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Lions Gate Entertainment Corporation (LGF.A) Q3 2024 Earnings Call Transcript

Lions Gate Entertainment Corporation (LGF.A)

Q3 2024 Earnings Conference Call

Company Participants

Nilay Shah - EVP, Head of Investor Relations

Jon Feltheimer - CEO

James Barge - CFO

Jeffrey Hirsch - President & CEO, Starz Entertainment LLC

Adam Fogelson - Incoming Motion Picture Group Chairman

Kevin Beggs - Chairman, the TV Group

Jim Packer - President, Worldwide TV and Digital Distribution

Michael Burns - Independent Director

Conference Call Participants

Barton Crockett - Rosenblatt Securities

Steven Cahall - Wells Fargo

David Joyce - Seaport Research Partners

Thomas Yeh - Morgan Stanley

Alan Gould - Loop Capital

Jim Goss - Barrington Research

Presentation

Operator

Good afternoon, everyone, and welcome to the Lionsgate Third Quarter 2024 Earnings Conference Call. [Operator Instructions].

At this time, I'd like to turn the floor over to Nilay Shah, Investor Relations. Please go ahead.

Nilay Shah

Good afternoon. Thank you for joining us for the Lionsgate Fiscal 2024 third-quarter conference call. We'll begin with opening remarks from our CEO, Jon Feltheimer, followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call up for questions.

Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group, Joe Drake, as well as Incoming Motion Picture Group Chairman, Adam Fogelson; and President of Worldwide TV and Digital Distribution, Jim Packer. And from Starz, we have President and CEO, Jeffrey Hirsch; CFO, Scott Macdonald; and President of Domestic Networks, Alison Hoffman.

The matters discussed on this call include the proposed business combination of our Motion Picture Group and television studio segments and our film and television library with Screaming Eagle Acquisition Corp. to launch Lionsgate Studios. We urge you to read the relevant materials that we and Screaming Eagle have filed with the SEC, including in our Form 8-K filed on December 22, 2023, and a registration statement on Form S-4 filed with the SEC on January 5, 2024.

The information in the prospectus or proxy statement is not complete and may be changed. You can find these materials in other documents filed with the SEC free of charge at the SEC's website, www.sec.gov or on our Investor Relations website.

Matters discussed on this 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 result of various factors. This includes the risk factor set in Lionsgate's most recent annual report on Form 10-K as amended in our most recent quarterly report on Form 10-Q filed and in the S-4 filed with the SEC.

The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

Moreover, Lionsgate, its subsidiary, LG Orion Holdings, our directors, executive officers, and certain other employees and other persons may be deemed to be participants in the solicitation of proxies from shareholders of Screaming Eagle in favor of the proposed business combination under SEC rules. Information about participants and their direct and indirect interests are included in the prospectus or proxy statement and the other relevant documents filed with the SEC as available. No offer to sale or solicitation of an offer to buy securities will be made except pursuant to an effective Form S-4 or an exemption.

I'll now turn the call over to Jon.

Jon Feltheimer

Thank you, Nilay, and good afternoon, everyone, and thanks for joining us. We just reported another strong quarter and the performance of our businesses in the quarter gives us confidence that we can continue to deliver the growth that our investors expect while keeping our balance sheet strong.

Turning to the quarter's highlights, we celebrated the holidays the Lionsgate way, working through the end of the year to close two transactions and launch a third. We closed the acquisition of eOne from Hasbro, increased our equity investment in 3 Arts, and took a significant step towards the separation of Lionsgate and Starz by announcing Lionsgate Studios as an independent, publicly traded, pure-play content company.

Our motion picture group finished the year strong with over $1 billion at the worldwide box office for the first time since 2019, led by the reinvigoration of our Hunger Games franchise. We continue to develop and produce great and television properties with a half-hour comedy, Extended Family, off to a good start on NBC; production beginning on a Seth Rogen comedy for Apple TV plus in March; and Spartacus, preparing to start shooting in New Zealand for Starz. This makes 10 films and television series entering or resuming production in the quarter.

Starz had another strong quarter, gaining 700,000 North American OTT subscribers and more than 340,000 overall net North American subscribers. This subscriber growth, coupled with Starz recent rate increase, drove revenue and ARPU growth as well. All of these gains rolled up into a strong financial quarter with our key financial metrics exceeding estimates.

With the fiscal year tracking in line with our guidance, we're looking at consolidated adjusted OIBDA growth of 20% year over year with our operations fully funded from our own balance sheet as we continue to throw off positive free cash flow and reduce our year-over-year leverage by nearly three-quarters of a turn.

Against the backdrop of an uncertain economy, geopolitical turmoil, the aftermath of two strikes and continued industry disruption, we continue to navigate the headwinds in our environment by leaning into the diversification of our businesses and the resilience of our culture to move the company forward.

Now let's recap each of our three business segments in the quarter. Our Motion Picture Group had a great quarter on the strength of The Hunger Games: The Ballad of Songbirds & Snakes, which grossed nearly $350 million worldwide. The lift that gave to the library performance of previous Hunger Games titles strong ancillary market performances from John Wick: Chapter 4 and Saw X, and a robust contribution from multi-platform titles, our motion picture business is tracking towards its best fiscal year segment profit performance in eight years.

Looking ahead, with fewer wide theatrical releases industry-wide due to the strike, we see an opportunity to grow our share of the market, with a slate of 12 wide theatrical releases and approximately 40 multi-platform and director streaming titles in fiscal '25. It's a diversified slate with strength across a broad spectrum of films, built on efficient production, strong international licensing pre-sales, and cost effective marketing.

It demonstrates our confidence that moviegoers will continue to return to theaters for quality, commercial films, while also showing the continued growth of the day-and-date early pay VoD, hybrid and other multi-platform spaces that will become an important part of our business.

We were also busy in the quarter, deepening our portfolio of franchises with the signing of John Wick filmmaker, Chad Stahelski, to direct and create Highlander franchise, wrapping principal photography on the John Wick action spin-off, Ballerina; and starting production on Michael, the definitive story of Michael Jackson produced by Oscar-winning producer, Graham King, and directed by Antoine Fuqua, the Training Day and Equalizer filmmaker.

I visited the set of Michael here in Los Angeles last week and came away more convinced than ever that it will be an exciting and important tentpole on our fiscal '26 slate and a very special property.

Turning to television, the acquisition of eOne continued to diversify our business. We integrated more than 6,000 new titles into our library and added series like the Evergreen franchise, The Rookie, Yellowjackets, The Recruit, and A Gentleman in Moscow to our slate. The acquisition of eOne has also allowed us to restructure our unscripted business into Lionsgate Alternative Television, combining five Lionsgate and eOne labels to increase our scale, enhance our efficiency, and lower our costs.

Our increased equity investment in 3 Arts expands a partnership that has become a pillar of our talent strategy and an important source of series like Mythic Quest; The Serpent Queen; and the sexy new thriller, The Hunting Wives, starring Billions' Malin Ackerman, which will soon enter production for Starz. With the strikes over, we expect a strong growth year from 3 Arts.

I want to reflect for a moment on the growth and diversification of the television business we've built. 10 years ago, nearly all of our television profits came from our core premium scripted business. Today, our contributions are spread across scripted, unscripted, talent management, syndication, and international productions, enabling us to navigate downturns in any one part of the business and one of the reasons we're continuing to track towards record television group segment profit this year despite the strike and several series cancellations.

Looking at Starz, its transition to streaming continues, with 70% of its revenue expected to be digital by the end of fiscal '25; its domestic OTT subscriber growth accelerating with a corresponding increase in revenue; its core series performing strongly as part of a content offering supercharged by the addition of pay-one and pay-two movies; and its resources concentrated exclusively on domestic growth as it continues to operate as a valuable and consistently profitable premium service in a highly disrupted world.

To drill down on the quarter, the balanced slate of originals and movies from Starz' pay-one and pay-two deals combined to drive its best domestic OTT subscriber growth in three quarters. As demand for movies on SVOD services continues to grow, with a recent consumer survey citing movies as the most valuable part of the streaming experience by a wide margin, Starz has capitalized on the opportunity to return to its roots by ramping up its slate of quality, world-class features from 13 in fiscal '23 to more than 35 in fiscal '25.

In the coming months, Starz will offer a compelling mix of tentpole originals like BMF, Ghost, and Raising Kanan; and newly acquired series like the psychodrama, Mary & George, starring Julianne Moore; and Three Women, starting Shailene Woodley, along with movies like Lionsgate Saw X and Hunger Games: The Ballad of Songbirds & Snakes; as well as Universal's Oppenheimer, Fast X, and M3GAN.

Even Starz' core series continue to excel and its readying great new properties with the reimagining of one of its biggest original hits, Spartacus and House of Usher and the Hunting Wives; while continuing to expand the world of Power and Outlander. The Outlander prequel, Blood of My Blood, is currently in production....

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