quarter.
Gotcha. Oh, so that was in 3Q.4Q. Okay, great. Okay. Thanks. Thanks guys. Appreciate it.
Gotcha. Oh, so that was in 3Q.4. Okay, great. Okay. Thanks. Thanks guys. Appreciate it.
Gotcha. Oh, so that was in 3Q.4Q. Okay, great. Okay. Thanks. Thanks guys. Appreciate it. Sure. Thanks Matthew.
Operator, are there any more questions? It appears there are no further questions. Just conclude our question and answer session. I would like to turn it back over to Nile Sol, 40 closing remarks. Thanks, everyone. Please refer to the press releases and events tab under the Investor Relations section of the company's website for discussion of certain non-GAB boardless measures.
Discuss on this call. Thank you and Phoenix Quirk. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.