Q1 2025 Lionsgate Studios Corp Earnings Call
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Speaker Change: I would now like to turn the conference over to Neal Shah head of Investor Relations. Please go ahead. Good afternoon. Thank you for joining us for the Lionsgate Studio Corp, and Lionsgate Entertainment Corp. Fiscal 2025 first quarter conference call will begin with opening remarks from our CEO, Jon Feltheimer, followed by remarks from our CFO.
Speaker Change: Jimmy barge after their remarks, we'll open the call for questions also joining us on the call today are Vice Chairman, Michael Burns COO, Brian Goldsmith Chairman of the television group, Kevin Beggs Chairman of the motion Picture Group, Adam Fogelson, and President of worldwide television and digital distribution, Jim Packer and from Starz, we have president and CEO of <unk>.
Speaker Change: Free Hirsch CFO, Scott Macdonald and president of domestic networks Allison Hoffman the matters discussed on the call also include forward looking statements, including those regarding the performance of future fiscal years, such statements are subject to a number of risks and uncertainties actual results could differ materially and adversely from those described in the forward looking statements as a risk.
Speaker Change: Bolt of various factors. This includes the risk factors set forth in our public filings for line feed Studios Corp, and for Lionsgate Entertainment Corp. The companies undertake no obligation to publicly release the results of any revisions to these forward looking statements that may be made to reflect any future events or circumstances I will now turn the call over to John.
John: Thank you Neil and good afternoon, everyone. Thank you for joining us and.
John: In an operating environment of unprecedented industry disruption that touches every part of our business. We delivered a solid quarter in spite of soft results from our television segment, primarily due to some residual impact from the strikes as well as a heavily back loaded year.
John: Our motion picture group exceeded financial expectations, Our library turned in another strong performance and stars achieved domestic OTT revenue and subscriber growth over the prior year quarter.
John: There are things in our environment over which we have little control the impact of disruption on our buyers and distributors market volatility and the long tail of the strikes and the pandemic.
But there are also a number of things we can control and today I want to talk about for in particular.
John: First executing our strategic plan.
John: The separation of our studio business and stars will allow our two companies to pursue the strategic agendas that are right for them in the current environment scaled their respective businesses and focused investor intention on what makes us special and unique within their own ecosystems.
John: Over the past several months, we've generated strong momentum towards full separation raising over $300 million in gross proceeds from equity financing completing our bond exchange agreement to strengthen their respective stars and studio balance sheets and closing of $340 million of IP back facility that is primarily collateral.
John: Realized by the one library and.
John: In addition, as we said on our last earnings call. A special Committee of the board is formed to evaluate and recommend to the full board whether a collapse of the company's dual class share structure would be in the best interest of our shareholders and if so advise on the appropriate structure for putting it into effect.
John: Special Committee concluded that a single class of stock is in our shareholders' best interests and recommended collapsing our two classes into one with a 12% exchange premium for the shareholders.
John: This board approved proposal, which will be included in the proxy statement that will be filed in connection with the separation and voted on by the shareholders of both classes of stock is another critical milestone in achieving full separation by calendar year end subject to the timing of normal regulatory approvals.
John: Second, creating great content and adapting our portfolio of world class IP and franchises.
We continue to put together a theatrical release slates driven by three to four Tentpoles a year beginning in fiscal 'twenty six in the quarter, we announced that we will adapt Suzanne Collins next hunger games book Sunrise on the reaping into a major motion picture for release on November 22026, we're wrapping.
John: Principal photography on Graham King and Antoine Fuqua, Michael Jackson biopic.
John: Putting the finishing touches on the John Wick spinoff ballerina.
John: Starting production on Ruben Fleischer as new installment of the now you see me franchise and Francis Lawrence is adaptation of Stephen King's The long walk and readying chats to health skis Highlander for a production start early next year.
John: And TV in a year with 70% of scripted deliveries scheduled for the third and fourth quarters. The good news is that nearly all of these series are already ordered in production and on schedule.
These shows include signature big shows like Spartacus House of Asher and the hunting wives for stars Seth Rogen, the studio for Apple TV, plus and the seventh season of the rookie for ABC and.
John: And new business has picked up significantly with a total of 15, New series ordered and current series renewed two network pilots picked up and more than 30 projects sold into development at Starz, our content performed well in the quarter with ghosts season for opening to over $6 5 million multi platform.
John: Viewers in its premier week, and achieving strong in season growth with.
John: With raising kanan in outlander engaging both of our audience cohorts in the back half of the year and with a rate increase rolling out in Q2, we expect to resume sequential quarter North American OTT subscriber growth in Q3 looking ahead to our fiscal 'twenty six slate, we will continue to execute on our <unk>.
John: Focused content strategy in which we are complementing our returning Tentpole series with high profile New series like the hunting lives Spartacus the outlander prequel blood of my blood an array of female focused third party acquisitions and a strong slate of studio features third creating busy.
John: MS models that generate new areas of growth by rolling out a suite of Lionsgate fast channels, including movies sphere. The first fast channel to be rated by Nielsen and 50 cent action in partnership with Curtis 50 cent Jackson, we're controlling and monetizing opportunistic windows that together with our <unk>.
Dod business generate over $100 million in annual revenue Starz to strong core demos make it a bundling partner of choice in its wholesale and direct to consumer businesses.
John: This afternoon I'm pleased to announce that stars and Britt box. The BBC studios owned streaming service are launching a new bundle next quarter to offer their respective apps directly through starz dot com by leveraging its advanced tech stack, starz and enabling the creation of a compelling and complement.
John: Free offering that pair stars hits like Outlander in the surf and Queen with Brit boxes unmatched collection of original series, such as Viera, Shetland and Blue lights, alongside iconic library classics, like Downton Abbey, and killing Eve at a time when our traditional buyers of being disciplined around their budgets.
John: Our television group is pivoting to shows with efficient business models in production for new buyers like the rainmaker for USA, two new series for Hallmark and an array of international co productions, increasing our universe of potential buyers by as much as 50%, we announced during the quarter and a former Caa and bad robotics.
John: Decorative Brian Weinstein had been named co CEO of our leading talent management and production company three Arts Entertainment and strategic advisor to the office of the CEO at Lionsgate.
He joins co CEO, Michael Rotenberg, and the other three arts partners and executing a focused and accelerated growth strategy to extend three arts into new areas of representation under our new motion picture group leadership, our global products and experiences group is expanding its portfolio of properties.
John: And accelerating the monetization of ancillary and derivative opportunities for our franchise properties.
John: With 13 Broadway shows in the pipeline, including adaptations of some of our most important IP <unk>.
John: Exciting progress towards the launch of our John Wick AAA game, a new John Wick experience opening soon in Las Vegas, and a number of high profile licensing initiatives in the works, we expect to begin seeing a meaningful uptick in revenue later this year.
John: And finally cutting costs.
John: Lionsgate is already one of the leanest companies at scale in the media business.
John: But here are just a few of the things we're doing to become even leaner and television we're reducing the number of combined Lionsgate and E. One producer deals by 70% with $30 million in projected annual savings.
John: As we complete the integration of E. One, we're reducing G&A and remain on track for our operational and financial targets.
John: Within our motion picture group, we are flattening the organizational structure and reallocated overhead from noncore activities to support the ramp of our film output with a laser focus on marketing and distribution expenses.
John: In our real estate operations, we've consolidated offices and expect to reduce lease expenses by 30% on a pro forma basis over a three year period.
John: And we're currently analyzing AI applications to our business and everything for more efficient library utilization and production and marketing benefits to broader G&A efficiencies in order to continue to take cost out of the business.
John: In closing there are many reasons why I remain bullish about the long term prospects of our business.
John: The domestic box office is rebounding just as we prepare one of our strongest film slates for fiscal 'twenty six.
John: Our television group continues to lean into its portfolio of companies to generate content for old and new buyers alike. Starz has grown its north American OTT subscribers and revenue from the prior year quarter increased our pool decreased churn and remained profitable as it continues its track.
John: Zishan to a predominantly digital future.
John: Three arts as a talent management and production leader with a strong growth trajectory ahead of it.
John: And we're continuing to put together all of the pieces for a value defining separation of the studio and stars by the end of the calendar year.
John: I would note that in terms of our financial projections for the year, we have some ground to make up after the first quarter and are Backloaded slates leave us less margin for error than usual.
John: However, amidst this disruptive environment.
John: The one thing you can be sure of is that we will continue to adapt pivot and innovate in order to meet our challenges and create value for our shareholders.
John: Now I'll turn things over to Jimmy.
Jimmy: Thanks, John and good afternoon, everyone I'll briefly discuss our first quarter financial results and provide an update on the balance sheet for the quarter landscapes consolidated revenue was $835 million adjusted OIBDA was $105 million and operating income was $19 million.
Jimmy: <unk> revenue was down 8%, while adjusted OIBDA was up 22% year over year reported fully diluted earnings per share was a loss of 25 cents per share and fully diluted adjusted earnings per share was a positive nine cents per share net cash flows used in operating activities was 159 million while use.
Jimmy: Adjusted free cash flow for the quarter was $89 million notwithstanding some of the strong industry headwinds affecting TV. We are reiterating our previously announced fiscal 'twenty five adjusted OIBDA outlook for the studio and stores starting with studio we continue to forecast adjusted OIBDA, which we differ.
Jimmy: Fine as studio segment profit less corporate G&A to be $430 million, however, with a slower than anticipated post strike recovery of our TV business and inherent variability in our TV releases over the remainder of the fiscal year. We recognize we have a larger task in front of us.
Speaker Change: As John noted in his prepared remarks, we're already proactively taking several steps to adapt to the changing environment and we will continue to provide updates on our studio outlook as the year progresses regarding starz outlook. We continue to anticipate that the north American business will generate 200 million.
Speaker Change: Adjusted OIBDA in fiscal 2025.
Speaker Change: Now, let me briefly discuss the fiscal first quarter performance of our studio and media networks businesses compared to the previous year quarter, starting with the studio business quarterly revenue declined 6% year over year to $588 million, while studio adjusted OIBDA declined 6% to 50.
$8 million Trey.
Speaker Change: Trailing 12 months library revenue of $882 million was largely in line with past years Q1, trailing 12 months revenue as organic library strength and two quarters of <unk> Library contribution largely offset the benefit of Shits Creek in last year's number.
Speaker Change: Breaking down the studio business, let's start with motion Pictures motion picture revenue for the quarter was $347 million. While segment profit was $86 million revenue expectedly declined on a difficult comparison to last year's favorable theatrical release of John Wick.
Four while segment profit was up 24% due to lower P&A spend in content amortization.
Moving on to television quarterly television revenue of $241 million was up 10% year over year with contribution from me ones. The rookie season, six and a gentleman in Moscow segue.
Speaker Change: Segment profit of $11 million was down year over year due to the strikes lingering impact on both episodic deliveries and our scripted and unscripted businesses as well as commissions and our talent management business.
<unk> networks quarterly revenue was $350 million and segment profit was $58 million.
Speaker Change: Revenue was expectedly down year over year due to the exit from substantially all of our international markets, which was largely completed over the course of fiscal 2024.
Speaker Change: With the exit from the UK complete Starz is exclusively focused on the strength of its north American business as.
Speaker Change: As such our focus my comments today on Starz, North American financial performance and subscriber trends quarterly North American revenue of $345 million was up 1% year over year on growth in OTT subscribers and an increase in our pool starz will be implementing a $1 price increase across the U S subs.
Speaker Change: Scriber base in the next few weeks, which we expect to further drive <unk> and revenue growth.
Speaker Change: With American segment profit of $59 million was up 54% year over year, driven by lower original content amortization, partially offset by higher pay one film costs looking briefly at subscriber trends Starz ended the quarter with $13 2 million North American OTT subs up six.
Speaker Change: <unk> year over year.
Speaker Change: We ended the quarter with $21 3 million total North American subscribers, which represents a sequential decline of 500000, primarily due to the decline in linear now let's take a look at the balance sheet. We ended the quarter with $2 billion of net debt at the consolidated company, which reflects reductions in net debt.
Speaker Change: Debt to $1 4 billion at studio and 625 million at Starz. The $2 billion net debt level includes the proceeds from the landscape studios capital raise as well as the quarters use of cash stemming from the post strike increase in content spend excluding adjusted OIBDA from exited.
Landscape, plus territories and inclusive of the $60 million of projected run rate contribution from E. One both consolidated landscape and Standalone Lions Gate Studios leverage was three nine times, while Standalone stars leverage declined to two eight times on positive adjust.
Speaker Change: Free cash flow.
As we prepare for full separation by the end of calendar year 2024, we continue to make progress on establishing the standalone capital structures for both landscape studios and stores.
Speaker Change: Subsequent to the end of the quarter, we closed a $340 million of IP backed loan facility supported by the E. One library.
Speaker Change: This facility is favorably priced sofa, plus 225 basis points and travels with the landscape studios upon separation.
Speaker Change: Coupling this financing with our previously announced bond exchange further demonstrates that we can attractively round out remaining refinancings at Starz and Lionsgate studios in conjunction with the full separation the bond exchange allows $325 million of five 5% coupon bar.
Speaker Change: Hans do in 2029, the stay at Starz, while the remaining bonds will travel to the studio at a 6% coupon with an extended maturity to 2030 crew.
Speaker Change: Creating a balanced allocation of attractively priced fixed rate long term bonds across both capital structures.
Speaker Change: Looking forward to the remainder of fiscal 'twenty five as.
Speaker Change: As we noted before we continue to forecast that the consolidated company's adjusted OIBDA and adjusted free cash flow will be second half weighted driven by a significant increase in TV deliveries post theatrical slate cash flows starz price increase and a return to OTT subscriber growth.
Speaker Change: However, the second quarter is expected to include six wide theatrical releases, which will result in an increase in P&A. While stars is expected to have higher content amortization related to the timing of originals pay one and pay two releases.
Speaker Change: As such we expect leverage at both landscape Studios and stars to increase in second quarter before returning to levels closer to three times by the end of the fiscal year.
Speaker Change: Now I'd like to turn the call over to knee life for Q&A.
Jami: Thanks, Jami operator can we open the call up for Q&A.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys is that anytime Youre question has been answered and you would like to withdraw your question. Please press star.
Jami: Thank you.
Jami: At this time, we will pause momentarily to assemble our roster.
Speaker Change: First question comes from Thomas <unk> with Morgan Stanley. Please go ahead.
Thomas: Thanks, so much.
Thomas: I wanted to touch base on the TV and deliberate comments there has certainly been a lot of moving industry pieces from your buyers and then ongoing focus on rationalization I know there is a strike timing element to it as well as that is the former component of that driving anything in terms of how it's impacting your discussion.
And can you maybe just talk a little bit about what youre seeing in the industry landscape in terms of the buyer appetite for from the orders.
Speaker Change: Kevin Nice thing that's a great question.
Kevin Nice: The post strike hangover was longer than I think than anyone expected.
And in the scripted side, particularly once the strike was over then you have then you start writing so theres another two month lag behind.
Kevin Nice: But what we're seeing in the development side is a pretty robust demand for our product. There is more financial discipline about the budgets that are going to be commissioned but we sold 37 new projects subsequent to the strike that's a record for us and I think indicative of demand, but we're also shooting all over the world finding variable price point.
Kevin Nice: To help manage the profitability aspects, which all the streamers are really focusing on in this kind of post strike correction era.
Kevin Nice: 0.2, I think is going to be ongoing demand, but for a for a lot of flexibility about pricing budget and above all great creative because it has to stand out.
Kevin Nice: Crowded market.
Speaker Change: Okay. That's helpful and for Jeff I think John mentioned, an expectation for a return to star sequential OTT subscriber growth.
Speaker Change: Given the current landscape and the maturity of the streaming market and a price increase in the works what gives you confidence in that maybe talk a little bit about the slate and what you're seeing to date in the month of August yeah. Thanks for the question Thomas.
Speaker Change: John talked about.
Speaker Change: Implemented a rate increase this quarter. So there'll be continued pressure on subs this quarter, but as we turn to the back half of the year in quarters, three and quarters four it's our strongest slate in terms of original got Outlander <unk> be coming back we've got <unk> coming back on we've got a really robust slate of pay one movies from Lionsgate and pay too from universal and so probably our strongest slate part of the year.
Speaker Change: We also have the holiday period in there, which our partners are really working with US in terms of offers together and so it's a really robust opportunity to grow the business in the back half of the year. So we feel very confident that we'll have healthy OTT growth in quarters, three and quarter four and we also will come out of the year with revenue growth for the year.
Speaker Change: Thanks, so much.
Speaker Change: Thanks, Thomas operator can we get the next question. Please.
Speaker Change: The next question comes from Steven Cahall.
Speaker Change: As Fargo. Please go ahead.
Steven Cahall: Thank you, Sir John and Jimmy you both mentioned some of the fiscal first quarter softness that you need to recover from first could you just be a little more clear about what they can come together in the quarter that you expected I know some of the TV deliveries were lighter on the ice.
Steven Cahall: Suspected that was timing, but maybe there is some bigger kind of industry trends that youre seeing and you. Both mentioned some adaptation that the company is making could you be a little more clear about what sort of benefits from those adaptations. We can see to help you get to the studios guidance that you've given for <unk>.
Steven Cahall: For the year.
Steven Cahall: And then <unk>.
Speaker Change: Jimmy could you just spend a little more time on the IP backed loan facility with the <unk> content do you have an opportunity to do something with the rest of the library.
Speaker Change: That would be attractive vis vis some of your other debt structures and why not consider that.
Speaker Change: And then lastly, anything in particular that Youre seeing on the library side, a pretty good library revenue number, but just curious on any longer term trends in licensing and library.
Speaker Change: Sure look in terms of the quarter, we are feeling the impact as noted above kind of more extended a little deeper impact of the strike so definitely if affected deliveries.
Speaker Change: That's timing we had some cancellations, it's more than just timing right. So a little deeper impact, but we feel good about where we are in our past.
Getting back to our number we got to work cut out for us over the next three quarters.
Speaker Change: And the second quarter in particular, we got a great film release coming up so we got six releases coming up but it'll be heavy up on P&A. So you would expect trailing 12 months EBITDA.
Impacted by that storage has some increased.
Speaker Change: Amortization based on the timing of.
Speaker Change: Originals in the paywall and pay to window and so as you go to the cadence and you move into the back half of the year into Q3, and Q4, you'll start to see the bounce back.
Speaker Change: Off the strike episodic deliveries, increasing we have almost doubled the number of of scripted episodic orders in the second half of this year coming up in TV relative to the prior year and obviously then we get the benefit of the second quarter Phil.
Film releases coming forward as well as on the Starz side, returning to the OTT growth as Jeff mentioned.
Speaker Change: As well as strong content in the back part of the year and the benefit of increased <unk> and a price increase so.
There we go we execute and head towards these numbers.
Your second part of your question was with regards to the IP facilities that actually Jim Packer answer the question about library and talk about sort of the environment for library in our library specifically.
Steven Cahall: Hi, Steven.
Steven Cahall: We are experiencing as you can see with our AI Asics trailing 12 months continued strength.
Steven Cahall: The portfolio has gotten much better with <unk>. One we have the rookie we really didn't have a great procedural in our library now we do.
Steven Cahall: We also as John mentioned to have a really robust fast and kind of Avon.
Steven Cahall: Self directed publishing business, that's well over 100 million now so we're I think we're finding that this portfolio approach is really working I think if you look at any of the top streamers youll see one or two of our titles in the top 10 on every single platform and I think thats the key to the diversity of our library and the fact that everybody is really continuing to to.
Steven Cahall: New business with us and want to do business with us.
Steven Cahall: Yes.
Speaker Change: And in terms of adaptation to I am not sure what you're referring to there certainly are Kevin and his TV team are out in the marketplace right. Now I think you can expect to see some pretty exciting announcements about adaptation is the word you used in terms of our TV business in regard to our franchises, but I would also add.
Speaker Change: That Adam Fogelson is really taking charge of our games product and experience group and that's an area I think Adam you might talk a little about how we're pushing earlier monetization and what we're doing in that area.
Adam Fogelson: The group has been doing thanks, so much John the group has been doing a lot of great development work over the last few years, but it's time to put the pedal down and start monetizing and the only reason to do that is because the content deserves it.
Speaker Change: I think John mentioned in his remarks 13 shows that are preparing for Broadway a number of them should be coming in the next 12 months to 18 months, we're seeing huge momentum on the game side, we mentioned the John Wick AAA games, specifically, but a number of our properties. The fans are asking us to interact with those properties and much more significant ways and on the games.
Adam Fogelson: Side, both in the console world and in the online World There are a lot of opportunities there.
Adam Fogelson: So we do think that theres going to be.
Adam Fogelson: Meaningful increases in revenue and contribution coming starting in this fiscal year and then growing over the course of the coming years.
Speaker Change: That Stephen answer your question well coming coming back to your question on the IP facility Stephen.
Yes, thanks for noting we did $340 million.
Speaker Change: Primarily off the <unk> library, and very efficient pricing as I noted. So yes, you should expect us to see continuing that as you know the benefit of that is is that travels with the studio. So you put that next to the bond exchange and significant amount of the debt and capital structure already staffed already established.
Speaker Change: For both studio and stores, so I'm highly confident we can come back in.
Speaker Change: Take the asset rich.
Speaker Change: Aspect to the studio balance sheet and do more IP facilities in ABL ultimately to take out the bank lines at the time, a full separation and then it'll stars misunderstood asset. There is significant cash flow is very visible there you've got 325 billion of bonds. You have 625 million net debt you put another 300 to 350.
Speaker Change: Term loan a against that and.
Speaker Change: As I said in my remarks, you are closer to three times leverage and you've got significant cash flow coming out of that over time.
Speaker Change: With effectively no cash taxes with NOL carryover is minimal cash interest of maybe $50 million a year in minimal Capex. So you got a really strong business to finance there.
Thank you.
Speaker Change: Thanks, Operator can we get the next question. Please.
Speaker Change: The next question comes from Barton Crockett with Rosenblatt. Please go ahead.
Barton Crockett: Alright, thanks for taking the question.
I wanted to understand a little bit more precisely if I can what you're saying about your expectation for.
Barton Crockett: OIBDA near term so are you, saying with the spending in the studio segment that studio OIBDA will be less in the second quarter than it was in the first quarter.
Barton Crockett: Is that what youre trying to indicate.
Barton Crockett: That's one question and then the second question is just wanting to understand a little bit more precisely the process for the split from here or do you simply just a matter of completing some filings and getting past the SEC or is there.
Barton Crockett: And then getting a vote or is there something else that has to happen.
Speaker Change: Yes, Thanks Barton.
Speaker Change: I'll take the EBITDA question first yes, we would expect.
Speaker Change: <unk> studio.
Speaker Change: Yeah, but ought to be less in the second quarter, because we have again six releases, which is really heavy up but we're excited about that on the film side. So that <unk> is going to hit immediately but then obviously that puts very strong recovery back into Q3 and Q4 are the <unk>.
Speaker Change: <unk> business will be up.
Speaker Change: <unk>.
And build throughout the year.
Speaker Change: But not enough to overcome the.
Speaker Change: Six the releases on the film side and then we have the spin so as we've said from the beginning.
Speaker Change: The back end this year is backend loaded into the Q3 and Q4. So it is playing out like that.
<unk>.
Speaker Change: We feel great about second half and we're prepared that in Q2, we will have an increase in leverage some use of cash flow again, if the cadence of the content business on the studio side.
Speaker Change: And then.
Proxy your last question in terms of timing.
Speaker Change: Spin.
Speaker Change: What we would expect as our next steps would be to file a preliminary proxy in September okay. It will be subject to SEC review once we clear. The FCC then we would be male and the definitive proxy and going for Canadian regulatory review and ultimate shareholder votes in mid to late fall as we approach and stay on track.
Speaker Change: For a tax efficient spin.
Speaker Change: Within calendar year 2024.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Martin operator could we get the next question. Please.
Speaker Change: The next question comes from David Joyce with Seaport Research Partners. Please go ahead.
David Joyce: Thank you two questions first if you could just provide a little bit more clarity on the remaining financings for our studios and stars in terms of.
David Joyce: How that's progressing when you expect to close all of them.
David Joyce: Price pocket that sort of thing.
David Joyce: I've got a second question.
Speaker Change: Yes sure David.
Yes. The next steps, we are definitely having conversations with the banks those are going very well.
Speaker Change: Again, we just closed the <unk> IP facility.
Speaker Change: Friday after fourth of July weekend, and we're moving ahead, we can do another IP facility just off of a slice of Lionsgate libraries. For example in the same way, we just did pay down some existing debt that does not move forward in the new IP facility would move forward and travel with the studio.
Speaker Change: And then of the day, you've got significant unsold whites.
Speaker Change: Valuation on the Lionsgate library, okay over and beyond the one valuation.
Speaker Change: And that provides plenty of assets with which to fully refinance probably 1 billion too if you look at our.
Speaker Change: Outstanding debt at the end of June 30, the term loan as the bes and revolver, which is effectively what you'd be refinancing and again, we've already done the bonds. So those have already been split we've already done $340 million of this IP facility. So really you got a $1 two left on the.
Speaker Change: On the studio side with plenty of assets to finance that and then you did maybe 300 to 350, a term loan a will star side and again, that's a very strong business. We've had conversations with the banks I'm very confident I don't want to.
Get out in front of things in terms of price talk but I will tell you. It is very favorable.
Speaker Change: And if one were so inclined you could swap variable back fixed right now on two year swap and pick up over 100 basis point, So I feel good about where we are.
Speaker Change: And then you had a second question David.
David Joyce: Yes. Thank you.
Speaker Change: This was a quarter with a lot of content spend catch up after the strike.
David Joyce: About the maximum level of spend that you can handle in your system.
David Joyce: I was wondering.
Speaker Change: I think this kind of.
Speaker Change: Dovetails with another question earlier, but what would the timing be on the.
Speaker Change: Deliveries from from this content spending we just saw this quarter.
Speaker Change: Yes.
Speaker Change: That starts to inform the third and fourth quarter and then pushing on into 'twenty six in terms of just strong results how were backend loaded we can always manage more content spend for the right content. Okay. But this was pretty peak expect a little bit of the same in Q2 and then.
Speaker Change: It starts to mitigate through the back end of the year settles out right around 500 million a quarter if you will.
Speaker Change: Over Q3 and Q4.
Speaker Change: And at the same time, then you start to see the cash generation from the from the TV deliveries, Okay and from the theatrical releases in Q2, you'll start to see that cash flow flowing through is very strong cash flow.
Speaker Change: In the back in.
Speaker Change: I appreciate it thank you.
Speaker Change: Thanks, David Operator can we get to your question. Please.
Speaker Change: The next question comes from Jason Bazinet with Citi. Please go ahead.
Jason Bazinet: Hi, I just had two quick questions.
Jason Bazinet: First I guess, it's been about eight months since you closed a new one and I was just curious if that gone.
Jason Bazinet: About as you expected better any surprises to the downside.
Jason Bazinet: And then my second question I know, it's not the largest business for you but.
Jason Bazinet: There is sort of a big debate in the industry about whether theatrical.
Jason Bazinet: In the U S is ever going to get back to this 11 ish billion number pre COVID-19.
Jason Bazinet: You guys have a house view on given everything that's going on in the industry and changes in windows and all of that where we ultimately settle out on the on the U S theatrical box.
Thanks.
Jason Bazinet: Hey, it's Adam happy to answer the second question first and then I'll pass the ball.
Adam Fogelson: I'm not sure that anyone is necessarily predicting that the overall box office will climb back to that $11 billion number however.
Adam Fogelson: I would also say that a lot of conversation 2345 months ago about the possibility that people weren't interested and going to movie theaters anymore has been pretty radically disproven by great content over the course of the last summer and not only has it and not only has it been sort of tent poles and franchises that have been working but smaller films as well.
Adam Fogelson: And even some that don't necessarily make it onto everyone's radar from a publicity standpoint, we had three theatrical releases.
Adam Fogelson: In the last quarter, all of which performed exceptionally well.
The Ministry Unsung hero and Strangers, we're all really really profitable in all delivered really significant margins well north of that 20% number where everyone was talking about last year.
Adam Fogelson: So we are really bullish about.
The theatrical business can do especially because we have the benefit of an incredibly.
Careful and precise and small overhead relative to the competition and are managing both the production costs and the marketing costs in a very different way and so our ability to continue to generate profits not only on the big tent pole films like the John Wick and the hunger games of the world, but also on small and mid size films that again may not generate great press headlines, but are certainly generating great rich.
Adam Fogelson: Turns for the company.
Speaker Change: Add one thing there it's John.
John Wick: What we don't know or Havent seen yet is that that is a part of the consumer base that always drove a lot of the theatrical business, which was the frequent moviegoers moviegoer once a month was about 28% of the business.
I think there is a possibility if we started getting that frequent moviegoer back I mean, the sky is the limit. This this thing could really work, but it is exciting to see the over performance of so many movies in the marketplace right now.
John Wick: And Adam and his team really are.
John Wick: Our right now in a great position, particularly going into 2006 with all of the franchises.
John Wick: To take advantage of that in terms of E. One I would say we are very pleased with E. One and not just that.
John Wick: And really the thesis for anyone was mostly about our library.
John Wick: And integrating a huge library 7000 titles, which going back to sort of the overhead.
John Wick: Question that always comes up we have added a total between lionsgate in the one to handle 7000 titles of seven people.
John Wick: That would be unheard of at any of the other studios and so.
John Wick: That part of the deal looks very solid, but there is a strategic value too.
Add to this.
Speaker Change: Integration that we're finding right now I'm going to let Jim Packer to talk a little about it yes, I think there were three things that we're really set out early on that are really proving out the right way if one is lionsgate Canada.
Jim Packer: We are now a really significant presence up there are Canadian content.
Jim Packer: Licensing business is really skyrocket has been really great for us.
Jim Packer: Second.
Jim Packer: Some of our franchises hunger games with Twilight were controlled by a one in major territories, Canada, UK, Spain, and others, we now control those and Thats, a big deal for us in our licensing business and a market in a country like Spain, we actually are having a record year through our motion picture group because we are.
Jim Packer: Controlling these franchises and then lastly, there was one soft spot in our library it was procedural or as I said earlier, but in addition to the <unk>, which is kind of a global phenomenon as far as procedural we got 20 other procedural as part of this library. So that aspect is really strong for the group and playing out nicely.
Speaker Change: That's great. Thank you for all the color.
Speaker Change: Thanks, Jason can we get the next question. Please.
The next question comes from Alan Gould with Loop capital. Please go ahead.
Alan Gould: Thanks for taking my question I've got two please one for Jeff and one for Jimmy Jeff I realize that Starz is priced a lot less lower price to the consumer than most of the other services, but everybody seems to be raising prices.
And then sort of how much.
Alan Gould: Can handle and for Jimmy.
Alan Gould: I'm curious so $200 million increase in deferred revenue at the studio this quarter. It seemed like in the real items can you just tell me what that is.
Speaker Change: Hi, Alan Thanks for the question as you look at the industry as we've said and we've always stars has always been a very complementary service, whether it's been on the linear business or in the new kind of digital business in terms of trying to be that add on or that bundled partner for all of these broad based streaming services and what we've seen over the last couple of years.
Speaker Change: And at this week that the broad based Creamers continued to raise the rates at significant levels, which gives us room to continue to raise our rate. We've just executed our second rate increase this past Monday.
Speaker Change: Look at engagement on the service in terms of our consumers with the big original and they pay one and pay two and we're seeing record engagement and so we felt like we still have room to go and so we just raise rates again, and we will continue to watch that but as long as the broad based streamers continue to raise rates and it gives us room to maintain our strategic position as complementary we'll continue to look at.
As a way to grow revenue.
And the deferred revenue represents content sales that who is like library et cetera, Who's availed dates are not ready yet so you've not been able to recognize revenue so effectively it represents future revenue.
Speaker Change: Was there one big package or something Jimmy because.
Speaker Change: Never had $200 million in a quarter before.
Speaker Change: It was more of a combination of things remember we also have the one <unk>.
Speaker Change: Integration as well, so we'll sell any one content as well.
Speaker Change: Okay. Thank you.
Thanks, Alan a pretty could we get the next question. Please.
The next question comes from getting Goss with Barrington Research. Please go ahead.
Speaker Change: Alright. Thanks.
Speaker Change: Lindsay it's always been very diverse in terms of its output size type and distribution.
Speaker Change: I have one other acquisitions I'm wondering if you might.
Speaker Change: Characterize the fiscal 'twenty five in fiscal 'twenty six output.
Speaker Change: Hi.
Speaker Change: Yeah, it's core versus TV versus direct to streaming.
Speaker Change: And the possibly of a mix of titles by size and genre.
Speaker Change: Yes.
Speaker Change: Sort of global.
Speaker Change: Characteristics might provide.
Speaker Change: Is that related to a one Jim in terms of just no no.
Speaker Change: All of your output.
Speaker Change: I just meant that.
Speaker Change: That that added into it does it tilted more to TV now in a row.
Speaker Change: Absolutely awesome.
Speaker Change: Some streaming.
Just looking at the overall output of.
Speaker Change: Releases.
Speaker Change: And then real basis for this year and next year.
Speaker Change: Yes, I think we're pretty much when you look at the kind of the studio side of things $3 billion plus of revenue, it's fairly well mixed it'll bounce period to period, depending on the number of theatrical releases. So it's pretty well mixed on the one side, it's going to be more heavily heavily weighted towards TV.
Speaker Change: I would say probably 80%.
Speaker Change: In fiscal 'twenty, five would be TV related.
Speaker Change: More like less than 20% on the motion picture side motion picture was a little heavier on a percentage in Q1, because we had Arthur with some other things we were integrating but.
Speaker Change: Really the bigger piece of the ones going to be other TV product and library sales related to that.
Speaker Change: <unk>.
Speaker Change: But also in terms of the total total film releases for example.
Speaker Change: You probably have it.
Speaker Change: Maybe as many as a dozen one year or the next in terms of theatrical but should also have a lot of others.
Speaker Change: Uh huh.
Speaker Change: So.
Speaker Change: Direct to streaming or some other output.
Hey, it's Adam I'm happy to try to answer that question I mean, what I would say is this.
Speaker Change: John and I have gone over the development slate and looked at the strength of the franchises that we have both franchises that we have already been thriving with like John Wick and hunger games and also franchises that were building John mentioned Highlander really evolving now you see me to the next level developing monopoly with Margot Robbie.
Speaker Change: <unk> and her and her terrific company working on narrow so all of those projects. So I think that youre going to see three to $4 <unk> per year, starting in fiscal 'twenty, six where probably it was one or two in prior years.
The balance of the slate and we will have 12 to 15 or more wide releases of various kinds will be made up of the types of films that you've seen over the course of the last year small and mid sized films.
Speaker Change: In genre as the company has thrived in in the past are continuing to work with top flight filmmakers Francis Lawrence is excited to be working with us on the next hunger games movie as he has the prior three but he is also excited to be developing a much smaller film, but one that we're really excited about the long walk, which John mentioned in his remarks, so we're really thrilled with.
Speaker Change: The quality of talent, both in front of and behind the camera that want to work here and our ability to deliver both on tent pole films, but also on the small and mid sized films.
Speaker Change: It can be incredibly artistically satisfying, but also generate a real return for the company is something that I think we're uniquely positioned to be able to do I think.
Speaker Change: Again, if youre trying to get sort of a broader perspective, I would say as we get.
Speaker Change: <unk> passed all of the strike related delays youll start looking at what has been a typical.
Speaker Change: Alliance Gabe portfolio of motion pictures of around 10 to 12 wide releases, another 30 plus <unk>.
Speaker Change: Direct to video multi platform et cetera between TV and film I think youre going to see actually growth.
Speaker Change: Both of the revenues in both of those business and Theyre actually pretty equivalent bill there'll be very close to each other this year there'll be very close to each other with growth in both areas next year. So if that's the kind of thing you're looking for that.
Yes.
Speaker Change: That's what it will look like from a macro level.
Speaker Change: Okay, Yes.
Speaker Change: One other thing.
The stars and Britt box steel you mentioned that sounded interesting.
Speaker Change: Are they.
And they basically creating content some of the U S content going into their platform and vice versa and is that a template.
Speaker Change: Stars might use to expand its franchise without actually have.
Speaker Change: Those international.
Businesses that started to go into and then backed out of.
Speaker Change: Yes, Jeff we're really excited about this partnership obviously, we focus on two core demos and grey Fox and stars really overlap in their programming in those two core demos and we've been able to use I would say our world class Tech out of our group in Denver, and our tech stack and our App to actually build this offering through the Starz app through Starz Dot com.
Speaker Change: Very simple and frictionless way for the consumer to put both products together. It's also a way to get more content that both of our consumers want together and so we will look to do more of that with our technology. We are having conversations with other players that align with our programming strategy to really build out the portfolio and to drive churn down in.
Speaker Change: Make the whole business better for both of us.
Speaker Change: Okay. Thanks very much.
Speaker Change: Thanks, Tim operator can we get the last question. Please.
Speaker Change: Last question comes from Matthew Harrigan with benchmark. Please go ahead.
Oh, thank you.
Speaker Change: Not so much content, that's readily adaptable and even had some built in pull demand.
Speaker Change: Games, maybe even over a period of time and it's certainly one of the growth.
Speaker Change: Media, but it could be a difficult business.
Speaker Change: Star Wars example have had issues.
Speaker Change: Working with publishers, how engaged are you in the queue.
Speaker Change: Create a process for the hunger games.
To make sure that it's not the lion's gate quality and are you also looking more at mobile games and <unk>.
Speaker Change: Free games, because these awful lot of interest in that in that.
Speaker Change: I just wanted to get your observations on the on the learning curve so far.
Speaker Change: Finally, thank you sure no happy to this is Adam I. Appreciate the question I would say importantly, our creative team is deeply involved in the creative process more importantly, the filmmakers that we've worked with to generate these great franchises are completely involved and partnered with us and making sure that we are delivering.
Speaker Change: Games and experiences that reflect the true creative essence of the franchises that we've built. So this is not something we're doing without those partners. It's something we're doing with them and we've got in literally every case across every platform and yes. We are absolutely working on with mobile games as well the John Wick franchise lends itself to experiences and opportunities across the <unk>.
Speaker Change: It is possible spectrum.
Speaker Change: And each and every case we.
Speaker Change: Have the ability to make decisions whether they are licensing deals are investment deals. So that we are making sure that we're using our capital where we believe it fits with our expertise and where it makes the most sense fitting into the overall portfolio of how we're spending our money, but our creative partners are fully engaged with us and I will tell you that the things we've seen across.
Speaker Change: Games across stage and across live experiences from a creative standpoint are really exciting to us and to the filmmaking partners that we're working with.
Great. Thank you.
Speaker Change: Thanks to everyone. Please refer to the press releases and events tab under the Investor Relations section of each company's website for a discussion of certain non-GAAP forward looking measures discussed on this call. Thank you.
Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.